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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)
Sheri Morris 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: 12/31/16
Item 1. Report to Stockholders.
| ||||
Annual Report to Shareholders
| December 31, 2016 | |||
| ||||
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, 2016, Series I shares of Invesco V.I. American Franchise Fund (the Fund) underperformed the Russell 1000 Growth Index, the Fund’s style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 2.27 | % | |||
Series II Shares | 2.02 | ||||
S&P 500 Index▼ (Broad Market Index) | 11.96 | ||||
Russell 1000 Growth Index▼ (Style-Specific Index) | 7.08 | ||||
Lipper VUF Large-Cap Growth Funds Index∎ (Peer Group Index) | 2.61 | ||||
Source(s): ▼FactSet Research Systems Inc.; ∎Lipper Inc. |
Market conditions and your Fund
During the year ended December 31, 2016, the US economy continued to expand. US gross domestic product (GDP) showed the US economy grew by 3.5% in the third quarter.1 However, annualized GDP is expected to be much lower. Employment data were mixed, with unemployment ending the year at 4.7%.2 Oil prices traded in a range from the high $20s to the low $50s during the reporting period.3 Major US stock market indexes posted gains for the reporting period, with most major market indexes hitting record highs; however, the markets were fairly volatile during the first half of the year.
Stocks began 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets sharply lower. Markets again recovered, and major US equity indexes hit
record highs during the summer. Following the surprise outcome of the US presidential election, a stock market rally sent major US equity market indexes to new record highs. The rally was led by financials, gaining on the belief that they might benefit from reduced federal regulation. Also in November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 – its only increase during the reporting period.4
During the year, the Fund produced a positive return, but underperformed its style-specific benchmark. The Fund outperformed its style-specific benchmark in the telecommunication services, energy and real estate sectors, while it underperformed in the information technology (IT) and health care sectors. Although the Fund outperformed the style-specific benchmark in the industrials sector, the Fund’s underweight allocation in this sector hurt relative Fund performance.
The Fund outperformed its style-specific benchmark by the widest margin in the telecommunication services sector due to strong stock selection. The Fund’s lone holding in the sector, Sprint, strongly contributed to Fund performance. The company reported better-than-expected first quarter earnings in 2016, announced new sources of liquidity, and performed well after the US presidential election on renewed hope that the merger between Sprint and T-Mobile (not a Fund holding) was more likely to go through.
In the energy sector, oilfield services giant Halliburton was a top contributor to Fund performance as oil prices started to recover during the second quarter of 2016. Pioneer Natural Resources, an oil-focused exploration and production company, was another contributor to Fund performance during the reporting period.
The Fund’s real estate sector outperformed the Fund’s style-specific benchmark due to stock selection in and modest underweight exposure to the sector. The Fund’s lone holding in the sector, American Tower, contributed to Fund performance as it rallied, along with other real estate investment trusts, as part of the hunt for yield during the second quarter of 2016.
The Fund underperformed its style-specific benchmark in the IT sector due to stock selection. LinkedIn was the most significant detractor from Fund performance during the year. The internet software and services company reported disappointing quarterly results, but even more concerning was the shutdown of its advertising platform, which was viewed as a key driver of future growth. We sold our position in LinkedIn during the first quarter of the year.
Portfolio Composition | |||
By sector | % of total net assets |
Information Technology | 37.4% | |
Consumer Discretionary | 22.4 | |
Health Care | 15.1 | |
Consumer Staples | 5.0 | |
Industrials | 4.7 | |
Energy | 4.6 | |
Financials | 4.1 | |
Materials | 3.6 | |
Telecommunication Services | 2.2 | |
Real Estate | 0.5 | |
Other Assets Less Liabilities | 0.4 |
Top 10 Equity Holdings* | |||
% of total net assets | |||
1. Alphabet Inc.-Class A | 7.2% | ||
2. Amazon.com, Inc. | 6.4 | ||
3. Facebook Inc.-Class A | 5.3 | ||
4. Apple Inc. | 5.2 | ||
5. DISH Network Corp.-Class A | 3.1 | ||
6. Lowe’s Cos., Inc. | 3.0 | ||
7. Celgene Corp. | 3.0 | ||
8. Sony Corp. | 2.6 | ||
9. Visa Inc.-Class A | 2.6 | ||
10. Microsoft Corp. | 2.4 |
Total Net Assets | $572.4 million | |
Total Number of Holdings* | 64 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. American Franchise Fund
The health care sector was the worst-performing sector in the style-specific benchmark for 2016. The Fund trailed the index in this sector due to stock selection and overweight exposure. The leading detractor from Fund performance was biopharmaceutical company Alkermes. When a key developmental drug did not meet its goal in two advanced trials, the stock lost roughly half its value in one day during the first quarter of 2016, despite the company having several treatments already on the market. The stock rebounded in the second half of the year and we sold the holding during the fourth quarter.
The Fund posted a double-digit return in the industrials sector, outperforming its style-specific benchmark, but the underweight allocation in the sector detracted from relative Fund performance.
Thank you for your commitment to Invesco V.I. American Franchise Fund and for sharing our long-term investment horizon.
1 | Source: Bureau of Economic Analysis |
2 | Source: Bureau of Labor Statistics |
3 | Source: Thompson-Reuters |
4 | Source: US Federal Reserve |
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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (7/3/95) | 8.70 | % | |||
10 Years | 7.54 | ||||
5 Years | 13.17 | ||||
1 Years | 2.27 | ||||
Series II Shares | |||||
Inception (9/18/00) | 0.46 | % | |||
10 Years | 7.26 | ||||
5 Years | 12.88 | ||||
1 Year | 2.02 |
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, prior to June 1, 2010, 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 0.88% and 1.13%, 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. American Franchise Fund
Invesco V.I. American Franchise Fund’s investment objective is to seek capital growth.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | 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 adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Growth investing risk. Growth stocks tend to be more expensive relative to the issuing company’s earnings or assets compared with other types of stock. As a result, they tend to be more sensitive to changes in, or investors’ expectations of, the issuing company’s earnings and can be more volatile.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or
it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Mid-capitalization companies risk. Mid-capitalization companies tend to be more vulnerable to changing market conditions and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
Sector focus risk. The Fund may from time to time invest a significant amount of its assets (i.e. over 25%) in one market sector or group of related industries. In this event, the Fund’s performance will depend to a greater extent on the overall condition of the sector or group of industries and there is increased risk that the Fund will lose significant value if conditions adversely affect that sector or group of industries.
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 Investments(a)
December 31, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.64% |
| |||||||
Aerospace & Defense–1.63% | ||||||||
Raytheon Co. | 65,520 | $ | 9,303,840 | |||||
Air Freight & Logistics–0.78% | ||||||||
FedEx Corp. | 23,906 | 4,451,297 | ||||||
Airlines–0.47% | ||||||||
Southwest Airlines Co. | 54,289 | 2,705,764 | ||||||
Application Software–1.93% | ||||||||
salesforce.com, inc.(b) | 161,363 | 11,046,911 | ||||||
Biotechnology–7.42% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 69,308 | 8,479,834 | ||||||
Amgen Inc. | 47,462 | 6,939,419 | ||||||
Biogen Inc.(b) | 22,588 | 6,405,505 | ||||||
BioMarin Pharmaceutical Inc.(b) | 41,798 | 3,462,546 | ||||||
Celgene Corp.(b) | 148,407 | 17,178,110 | ||||||
42,465,414 | ||||||||
Cable & Satellite–4.75% | ||||||||
Charter Communications, Inc.–Class A(b) | 13,324 | 3,836,246 | ||||||
Comcast Corp.–Class A | 84,247 | 5,817,255 | ||||||
DISH Network Corp.–Class A(b) | 302,292 | 17,511,776 | ||||||
27,165,277 | ||||||||
Commodity Chemicals–0.49% | ||||||||
LyondellBasell Industries N.V.–Class A | 32,544 | 2,791,624 | ||||||
Consumer Electronics–2.60% | ||||||||
Sony Corp. (Japan) | 536,100 | 14,899,437 | ||||||
Consumer Finance–1.81% | ||||||||
Synchrony Financial | 285,688 | 10,361,904 | ||||||
Data Processing & Outsourced Services–6.75% | ||||||||
First Data Corp.–Class A(b) | 730,130 | 10,360,545 | ||||||
Mastercard Inc.–Class A | 131,424 | 13,569,528 | ||||||
Visa Inc.–Class A | 188,318 | 14,692,570 | ||||||
38,622,643 | ||||||||
Environmental & Facilities Services–1.03% | ||||||||
Republic Services, Inc. | 103,760 | 5,919,508 | ||||||
Fertilizers & Agricultural Chemicals–0.56% | ||||||||
Monsanto Co. | 30,518 | 3,210,799 | ||||||
Financial Exchanges & Data–0.23% | ||||||||
S&P Global Inc. | 12,312 | 1,324,032 | ||||||
Home Entertainment Software–3.72% | ||||||||
Activision Blizzard, Inc. | 280,700 | 10,136,077 | ||||||
Electronic Arts Inc.(b) | 105,851 | 8,336,825 | ||||||
Nintendo Co., Ltd. (Japan) | 13,600 | 2,843,141 | ||||||
21,316,043 |
Shares | Value | |||||||
Home Improvement Retail–3.03% | ||||||||
Lowe’s Cos., Inc. | 243,803 | $ | 17,339,269 | |||||
Hotels, Resorts & Cruise Lines–1.81% | ||||||||
Carnival Corp. | 71,152 | 3,704,173 | ||||||
Royal Caribbean Cruises Ltd. | 80,792 | 6,628,176 | ||||||
10,332,349 | ||||||||
Household Appliances–0.76% | ||||||||
Whirlpool Corp. | 23,963 | 4,355,755 | ||||||
Housewares & Specialties–0.49% | ||||||||
Newell Brands, Inc. | 63,073 | 2,816,209 | ||||||
Industrial Conglomerates–0.30% | ||||||||
Honeywell International Inc. | 14,965 | 1,733,695 | ||||||
Industrial Gases–1.01% | ||||||||
Air Products and Chemicals, Inc. | 40,239 | 5,787,173 | ||||||
Industrial Machinery–0.45% | ||||||||
Stanley Black & Decker Inc. | 22,309 | 2,558,619 | ||||||
Internet & Direct Marketing Retail–7.80% | ||||||||
Amazon.com, Inc.(b) | 48,613 | 36,453,430 | ||||||
Priceline Group Inc. (The)(b) | 5,579 | 8,179,149 | ||||||
44,632,579 | ||||||||
Internet Software & Services–14.11% | ||||||||
Alibaba Group Holding Ltd.–ADR (China)(b) | 104,357 | 9,163,588 | ||||||
Alphabet Inc.–Class A(b) | 52,291 | 41,438,003 | ||||||
Facebook, Inc.–Class A(b) | 262,328 | 30,180,837 | ||||||
80,782,428 | ||||||||
Investment Banking & Brokerage–2.10% | ||||||||
Charles Schwab Corp. (The) | 158,736 | 6,265,310 | ||||||
Goldman Sachs Group, Inc. (The) | 24,037 | 5,755,660 | ||||||
12,020,970 | ||||||||
Life Sciences Tools & Services–0.72% | ||||||||
Thermo Fisher Scientific, Inc. | 29,255 | 4,127,880 | ||||||
Managed Health Care–2.06% | ||||||||
UnitedHealth Group Inc. | 73,611 | 11,780,704 | ||||||
Movies & Entertainment–0.80% | ||||||||
Time Warner Inc. | 47,556 | 4,590,581 | ||||||
Oil & Gas Equipment & Services–1.60% | ||||||||
Halliburton Co. | 169,156 | 9,149,648 | ||||||
Oil & Gas Exploration & Production–3.01% | ||||||||
Anadarko Petroleum Corp. | 134,228 | 9,359,718 | ||||||
Pioneer Natural Resources Co. | 43,794 | 7,885,986 | ||||||
17,245,704 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Franchise Fund
Shares | Value | |||||||
Packaged Foods & Meats–1.21% | ||||||||
Mondelez International, Inc.–Class A | 48,709 | $ | 2,159,270 | |||||
Tyson Foods, Inc.–Class A | 77,630 | 4,788,218 | ||||||
6,947,488 | ||||||||
Pharmaceuticals–4.91% | ||||||||
Allergan PLC(b) | 63,026 | 13,236,090 | ||||||
Eli Lilly and Co. | 77,711 | 5,715,644 | ||||||
Merck & Co., Inc. | 67,608 | 3,980,083 | ||||||
Zoetis Inc. | 96,955 | 5,190,001 | ||||||
28,121,818 | ||||||||
Semiconductors–2.78% | ||||||||
Broadcom Ltd. (Singapore) | 56,428 | 9,974,778 | ||||||
QUALCOMM, Inc. | 91,182 | 5,945,066 | ||||||
15,919,844 | ||||||||
Soft Drinks–0.80% | ||||||||
Monster Beverage Corp.(b) | 103,203 | 4,576,021 | ||||||
Specialized Consumer Services–0.41% | ||||||||
Service Corp. International | 81,625 | 2,318,150 | ||||||
Specialized REITs–0.51% | ||||||||
American Tower Corp. | 27,520 | 2,908,314 |
Shares | Value | |||||||
Specialty Chemicals–1.59% | ||||||||
Ecolab Inc. | 31,926 | $ | 3,742,366 | |||||
Sherwin-Williams Co. (The) | 20,035 | 5,384,206 | ||||||
9,126,572 | ||||||||
Systems Software–2.93% | ||||||||
Microsoft Corp. | 220,843 | 13,723,184 | ||||||
ServiceNow, Inc.(b) | 41,020 | 3,049,427 | ||||||
16,772,611 | ||||||||
Technology Hardware, Storage & Peripherals–5.16% | ||||||||
Apple Inc. | 255,214 | 29,558,885 | ||||||
Tobacco–2.96% | ||||||||
Altria Group, Inc. | 74,916 | 5,065,820 | ||||||
Philip Morris International Inc. | 129,920 | 11,886,381 | ||||||
16,952,201 | ||||||||
Wireless Telecommunication Services–2.16% | ||||||||
Sprint Corp.(b) | 1,465,042 | 12,335,654 | ||||||
TOTAL INVESTMENTS–99.64% |
| 570,375,614 | ||||||
OTHER ASSETS LESS LIABILITIES–0.36% | 2,047,565 | |||||||
NET ASSETS–100.00% | $ | 572,423,179 |
Investment Abbreviations:
ADR | – American Depositary Receipt | |
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $390,320,816) | $ | 570,375,614 | ||
Foreign currencies, at value (Cost $46,898) | 46,833 | |||
Receivable for: | ||||
Investments sold | 3,322,992 | |||
Fund shares sold | 334,802 | |||
Dividends | 454,322 | |||
Investment for trustee deferred compensation and retirement plans | 352,179 | |||
Other assets | 387 | |||
Total assets | 574,887,129 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 325,115 | |||
Amount due custodian | 1,171,343 | |||
Accrued fees to affiliates | 546,867 | |||
Accrued trustees’ and officers’ fees and benefits | 685 | |||
Accrued other operating expenses | 34,765 | |||
Trustee deferred compensation and retirement plans | 385,175 | |||
Total liabilities | 2,463,950 | |||
Net assets applicable to shares outstanding | $ | 572,423,179 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 346,359,360 | ||
Undistributed net investment income | 33,922 | |||
Undistributed net realized gain | 45,975,750 | |||
Net unrealized appreciation | 180,054,147 | |||
$ | 572,423,179 | |||
Net Assets: |
| |||
Series I | $ | 420,823,868 | ||
Series II | $ | 151,599,311 | ||
Shares outstanding, no par value, |
| |||
Series I | 7,854,122 | |||
Series II | 2,917,958 | |||
Series I: | ||||
Net asset value per share | $ | 53.58 | ||
Series II: | ||||
Net asset value per share | $ | 51.95 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $9,259) | $ | 6,151,172 | ||
Dividends from affiliated money market funds (includes securities lending income of $2,649) | 28,112 | |||
Other income | 56,042 | |||
Total investment income | 6,235,326 | |||
Expenses: | ||||
Advisory fees | 4,017,697 | |||
Administrative services fees | 1,274,007 | |||
Distribution fees — Series II | 396,977 | |||
Transfer agent fees | 95,326 | |||
Trustees’ and officers’ fees and benefits | 33,820 | |||
Reports to shareholders | 8,966 | |||
Professional services fees | 43,578 | |||
Other | 24,664 | |||
Total expenses | 5,895,035 | |||
Less: Fees waived | (10,581 | ) | ||
Net expenses | 5,884,454 | |||
Net investment income | 350,872 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(75,686)) | 49,348,297 | |||
Foreign currencies | 9,350 | |||
49,357,647 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (39,458,486 | ) | ||
Foreign currencies | 43 | |||
(39,458,443 | ) | |||
Net realized and unrealized gain | 9,899,204 | |||
Net increase in net assets resulting from operations | $ | 10,250,076 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | 350,872 | $ | (809,606 | ) | |||
Net realized gain | 49,357,647 | 52,382,485 | ||||||
Change in net unrealized appreciation (depreciation) | (39,458,443 | ) | (17,203,818 | ) | ||||
Net increase in net assets resulting from operations | 10,250,076 | 34,369,061 | ||||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (38,558,239 | ) | (2,611,057 | ) | ||||
Series ll | (14,444,619 | ) | (990,300 | ) | ||||
Total distributions from net realized gains | (53,002,858 | ) | (3,601,357 | ) | ||||
Share transactions–net: | ||||||||
Series l | (27,715,041 | ) | (85,531,558 | ) | ||||
Series ll | (12,325,839 | ) | (31,089,512 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (40,040,880 | ) | (116,621,070 | ) | ||||
Net increase (decrease) in net assets | (82,793,662 | ) | (85,853,366 | ) | ||||
Net assets: | ||||||||
Beginning of year | 655,216,841 | 741,070,207 | ||||||
End of year (includes undistributed net investment income (loss) of $33,922 and $(393,011), respectively) | $ | 572,423,179 | $ | 655,216,841 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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 asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. The Fund bears the risk of loss with respect to the investment of collateral. 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. When loaning securities, the Fund retains certain benefits of owning the securities, including the economic equivalent of dividends or interest generated by the security. 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. The securities loaned are subject to termination at the option of the borrower or the Fund. Upon termination, the borrower will return to the Fund the securities loaned and the Fund will return the collateral. 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 and the securities may lose value during the delay which could result in potential losses to the Fund. Some of these losses may be indemnified by the lending agent. 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, are included in Dividends from affiliated money market funds on the Statement of Operations. The aggregate value of securities out on loan, if any, is shown as a footnote on the Statement of Assets and Liabilities. |
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 the 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. 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, 2016, the effective advisory fees incurred by the Fund was 0.68%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $10,581.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $141,581 for accounting and fund administrative services and was reimbursed $1,132,426 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $3,317 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interests | $ | 552,633,036 | $ | 17,742,578 | $ | — | $ | 570,375,614 |
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, 2016, the Fund engaged in securities purchases of $1,641,754 and securities sales of $695,810, which resulted in net realized gains (losses) of $(75,686).
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, 2016 and 2015:
2016 | 2015 | |||||||
Long-term capital gain | $ | 53,002,858 | $ | 3,601,357 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 382,417 | ||
Undistributed long-term gain | 50,652,410 | |||
Net unrealized appreciation — investments | 175,532,344 | |||
Net unrealized appreciation (depreciation) — other investments | (652 | ) | ||
Temporary book/tax differences | (502,700 | ) | ||
Shares of beneficial interest | 346,359,360 | |||
Total net assets | $ | 572,423,179 |
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 does not have a capital loss carryforward as of December 31, 2016.
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, 2016 was $346,313,497 and $432,065,785, 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 | $ | 179,615,138 | ||
Aggregate unrealized (depreciation) of investment securities | (4,082,794 | ) | ||
Net unrealized appreciation of investment securities | $ | 175,532,344 |
Cost of investments for tax purposes is $394,843,270.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of straddle loss deferral and foreign currency transactions, on December 31, 2016, undistributed net investment income was increased by $76,061, undistributed net realized gain was decreased by $10,284 and shares of beneficial interest was decreased by $65,777. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 222,257 | $ | 12,031,047 | 254,518 | $ | 14,486,619 | ||||||||||
Series II | 131,825 | 6,897,330 | 180,274 | 9,991,611 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 705,807 | 38,558,239 | 48,878 | 2,611,057 | ||||||||||||
Series II | 272,488 | 14,444,619 | 19,008 | 990,300 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,438,141 | ) | (78,304,327 | ) | (1,813,621 | ) | (102,629,234 | ) | ||||||||
Series II | (636,218 | ) | (33,667,788 | ) | (762,570 | ) | (42,071,423 | ) | ||||||||
Net increase (decrease) in share activity | (741,982 | ) | $ | (40,040,880 | ) | (2,073,513 | ) | $ | (116,621,070 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 28% 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 where by 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, distribution, third party record keeping and account servicing. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. 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 (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 12/31/16 | $ | 57.30 | $ | 0.07 | $ | 1.33 | $ | 1.40 | $ | — | $ | (5.12 | ) | $ | (5.12 | ) | $ | 53.58 | 2.27 | % | $ | 420,824 | 0.93 | %(d) | 0.93 | %(d) | 0.12 | %(d) | 59 | % | ||||||||||||||||||||||||||
Year ended 12/31/15 | 54.88 | (0.03 | ) | 2.76 | 2.73 | — | (0.31 | ) | (0.31 | ) | 57.30 | 5.01 | 479,298 | 0.96 | 0.96 | (0.05 | ) | 68 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 50.63 | (0.09 | ) | 4.36 | 4.27 | (0.02 | ) | — | (0.02 | ) | 54.88 | 8.44 | 541,929 | 0.92 | 0.95 | (0.17 | ) | 64 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 36.28 | 0.04 | 14.50 | 14.54 | (0.19 | ) | — | (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 | ||||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 55.85 | (0.06 | ) | 1.28 | 1.22 | — | (5.12 | ) | (5.12 | ) | 51.95 | 2.00 | 151,599 | 1.18 | (d) | 1.18 | (d) | (0.13 | )(d) | 59 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 53.63 | (0.16 | ) | 2.69 | 2.53 | — | (0.31 | ) | (0.31 | ) | 55.85 | 4.75 | 175,919 | 1.21 | 1.21 | (0.30 | ) | 68 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 49.58 | (0.22 | ) | 4.27 | 4.05 | — | — | — | 53.63 | 8.17 | 199,141 | 1.17 | 1.20 | (0.42 | ) | 64 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 35.55 | (0.07 | ) | 14.20 | 14.13 | (0.10 | ) | — | (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 |
(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. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $435,038 and $158,791 for Series I and Series II shares, 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 the 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 the Invesco V.I. American Franchise Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,064.10 | $ | 4.57 | $ | 1,020.71 | $ | 4.47 | 0.88 | % | ||||||||||||
Series II | 1,000.00 | 1,063.00 | 5.86 | 1,019.46 | 5.74 | 1.13 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. 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, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 53,002,858 | ||
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. 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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
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Annual Report to Shareholders
| December 31, 2016 | |||
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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. 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, 2016, Series I shares of Invesco V.I. American Value Fund (the Fund) underperformed the Russell Midcap Value Index, the Fund’s style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 15.49 | % | |||
Series II Shares | 15.22 | ||||
S&P 500 Index▼ (Broad Market Index) | 11.96 | ||||
Russell Midcap Value Index▼ (Style-Specific Index) | 20.00 | ||||
Lipper VUF Mid Cap Value Funds Index∎ (Peer Group Index) | 18.83 |
Source(s): ▼FactSet Research Systems Inc.; ∎Lipper Inc.
Market conditions and your Fund
During the year ended December 31, 2016, the US economy continued to expand. US gross domestic product (GDP) showed the US economy grew by 3.5% in the third quarter.1 Employment data were mixed, with unemployment ending the year at 4.7%.2 Oil prices traded in a range from the high $20s to the low $50s during the reporting period.3
US stock market indexes posted gains for the reporting period, with most major market indexes hitting record highs; however, markets were fairly volatile during the first half of the year. Stocks began calendar year 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets sharply lower. Markets again recovered, and major US equity indexes
hit record highs during the summer. The surprise outcome of the US presidential election caused investors to reevaluate investments; a post-election stock market rally sent major equity indexes to new record highs.
The rally was led by financial stocks, gaining on the belief that they might benefit from reduced federal regulation. In November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 – its only increase during the reporting period.4
Stock selection in the financials sector, particularly banks, was the largest contributor to the Fund’s performance relative to the Russell Midcap Value Index for the year. Within the sector, Comerica and Wintrust Financial were key contributors to Fund performance. Both companies’ shares moved higher as financial stocks rallied, particularly following the presidential election, as investor optimism about future interest rate increases and economic growth fueled returns.
Stock selection in the consumer staples sector benefited the Fund’s relative return, due in part to the Fund’s lack of exposure to some of the weaker-performing stocks within the sector. The Fund’s relative overweight position in ConAgra Brands was also a key contributor to relative performance. The company announced plans in 2015 to exit its private label business, which increasingly had been seen by investors as a drag on overall performance. This benefited the company in 2016.
Stock selection in the energy sector also added to the Fund’s relative performance. Energy stocks had double-digit gains within the Fund’s style-specific index as oil prices recovered and inventories declined. Additionally, OPEC agreed in November to cut production, which helped further support oil prices and energy stocks. Within the sector, Devon Energy and Baker Hughes were among the Fund’s largest individual contributors for the year.
Stock selection in the consumer discretionary sector was the largest detractor from the Fund’s performance on both a relative and absolute basis. Performance within the sector was driven primarily by DeVry Education Group, Ascena Retail and TEGNA. During the year, DeVry faced increased scrutiny from federal regulators, which presented a threat to the company’s business model. In our opinion, possible remedies sought by regulators presented undesirable risks to the investment, and we eliminated our position in the stock before the close of the reporting period. Ladies apparel retailer Ascena Retail reported weakness in a number of its brands as declining traffic in the first quarter of the year led to declining same-store sales and profits.
Portfolio Composition | |||||
By sector | % of total net assets |
Financials | 23.1% | ||||
Industrials | 14.8 | ||||
Information Technology | 13.9 | ||||
Health Care | 8.4 | ||||
Energy | 8.2 | ||||
Consumer Discretionary | 8.1 | ||||
Materials | 6.8 | ||||
Real Estate | 5.4 | ||||
Utilities | 3.8 | ||||
Consumer Staples | 2.4 | ||||
Telecommunication Services | 2.0 | ||||
Money Market Funds Plus Other Assets Less Liabilities |
| 3.1 |
|
Top 10 Equity Holdings* | |||||
% of total net assets | |||||
1. Devon Energy Corp. | 3.7% | ||||
2. Textron Inc. | 3.6 | ||||
3. BB&T Corp. | 3.5 | ||||
4. Comerica Inc. | 3.4 | ||||
5. Royal Caribbean Cruises Ltd. | 3.4 | ||||
6. Ciena Corp. | 3.3 | ||||
7. Zions Bancorp. | 3.1 | ||||
8. Willis Towers Watson PLC | 2.9 | ||||
9. Eastman Chemical Co. | 2.9 | ||||
10. Keysight Technologies, Inc. | 2.8 |
Total Net Assets | $ | 400.8 million | |||
Total Number of Holdings* | 43 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. American Value Fund
Before the close of the reporting period, we eliminated Ascena Retail and TENGA from the portfolio.
Stock selection in the materials sector also detracted from the Fund’s performance relative to the Russell Midcap Value Index. Materials was the best-performing sector within the style-specific benchmark index during the reporting period, and our lack of exposure to some of the stronger stocks within the sector detracted from the Fund’s relative performance. The sector included one of the Fund’s largest detractors, W.R. Grace, but also its top individual contributor, Eagle Materials. W.R. Grace missed revenue expectations and was cautious about 2017, while Eagle Materials rallied after the election, as it is a construction materials company that has the potential to benefit from the new administration’s infrastructure spending proposals.
Stock selection in the health care sector also detracted from Fund performance relative to its style-specific index for the reporting period. Health care was the worst-performing market sector for the year, and it included a number of the Fund’s largest detractors, including Brookdale Senior Living and Universal Health Services. Assisted living operator Brookdale Senior Living reported disappointing earnings and a weaker outlook for its fiscal year, as occupancy was lower than anticipated. We eliminated the holding during the reporting period.
We used currency forward contracts early in the year for the purpose of hedging currency exposure to non-US-based companies held in the Fund. Derivatives were used for the purpose of hedging and not for speculative purposes or leverage. Due to the continued strength of the US dollar, 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 year.
During the reporting period, we increased our exposure to the real estate, energy and information technology sectors and decreased our exposure to the financials sector. At the end of the reporting period, our largest overweight positions versus the benchmark were in the information technology, health care, financials and industrials sectors, while our largest underweight positions were in the real estate and utilities sectors.
Despite providing investors strong absolute returns, US equity markets experienced volatility during the reporting period as concerns about global economic growth, geopolitical events and the uncertainty regarding future interest rate increases weighed on markets. We believe 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.
As always, 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 Invesco V.I. American Value Fund.
1 Source: Bureau of Economic Analysis
2 Source: Bureau of Labor Statistics
3 Source: Thompson-Reuters
4 Source: US Federal Reserve
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. | ||
Jeffrey Vancavage Chartered Financial Analyst, Portfolio Manager, is co-lead manager of Invesco V.I. American Value Fund. | ||
He joined Invesco in 2016. Mr. Vancavage earned a BS in aeronautical science from Embry-Riddle University and an MBA from the University of Florida. | ||
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 12/31/06
1 Source: FactSet Research Systems Inc.
2 Source: Lipper Inc.
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (1/2/97) | 9.87% | ||||
10 Years | 7.03 | ||||
5 Years | 12.65 | ||||
1 Year | 15.49 | ||||
Series II Shares | |||||
Inception (5/5/03) | 10.64% | ||||
10 Years | 6.85 | ||||
5 Years | 12.38 | ||||
1 Year | 15.22 |
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, prior to June 1, 2010, for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. American Value Fund. Share class
returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.03% 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. 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. 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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. The Fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer.
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 adversely
affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
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. Shares of real estate related companies, which tend to be small- and mid-cap companies, may be more volatile and less liquid.
Sector focus risk. The Fund may from time to time invest a significant amount of its assets (i.e. over 25%) in one market sector or group of related industries. In this event, the Fund’s performance will depend to a greater extent on the overall condition of the sector or group of industries and there is increased risk that the Fund will lose significant value if conditions adversely affect that sector or group of industries.
Small- and mid-capitalization companies risks. Small- and mid-capitalization companies tend to be more vulnerable to changing market conditions, may have little or no operating history or track record of success, and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
Value investing style risk. A value investing style subjects the Fund 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.
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.
Invesco V.I. American Value Fund
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, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.93% |
| |||||||
Aerospace & Defense–3.60% | ||||||||
Textron Inc. | 297,022 | $ | 14,423,388 | |||||
Alternative Carriers–1.97% | ||||||||
Level 3 Communications, Inc.(b) | 139,836 | 7,881,157 | ||||||
Application Software–1.54% | ||||||||
Citrix Systems, Inc.(b) | 69,345 | 6,193,202 | ||||||
Automotive Retail–2.55% | ||||||||
Advance Auto Parts, Inc. | 60,437 | 10,221,106 | ||||||
Broadcasting–2.19% | ||||||||
Scripps Networks Interactive Inc.–Class A | 123,038 | 8,781,222 | ||||||
Building Products–3.17% | ||||||||
Johnson Controls International PLC | 171,472 | 7,062,932 | ||||||
Owens Corning | 109,820 | 5,662,319 | ||||||
12,725,251 | ||||||||
Communications Equipment–3.27% | ||||||||
Ciena Corp.(b) | 536,193 | 13,088,471 | ||||||
Construction & Engineering–2.46% | ||||||||
Fluor Corp. | 188,011 | 9,874,338 | ||||||
Construction Materials–2.22% | ||||||||
Eagle Materials Inc. | 90,152 | 8,882,677 | ||||||
Diversified Banks–3.37% | ||||||||
Comerica Inc. | 198,490 | 13,519,154 | ||||||
Diversified Chemicals–2.85% | ||||||||
Eastman Chemical Co. | 151,642 | 11,404,995 | ||||||
Diversified REIT’s–2.13% | ||||||||
Forest City Realty Trust, Inc.–Class A | 410,027 | 8,544,963 | ||||||
Electric Utilities–3.76% | ||||||||
Edison International | 125,987 | 9,069,804 | ||||||
FirstEnergy Corp. | 194,025 | 6,008,954 | ||||||
15,078,758 | ||||||||
Electronic Equipment & Instruments–5.17% | ||||||||
Keysight Technologies, Inc.(b) | 309,211 | 11,307,846 | ||||||
Zebra Technologies Corp.–Class A(b) | 109,937 | 9,428,197 | ||||||
20,736,043 | ||||||||
Environmental & Facilities Services–2.03% | ||||||||
Clean Harbors, Inc.(b) | 146,294 | 8,141,261 | ||||||
Health Care Distributors–2.29% | ||||||||
AmerisourceBergen Corp. | 117,307 | 9,172,234 | ||||||
Health Care Facilities–4.58% | ||||||||
HealthSouth Corp. | 238,633 | 9,841,225 | ||||||
Universal Health Services, Inc.–Class B | 80,184 | 8,529,974 | ||||||
18,371,199 |
Shares | Value | |||||||
Heavy Electrical Equipment–0.56% | ||||||||
Babcock & Wilcox Enterprises, Inc.(b) | 135,310 | $ | 2,244,793 | |||||
Hotels, Resorts & Cruise Lines–3.37% | ||||||||
Royal Caribbean Cruises Ltd. | 164,634 | 13,506,573 | ||||||
Industrial Machinery–2.17% | ||||||||
Ingersoll-Rand PLC | 115,912 | 8,698,037 | ||||||
Insurance Brokers–5.21% | ||||||||
Arthur J. Gallagher & Co. | 177,494 | 9,222,588 | ||||||
Willis Towers Watson PLC | 95,448 | 11,671,382 | ||||||
20,893,970 | ||||||||
Investment Banking & Brokerage–2.60% | ||||||||
Stifel Financial Corp.(b) | 208,904 | 10,434,755 | ||||||
IT Consulting & Other Services–2.14% | ||||||||
Teradata Corp.(b) | 315,570 | 8,574,037 | ||||||
Marine–0.81% | ||||||||
Kirby Corp.(b) | 48,854 | 3,248,791 | ||||||
Oil & Gas Equipment & Services–3.83% | ||||||||
Amec Foster Wheeler PLC (United Kingdom) | 728,315 | 4,200,360 | ||||||
Baker Hughes Inc. | 171,438 | 11,138,327 | ||||||
15,338,687 | ||||||||
Oil & Gas Exploration & Production–4.43% | ||||||||
Devon Energy Corp. | 321,975 | 14,704,598 | ||||||
Marathon Oil Corp. | 175,607 | 3,039,757 | ||||||
17,744,355 | ||||||||
Packaged Foods & Meats–2.40% | ||||||||
Conagra Brands, Inc. | 243,208 | 9,618,876 | ||||||
Pharmaceuticals–1.56% | ||||||||
Mylan N.V.(b) | 163,739 | 6,246,643 | ||||||
Property & Casualty Insurance–2.64% | ||||||||
FNF Group | 311,968 | 10,594,433 | ||||||
Regional Banks–9.29% | ||||||||
BB&T Corp. | 295,039 | 13,872,734 | ||||||
Wintrust Financial Corp. | 153,337 | 11,127,666 | ||||||
Zions Bancorp. | 283,837 | 12,216,344 | ||||||
37,216,744 | ||||||||
Retail REIT’s–1.58% | ||||||||
Kimco Realty Corp. | 252,143 | 6,343,918 | ||||||
Specialized REIT’s–1.71% | ||||||||
Life Storage, Inc. | 80,283 | 6,844,929 | ||||||
Specialty Chemicals–1.73% | ||||||||
W.R. Grace & Co. | 102,333 | 6,921,804 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
Shares | Value | |||||||
Technology Hardware, Storage & Peripherals–1.75% | ||||||||
Diebold Nixdorf, Inc. | 278,379 | $ | 7,001,231 | |||||
Total Common Stocks & Other Equity Interests (Cost $316,306,457) |
| 388,511,995 | ||||||
Money Market Funds–3.24% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(c) | 7,789,769 | 7,789,769 | ||||||
Treasury Portfolio–Institutional Class, 0.37%(c) | 5,193,179 | 5,193,179 | ||||||
Total Money Market Funds | 12,982,948 | |||||||
TOTAL INVESTMENTS–100.17% | 401,494,943 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.17)% |
| (690,578 | ) | |||||
NET ASSETS–100.00% | $ | 400,804,365 |
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $316,306,457) | $ | 388,511,995 | ||
Investments in affiliated money market funds, at value and cost | 12,982,948 | |||
Total investments, at value (Cost $329,289,405) | 401,494,943 | |||
Cash | 45,917 | |||
Foreign currencies, at value (Cost $1,899) | 1,914 | |||
Receivable for: | ||||
Fund shares sold | 130,965 | |||
Dividends | 632,440 | |||
Investment for trustee deferred compensation and retirement plans | 51,361 | |||
Total assets | 402,357,540 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 384,793 | |||
Fund shares reacquired | 612,939 | |||
Accrued fees to affiliates | 461,115 | |||
Accrued trustees’ and officers’ fees and benefits | 177 | |||
Accrued other operating expenses | 34,575 | |||
Trustee deferred compensation and retirement plans | 59,576 | |||
Total liabilities | 1,553,175 | |||
Net assets applicable to shares outstanding | $ | 400,804,365 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 324,196,873 | ||
Undistributed net investment income | 2,350,923 | |||
Undistributed net realized gain | 2,051,618 | |||
Net unrealized appreciation | 72,204,951 | |||
$ | 400,804,365 | |||
Net Assets: |
| |||
Series I | $ | 116,761,583 | ||
Series II | $ | 284,042,782 | ||
Shares outstanding, no par value, with an |
| |||
Series I | 6,843,970 | |||
Series II | 16,808,691 | |||
Series I: | ||||
Net asset value per share | $ | 17.06 | ||
Series II: | ||||
Net asset value per share | $ | 16.90 |
Investment income: |
| |||
Dividends | $ | 6,425,952 | ||
Dividends from affiliated money market funds | 50,462 | |||
Total investment income | 6,476,414 | |||
Expenses: | ||||
Advisory fees | 2,570,443 | |||
Administrative services fees | 743,479 | |||
Custodian fees | 18,820 | |||
Distribution fees — Series II | 595,556 | |||
Transfer agent fees | 43,945 | |||
Trustees’ and officers’ fees and benefits | 24,507 | |||
Reports to shareholders | 10,018 | |||
Professional services fees | 45,165 | |||
Other | 10,239 | |||
Total expenses | 4,062,172 | |||
Less: Fees waived | (17,605 | ) | ||
Net expenses | 4,044,567 | |||
Net investment income | 2,431,847 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 4,116,658 | |||
Foreign currencies | (18,895 | ) | ||
Forward foreign currency contracts | 103,388 | |||
4,201,151 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 46,226,106 | |||
Foreign currencies | 2,420 | |||
Forward foreign currency contracts | (46,438 | ) | ||
46,182,088 | ||||
Net realized and unrealized gain | 50,383,239 | |||
Net increase in net assets resulting from operations | $ | 52,815,086 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income | $ | 2,431,847 | $ | 701,458 | ||||
Net realized gain | 4,201,151 | 19,681,886 | ||||||
Change in net unrealized appreciation (depreciation) | 46,182,088 | (56,066,268 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 52,815,086 | (35,682,924 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (412,019 | ) | (434,781 | ) | ||||
Series ll | (301,616 | ) | (18,546 | ) | ||||
Total distributions from net investment income | (713,635 | ) | (453,327 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (6,365,699 | ) | (17,091,017 | ) | ||||
Series ll | (14,638,628 | ) | (27,976,630 | ) | ||||
Total distributions from net realized gains | (21,004,327 | ) | (45,067,647 | ) | ||||
Share transactions–net: | ||||||||
Series l | (19,286,477 | ) | 2,717,293 | |||||
Series ll | 52,953,285 | (9,319,758 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | 33,666,808 | (6,602,465 | ) | |||||
Net increase (decrease) in net assets | 64,763,932 | (87,806,363 | ) | |||||
Net assets: | ||||||||
Beginning of year | 336,040,433 | 423,846,796 | ||||||
End of year (includes undistributed net investment income of $2,350,923 and $651,605, respectively) | $ | 400,804,365 | $ | 336,040,433 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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 asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. | 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. |
D. | 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.
E. | 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 |
Invesco V.I. American Value Fund
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. |
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 the 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 $1 billion | 0.72% | |||
Over $1 billion | 0.65% |
For the year ended December 31, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
Invesco V.I. American Value Fund
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $17,605.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $87,111 for accounting and fund administrative services and was reimbursed $656,368 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $3,150 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, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interests | $ | 384,311,635 | $ | 4,200,360 | $ | — | $ | 388,511,995 | ||||||||
Money Market Funds | 12,982,948 | — | — | 12,982,948 | ||||||||||||
Total Investments | $ | 397,294,583 | $ | 4,200,360 | $ | — | $ | 401,494,943 |
NOTE 4—Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual
Invesco V.I. American Value Fund
obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
Effect of Derivative Investments for the year ended December 31, 2016
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 | ||||
Currency Risk | ||||
Realized Gain: | ||||
Forward foreign currency contracts | $ | 103,388 | ||
Change in Net Unrealized Appreciation (Depreciation): | ||||
Forward foreign currency contracts | (46,438 | ) | ||
Total | $ | 56,950 |
The table below summarizes the one month average notional value of forward foreign currency contracts during the period.
Forward Foreign Currency Contracts | ||||
Average notional value | $ | 4,994,475 |
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, 2016, the Fund engaged in securities purchases of $531,509.
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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 713,635 | $ | 3,252,317 | ||||
Long-term capital gain | 21,004,327 | 42,268,657 | ||||||
Total distributions | $ | 21,717,962 | $ | 45,520,974 |
Invesco V.I. American Value Fund
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 2,409,606 | ||
Undistributed long-term gain | 4,250,128 | |||
Net unrealized appreciation — investments | 70,171,326 | |||
Net unrealized appreciation (depreciation) — other investments | (587 | ) | ||
Temporary book/tax differences | (222,981 | ) | ||
Shares of beneficial interest | 324,196,873 | |||
Total net assets | $ | 400,804,365 |
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, 2016.
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, 2016 was $185,544,170 and $173,515,873, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 85,378,365 | ||
Aggregate unrealized (depreciation) of investment securities | (15,207,039 | ) | ||
Net unrealized appreciation of investment securities | $ | 70,171,326 |
Cost of investments for tax purposes is $331,323,617.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions on December 31, 2016, undistributed net investment income was decreased by $18,894 and undistributed net realized gain was increased by $18,894. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 465,190 | $ | 7,060,652 | 620,709 | $ | 11,648,963 | ||||||||||
Series II | 5,595,826 | 89,247,325 | 2,540,649 | 47,863,159 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 427,077 | 6,777,718 | 1,088,559 | 17,525,798 | ||||||||||||
Series II | 949,793 | 14,940,244 | 1,752,985 | 27,995,176 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,060,028 | ) | (33,124,847 | ) | (1,373,907 | ) | (26,457,468 | ) | ||||||||
Series II | (3,266,703 | ) | (51,234,284 | ) | (4,479,285 | ) | (85,178,093 | ) | ||||||||
Net increase (decrease) in share activity | 2,111,155 | $ | 33,666,808 | 149,710 | $ | (6,602,465 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 64% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. American Value 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 12/31/16 | $ | 15.69 | $ | 0.13 | $ | 2.23 | $ | 2.36 | $ | (0.06 | ) | $ | (0.93 | ) | $ | (0.99 | ) | $ | 17.06 | 15.49 | % | $ | 116,762 | 0.97 | %(d) | 0.97 | %(d) | 0.84 | %(d) | 50 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 19.92 | 0.06 | (1.82 | ) | (1.76 | ) | (0.06 | ) | (2.41 | ) | (2.47 | ) | 15.69 | (9.13 | ) | 125,686 | 0.99 | 0.99 | 0.33 | 26 | ||||||||||||||||||||||||||||||||||||
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 | 1.00 | 0.32 | 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 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 15.55 | 0.09 | 2.21 | 2.30 | (0.02 | ) | (0.93 | ) | (0.95 | ) | 16.90 | 15.22 | 284,043 | 1.22 | (d) | 1.22 | (d) | 0.59 | (d) | 50 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 19.75 | 0.02 | (1.80 | ) | (1.78 | ) | (0.01 | ) | (2.41 | ) | (2.42 | ) | 15.55 | (9.36 | ) | 210,354 | 1.24 | 1.24 | 0.08 | 26 | ||||||||||||||||||||||||||||||||||||
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 | 1.25 | 0.07 | 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 |
(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 $118,784 and $238,222 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 the 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 the Invesco V.I. American Value Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,129.70 | $ | 4.93 | $ | 1,020.51 | $ | 4.67 | 0.92 | % | ||||||||||||
Series II | 1,000.00 | 1,128.20 | 6.26 | 1,019.25 | 5.94 | 1.17 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. 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, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 21,004,327 | ||
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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
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Invesco V.I. Balanced-Risk Allocation 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. 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, 2016, Series I shares of Invesco V.I. Balanced- Risk Allocation Fund (the Fund) outperformed the Custom Invesco V.I. Balanced-Risk Allocation Index, the Fund’s custom style-specific index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 11.64 | % | |||
Series II Shares | 11.51 | ||||
MSCI World Index▼ (Broad Market Index) | 7.51 | ||||
Custom Invesco V.I. Balanced-Risk Allocation Index◾ (Style-Specific Index) | 5.79 | ||||
Lipper VUF Absolute Return Funds Classification Averaget (Peer Group) | 5.77 |
Source(s): ▼FactSet Research Systems Inc.; ◾Invesco, FactSet Research Systems Inc.; tLipper Inc.
Market conditions and your Fund
During the year ended December 31, 2016, each of the asset classes in which the Fund invests provided positive contributions to Fund performance, and the Fund ended the reporting period in positive territory. The Fund invests in derivatives, such as swaps and futures, which are expected to correspond to the performance of US and international fixed income, equity and commodity markets. The strategic portion of the investment process involves first selecting representative assets for each asset class from a universe of more than 50 assets. Next, we seek to construct the portfolio so that an approximately equal amount of risk comes from our equity, fixed income and commodity allocations. Tactical adjustments to the Fund’s portfolio are then made on a monthly basis to try and take advantage of short-term market dynamics.
Exposure to commodities, obtained through the use of swaps, futures and commodity-linked notes, led results for the reporting period as all four commodity complexes in which the Fund invests – agriculture, precious metals, energy and industrial metals – posted positive results. At a complex level, agriculture was
the Fund’s leading performer during the year due to gains in sugar, soybeans, soybean oil, soymeal, cotton and coffee. Generally speaking, a supply shortage due to inclement weather and reduced plantings was the primary catalyst for higher prices. Strategic positioning in precious metals was also favorable as gains in silver outpaced gold. Precious metals prices benefited from a combination of volatility in equity prices during the reporting period as well as the inability of central banks to implement interest rate increases. Tactical exposure to precious metals detracted from Fund performance for the reporting period – although positive performance from strategic positioning was enough to outweigh losses from our tactical positioning within the complex. The energy complex was the second-largest contributor to Fund performance, after agriculture. Oil prices struggled with high levels of oversupply, but made strong gains after OPEC reached an agreement on production levels. Also, investor optimism soared following the surprising results of the US presidential election, producing strong equity and commodity market gains. Industrial metals prices contributed to Fund results as both copper and
aluminum prices rose. Tactical exposure to industrial metals detracted from Fund results due to underweight exposure to aluminum.
Performance across developed equity markets also contributed to Fund results as all six markets in which the Fund invests posted positive returns. Perhaps surprisingly, given the angst leading up to and after the Brexit vote – the UK referendum on whether to remain a part of, or leave, the European Union – UK equities led results in the asset class. Exposure to US small-cap equities and US large-cap equities also contributed to strong returns. European equities were pressured for most of the reporting period due to weak economic data and concerns over whether the exceptionally accommodative monetary policy of the European Central Bank was boosting growth and inflation. However, European equities rebounded at the end of the year and posted positive returns for the reporting period as a whole. Tactical exposure to equities obtained through the use of swaps and futures helped boost the Fund’s return owing to a combination of underweight exposure during the volatility of the first quarter of 2016 and overweight exposure when equities recovered in subsequent quarters.
The Fund’s exposure to global government bonds, obtained through the use of swaps and futures, also provided positive returns for the Fund for the year. A combination of equity market volatility early in the reporting period, concerns over the fallout of the Brexit vote in early summer and generally tepid economic data throughout the reporting period created demand for perceived safe haven assets.1 Within the government bond asset class, UK gilts were the top performers on Brex-it fears and the resulting accommodative policy response from central banks. German bunds also bene?ted from these events, although these events also drove their yields into negative territory. US
Target Risk Allocation and
Notional Asset Weights as of 12/31/16
By asset class | ||||||||||
Asset Class | | Target Risk Allocation* | | | Notional Asset Weights** | | ||||
Equities | 50.00 | % | 41.50 | % | ||||||
Fixed Income | 18.35 | 56.42 | ||||||||
Commodities | 31.65 | 29.69 | ||||||||
Total | 100.00 | 127.61 |
*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.
Total Net Assets | $ | 1.1 billion |
Invesco V.I. Balanced-Risk Allocation Fund
Treasury prices rallied on market volatility early in the reporting period and “flight to safety” demand in the wake of the Brexit vote, but they surrendered some of those gains late in the reporting period when the US Federal Reserve raised interest rates in December and when forecasts of faster-than-expected future rate increases dampened demand. Despite negative interest rates, Japanese government bonds also posted modest gains for the reporting period. Exposure to Canadian government bonds was the sole detractor within the asset class as gains early in the year, resulting from the Canadian central bank cutting interest rates twice, weren’t enough to outweigh losses accrued toward the end of the year. Tactical positioning in government bonds bolstered Fund results due to general overweight exposure to the asset class for the year.
Please note that our strategy is principally implemented with derivative instruments that include futures, commodity-linked notes and total return swaps. Therefore, all or most of the performance of the strategy, both positive and negative, can be attributed to these instruments. Derivatives can be a cost-effective way to gain exposure to asset classes. However, derivatives may amplify traditional investment risks through the creation of leverage and may be less liquid than traditional securities.
Thank you for your continued investment in 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*
*Data for Lipper VUF Absolute Return Funds Classification Average are from January 31, 2009.
1 | Source: FactSet Research Systems Inc. |
2 | Sources(s): Invesco, FactSet Research Systems Inc. |
3 | Source: Lipper Inc. |
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (1/23/09) | 9.08 | % | |||
5 Years | 5.06 | ||||
1 Year | 11.64 | ||||
Series II Shares | |||||
Inception (1/23/09) | 8.81 | % | |||
5 Years | 4.81 | ||||
1 Year | 11.51 |
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 1.24% and 1.49%, respectively.1 The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Balanced-Risk Allocation Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent
the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
1 | The expense ratio includes acquired fund fees and expenses of the underlying funds in which the Fund invests of 0.09% 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, 2018. 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, 2018. 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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Active trading risk. Active trading of portfolio securities may result in added expenses, a lower return and increased tax liability.
Changing fixed income market conditions risk. The current 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 near, at or below zero. Increases 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.
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. 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, among other consequences, limit the Fund’s ability to pursue its investment strategy.
Commodity-linked notes risk. In addition to risks associated with the underlying commodities, investments in commodity-linked notes may be subject to additional risks, such as non-payment of interest and loss of principal, counter-party risk, lack of a secondary market and risk of greater volatility than
traditional equity and debt securities. The value of the commodity-linked notes the Fund buys may fluctuate significantly because the values of the underlying investments to which they are linked are themselves volatile. Additionally, certain commodity-linked notes employ “economic” leverage by requiring payment by the issuer of an amount that is a multiple of the price increase or decrease of the underlying commodity, commodity index, or other economic variable. Such economic leverage will increase the volatility of the value of these commodity-linked notes and the Fund to the extent it invests in such notes.
Commodity risk. The Fund may have 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. Volatility in the commodities markets may be caused by 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, investment and trading activities of mutual funds, hedge funds and commodities funds, and factors such as drought, floods, weather, livestock disease, embargoes, tariffs and other regulatory developments or supply and demand disruptions. Because the Fund’s performance may be linked to the performance of volatile commodities, investors should be willing to assume the risks of potentially significant fluctuations in the value of the Fund’s shares.
Correlation risk. Because the Fund’s investment strategy seeks to balance risk across three asset classes and, within each asset class, across different countries and investments, to the extent either the asset classes or the selected countries and investments become correlated in a way not anticipated by the Adviser, the Fund’s risk allocation process may result in magnified risks and loss instead of balancing (reducing) the risk of loss.
Debt securities risk. The prices of debt securities held by the Fund will be affected by changes in interest rates, the creditworthiness of the issuer and other factors. An increase in prevailing interest
rates typically causes the value of existing debt securities to fall and often has a greater impact on longer-duration debt securities and higher quality debt securities. Falling interest rates will cause the Fund to reinvest the proceeds of debt securities that have been repaid by the issuer at lower interest rates. Falling interest rates may also reduce the Fund’s distributable income because interest payments on floating rate debt instruments held by the Fund will decline. The Fund could lose money on investments in debt securities if the issuer or borrower fails to meet its obligations to make interest payments and/or to repay principal in a timely manner. Changes in an issuer’s financial strength, the market’s perception of such strength or in the credit rating of the issuer or the security may affect the value of debt securities. The Adviser’s credit analysis may fail to anticipate such changes, which could result in buying a debt security at an inopportune time or failing to sell a debt security in advance of a price decline or other credit event.
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
Invesco V.I. Balanced-Risk Allocation Fund
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/bonds.
Emerging markets securities risk. Emerging markets (also referred to as developing markets) are generally subject to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Exchange-traded funds risk. In addition to the risks associated with the underlying assets held by the exchange-traded fund, investments in exchange-traded funds are subject to the following additional risks: (1) an exchange-traded fund’s shares may trade above or below its net asset value; (2) an active trading market for the exchange-traded fund’s shares may not develop or be maintained; (3) trading an exchange-traded fund’s shares may be halted by the listing exchange; (4) a passively managed exchange-traded fund may not track the performance of the reference asset; and (5) a passively managed exchange-traded fund may hold troubled securities. Investment 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 exchange-traded funds in which the Fund may invest are leveraged, which may result in economic leverage, permitting the Fund to gain exposure that is greater than would be the case in an
unlevered instrument and potentially resulting in greater volatility.
Exchange-traded notes risk. Exchange-traded notes are subject to credit risk, counterparty risk, and the risk that the value of the exchange-traded note may drop due to a downgrade in the issuer’s credit rating. 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, and economic, legal, political, or geographic events that affect the referenced underlying market or assets. The Fund will bear its proportionate share of any fees and expenses borne by an exchange-traded note in which it invests. For certain exchange-traded notes, there may be restrictions on the Fund’s right to redeem its investment, which is meant to be held until maturity.
Foreign government debt risk. Investments in foreign government debt securities (sometimes referred to as sovereign debt securities) 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 adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods
of time. Currency hedging strategies, if used, are not always successful.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. 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. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Short position risk. Because the Fund’s potential loss on a short position arises from increases in the value of the asset sold short, the Fund will incur a loss on a short position, which is theoretically unlimited, if the price of the asset sold short increases from the short sale price. The counterparty to a short position or other market factors may prevent the Fund from closing out a short position at a desirable time or price and may reduce or eliminate any gain or result in a loss. In a rising market, the Fund’s short positions will cause the Fund to underperform the overall market and its peers that do not engage in shorting. If the Fund holds both long and short positions, and both positions decline simultaneously, the short positions will not provide any buffer (hedge) from declines in value of the Fund’s long positions. Certain types of short positions involve leverage, which may exaggerate any losses, potentially more than the actual cost of the investment, and will increase the volatility of the Fund’s returns.
Invesco V.I. Balanced-Risk Allocation Fund
Subsidiary risk. By investing in the Subsidiary, the Fund is indirectly exposed to risks associated with the Subsidiary’s investments. The Subsidiary is not registered under the Investment Company Act of 1940, 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 Cayman Islands, under which the Fund and the Subsidiary, respectively, are organized, could result in the inability of the Fund and/or the Subsidiary to operate as described in this prospectus and the SAI, and could negatively affect the Fund and its shareholders.
US government obligations risk. Obligations of US government agencies and authorities receive varying levels of support and may not be backed by the full faith and credit of the US government, which could affect the Fund’s ability to recover should they default. No assurance can be given that the US government will provide financial support to its agencies and authorities if it is not obligated by law to do so.
Volatility risk. Although the Fund’s investment strategy targets a specific volatility level, certain of the Fund’s investments may 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 WorldSM 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 Invesco 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 Bloomberg Barclays U.S. Aggregate Index (40%). Prior to May 2, 2011, the index comprised the MSCI World Index (65%), J.P. Morgan GBI Global Index (30%) and Citigroup 3-Month Treasury Bill Index (5%).
The Lipper VUF Absolute Return Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper Absolute Return Funds Classification.
The Bloomberg Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The J.P. Morgan GBI Global Index is a total return, market cap-weighted index that is rebalanced monthly and includes the following countries: Australia, Belgium, Canada, Denmark, Germany, Italy, Japan, Netherlands, Spain, Sweden, the UK and the US.
The Citigroup 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last three month Treasury bill issues.
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, 2016
Interest Rate | Maturity Date | Principal Amount | Value | |||||||||||||
U.S. Treasury Securities–15.75% |
| |||||||||||||||
U.S. Treasury Bills–12.03%(a) | ||||||||||||||||
U.S. Treasury Bills(b) | 0.34 | % | 01/05/2017 | $ | 10,500,000 | $ | 10,499,764 | |||||||||
U.S. Treasury Bills(c) | 0.34 | % | 01/05/2017 | 3,000,000 | 2,999,932 | |||||||||||
U.S. Treasury Bills(b) | 0.40 | % | 01/26/2017 | 10,500,000 | 10,497,149 | |||||||||||
U.S. Treasury Bills(b)(c) | 0.40 | % | 01/26/2017 | 5,360,000 | 5,358,544 | |||||||||||
U.S. Treasury Bills | 0.46 | % | 04/06/2017 | 32,000,000 | 31,957,007 | |||||||||||
U.S. Treasury Bills(b)(c) | 0.46 | % | 04/06/2017 | 8,700,000 | 8,688,311 | |||||||||||
U.S. Treasury Bills | 0.61 | % | 06/08/2017 | 12,490,000 | 12,456,709 | |||||||||||
U.S. Treasury Bills(c) | 0.61 | % | 06/08/2017 | 16,540,000 | 16,495,914 | |||||||||||
U.S. Treasury Bills(c) | 0.64 | % | 06/15/2017 | 5,370,000 | 5,355,287 | |||||||||||
U.S. Treasury Bills(b) | 0.48 | % | 06/22/2017 | 30,000,000 | 29,914,278 | |||||||||||
U.S. Treasury Bills(b)(c) | 0.57 | % | 08/17/2017 | 3,980,000 | 3,963,382 | |||||||||||
138,186,277 | ||||||||||||||||
U.S. Treasury Notes–3.72%(d) | ||||||||||||||||
U.S. Treasury Floating Rate Notes(c) | 0.83 | % | 01/31/2018 | 19,970,000 | 20,030,549 | |||||||||||
U.S. Treasury Floating Rate Notes(c) | 0.75 | % | 04/30/2018 | 17,534,000 | 17,568,244 | |||||||||||
U.S. Treasury Floating Rate Notes(c) | 0.73 | % | 07/31/2018 | 5,100,000 | 5,104,766 | |||||||||||
42,703,559 | ||||||||||||||||
Total U.S. Treasury Securities (Cost $180,810,858) | 180,889,836 | |||||||||||||||
Expiration Date | ||||||||||||||||
Commodity-Linked Securities–2.08% | ||||||||||||||||
Canadian Imperial Bank of Commerce EMTN, U.S. Federal Funds Effective Rate minus 0.02% (linked to the Canadian Imperial Bank of Commerce Custom 5 Agriculture Commodity Index, multiplied by 2)(c)(e) | 08/22/2017 | 10,470,000 | 8,834,683 | |||||||||||||
Cargill, Inc., Commodity Linked Notes, one month USD LIBOR rate minus 0.10% (linked to the Monthly Rebalance Commodity Excess Return Index, multiplied by 2)(c)(e) | 08/07/2017 | 16,680,000 | 14,982,610 | |||||||||||||
Total Commodity-Linked Securities (Cost $27,151,874) | 23,817,293 | |||||||||||||||
Shares | ||||||||||||||||
Money Market Funds–80.54% | ||||||||||||||||
Government & Agency Portfolio–Institutional Class, 0.43%(f) | 241,923,715 | 241,923,715 | ||||||||||||||
Invesco Government Money Market Fund–Cash Reserve Shares, 0.01%(f) | 11,050,213 | 11,050,213 | ||||||||||||||
Invesco V.I. Government Money Market Fund–Series I, 0.25%(f) | 16,640,310 | 16,640,310 | ||||||||||||||
Premier U.S. Government Money Portfolio–Institutional Class, 0.41%(f) | 125,439,345 | 125,439,345 | ||||||||||||||
STIC (Global Series) PLC — U.S. Dollar Liquidity Portfolio–Institutional Class (Ireland), | 101,015,154 | 101,015,154 | ||||||||||||||
STIT Treasury Portfolio–Institutional Class, 0.37%(f) | 241,923,715 | 241,923,715 | ||||||||||||||
Treasury Obligations Portfolio–Institutional Class, 0.24%(f) | 186,819,610 | 186,819,610 | ||||||||||||||
Total Money Market Funds (Cost $924,812,062) | 924,812,062 | |||||||||||||||
TOTAL INVESTMENTS–98.37% (Cost $1,132,774,794) | 1,129,519,191 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–1.63% | 18,733,460 | |||||||||||||||
NET ASSETS–100.00% | $ | 1,148,252,651 |
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(g) | ||||||||||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||||||
Brent Crude(c) | Long | 306 | July–2017 | $ | 17,962,200 | $ | 809,892 | |||||||||||||||||||||
Gasoline Reformulated Blendstock Oxygenate Blending(c) | Long | 387 | February–2017 | 27,158,809 | 1,565,528 | |||||||||||||||||||||||
Heating Oil(c) | Long | 131 | April–2017 | 9,570,729 | 850,820 | |||||||||||||||||||||||
Natural Gas(c) | Long | 87 | December–2017 | 3,221,610 | 191,050 | |||||||||||||||||||||||
Silver(c) | Long | 340 | March–2017 | 27,181,300 | (1,189,783 | ) | ||||||||||||||||||||||
WTI Crude(c) | Long | 274 | June–2017 | 15,478,260 | 544,926 | |||||||||||||||||||||||
Subtotal — Commodity Risk | 2,772,433 | |||||||||||||||||||||||||||
Dow Jones EURO STOXX 50 Index | Long | 2,600 | March–2017 | 89,679,365 | 2,495,697 | |||||||||||||||||||||||
E-Mini S&P 500 Index | Long | 660 | March–2017 | 73,794,600 | (575,727 | ) | ||||||||||||||||||||||
FTSE 100 Index | Long | 950 | March–2017 | 82,560,083 | 2,222,823 | |||||||||||||||||||||||
Hang Seng Index | Long | 457 | January–2017 | 64,715,318 | 1,207,923 | |||||||||||||||||||||||
Russell 2000 Index Mini | Long | 914 | March–2017 | 62,010,330 | (920,645 | ) | ||||||||||||||||||||||
Tokyo Stock Price Index | Long | 657 | March–2017 | 85,336,357 | 2,226,930 | |||||||||||||||||||||||
Subtotal — Equity Risk | 6,657,001 | |||||||||||||||||||||||||||
Australia 10 Year Bonds | Long | 2,270 | March–2017 | 209,275,366 | 671,403 | |||||||||||||||||||||||
Canada 10 Year Bonds | Long | 1,880 | March–2017 | 192,543,024 | (2,241,654 | ) | ||||||||||||||||||||||
Euro Bonds | Long | 96 | March–2017 | 16,586,504 | 252,583 | |||||||||||||||||||||||
Long Gilt | Long | 710 | March–2017 | 110,128,555 | 2,387,201 | |||||||||||||||||||||||
U.S. Treasury 20 Year Bonds | Long | 654 | March–2017 | 98,529,188 | (500,379 | ) | ||||||||||||||||||||||
Subtotal — Interest Rate Risk | 569,154 | |||||||||||||||||||||||||||
Total Futures Contracts | $ | 9,998,588 | ||||||||||||||||||||||||||
Open Over-The-Counter Total Return Swap Agreements | ||||||||||||||||||||||||||||
Counterparty | Pay/Receive | Reference Entity | Fixed Rate | Number of Contracts | Termination Date | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||||
Barclays Bank PLC | Receive | | Barclays Commodity Strategy 1452 Excess Return Index | | 0.33 | % | 39,000 | October-2017 | $ | 18,250,366 | $ | (615,315 | ) | |||||||||||||||
Canadian Imperial Bank of Commerce | Receive | | Canadian Imperial Bank of Commerce Dynamic Roll LME Copper Excess Return Index 2 | | 0.30 | 305,000 | April-2017 | 22,212,540 | (884,957 | ) | ||||||||||||||||||
Cargill, Inc. | Receive | | Monthly Rebalance Commodity Excess Return Index | | 0.47 | 28,700 | July-2017 | 25,360,626 | 0 | |||||||||||||||||||
Cargill, Inc. | Receive | | Single Commodity Index Excess Return | | 0.12 | 12,200 | January-2017 | 9,905,246 | 0 | |||||||||||||||||||
Goldman Sachs International | Receive | | Goldman Sachs Alpha Basket B823 Excess Return Strategy | | 0.40 | 269,000 | July-2017 | 24,078,645 | (526,683 | ) | ||||||||||||||||||
J.P. Morgan Chase Bank, N.A. | Receive | | J.P. Morgan Contag Beta Gas Oil Excess Return Index | | 0.25 | 44,000 | April-2017 | 9,371,626 | 196,671 | |||||||||||||||||||
J.P. Morgan Chase Bank, N.A. | Receive | | S&P GSCI Gold Index Excess Return | | 0.09 | 163,000 | October-2017 | 15,219,766 | 282,675 | |||||||||||||||||||
Merrill Lynch International | Receive | | Merrill Lynch Gold Excess Return Index | | 0.14 | 119,500 | June-2017 | 17,811,845 | 0 | |||||||||||||||||||
Merrill Lynch International | Receive | | MLCX Aluminum Annual Excess Return Index | | 0.28 | 62,000 | September-2017 | 5,902,286 | 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) | ||||||||||||||||||||||||||||
Counterparty | Pay/Receive | Reference Entity | Fixed Rate | Number of Contracts | Termination Date | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||||
Merrill Lynch International | Receive | | MLCX Natural Gas Annual Excess Return Index | | 0.25 | 266,000 | August-2017 | $ | 14,326,531 | $ | 0 | |||||||||||||||||
Morgan Stanley Capital Services LLC | Receive | | S&P GSCI Aluminum Dynamic Roll Index Excess Return | | 0.38 | 232,000 | October-2017 | 21,434,890 | (309,611 | ) | ||||||||||||||||||
Subtotal — Commodity Risk | (1,857,220 | ) | ||||||||||||||||||||||||||
Goldman Sachs International | Receive | | Hang Seng Index Futures | | — | 109 | January-2017 | 15,435,382 | 278,045 | |||||||||||||||||||
Subtotal — Equity Risk | 278,045 | |||||||||||||||||||||||||||
Total Swap Agreements | $ | (1,579,175 | ) |
Investments Abbreviations:
EMTN | – European Medium Term Notes | |
LIBOR | – London Interbank Offered Rate | |
USD | – U.S. Dollar |
Index Information:
Canadian Imperial Bank of Commerce Custom 5 Agriculture Commodity Index | – a basket of indices that provide exposure to various components of the agriculture markets. The underlying commodities comprising the indices are: Cocoa, Coffee, Corn, Cotton, Lean Hogs, Live Cattle, Soybean Meal, Soybean Oil, Soybeans, Sugar and Wheat. | |
Monthly Rebalance Commodity Excess Return Index | – a commodity index composed of futures contracts on Cocoa, Coffee ‘C’, Corn, Cotton No.2, Lean Hogs, Live Cattle, Soybean Meal, Soybean Oil, Soybeans, Sugar No.11 and Wheat. | |
Barclays Commodity Strategy 1452 Excess Return Index | – a commodity index that provides exposure to futures contracts on Copper. | |
Single Commodity Index Excess Return | – a commodity index composed of futures contracts on Gold. | |
Goldman Sachs Alpha Basket B823 Excess Return Strategy | – a basket of indices that provide exposure to various components of the agriculture markets. The underlying commodities comprising the indices are: Cocoa, Coffee ‘C’, Corn, Cotton, Lean Hogs, Live Cattle, Soybean Meal, Soybean Oil, Soybeans, Sugar and Wheat. |
Notes to Consolidated Schedule of Investments:
(a) | Securities traded on a discount basis. The interest rates shown represent the discount rates at the time of purchase by the Fund. |
(b) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1L and Note 4. |
(c) | The investment is owned by the subsidiary. See Note 5. |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2016. |
(e) | 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, 2016 was $23,817,293, which represented 2.08% of the Fund’s Net Assets. |
(f) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
(g) | Futures collateralized by $9,191,000 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, 2016
Assets: |
| |||
Investments, at value (Cost $207,962,732) | $ | 204,707,129 | ||
Investments in affiliated money market funds, at value and cost | 924,812,062 | |||
Total investments, at value (Cost $1,132,774,794) | 1,129,519,191 | |||
Receivable for: | ||||
Deposits with brokers | 21,152,300 | |||
Variation margin — futures | 215,392 | |||
Fund shares sold | 679,789 | |||
Dividends and interest | 376,378 | |||
Fund expenses absorbed | 16,970 | |||
Swaps receivable — OTC | 1,042,837 | |||
Investment for trustee deferred compensation and retirement plans | 93,597 | |||
Unrealized appreciation on swap agreements — OTC | 757,391 | |||
Total assets | 1,153,853,845 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 289,822 | |||
Amount due custodian | 40,000 | |||
Swaps payable — OTC | 1,256,514 | |||
Accrued fees to affiliates | 1,510,686 | |||
Accrued trustees’ and officers’ fees and benefits | 558 | |||
Accrued other operating expenses | 59,030 | |||
Trustee deferred compensation and retirement plans | 108,018 | |||
Unrealized depreciation on swap agreements — OTC | 2,336,566 | |||
Total liabilities | 5,601,194 | |||
Net assets applicable to shares outstanding | $ | 1,148,252,651 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 1,039,735,072 | ||
Undistributed net investment income (loss) | 46,947,454 | |||
Undistributed net realized gain | 56,406,741 | |||
Net unrealized appreciation | 5,163,384 | |||
$ | 1,148,252,651 | |||
Net Assets: |
| |||
Series I | $ | 34,713,865 | ||
Series II | $ | 1,113,538,786 | ||
Shares outstanding, no par value, |
| |||
Series I | 3,059,219 | |||
Series II | 99,246,862 | |||
Series I: | ||||
Net asset value and offering price per share | $ | 11.35 | ||
Series II: | ||||
Net asset value per share | $ | 11.22 |
Consolidated Statement of Operations
For the year ended December 31, 2016
Investment income: |
| |||
Dividends from affiliated money market funds | $ | 2,844,377 | ||
Interest | 718,040 | |||
Other income | 17,870 | |||
Total investment income | 3,580,287 | |||
Expenses: | ||||
Advisory fees | 9,525,998 | |||
Administrative services fees | 1,979,206 | |||
Distribution fees — Series II | 2,519,988 | |||
Transfer agent fees | 27,601 | |||
Trustees’ and officers’ fees and benefits | 34,891 | |||
Reports to shareholders | 12,219 | |||
Professional services fees | 68,629 | |||
Other | 20,071 | |||
Total expenses | 14,188,603 | |||
Less: Fees waived | (4,641,971 | ) | ||
Net expenses | 9,546,632 | |||
Net investment income (loss) | (5,966,345 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 6,903,465 | |||
Foreign currencies | 255,461 | |||
Futures contracts | 77,154,307 | |||
Swap agreements | 25,827,051 | |||
110,140,284 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (1,370,142 | ) | ||
Foreign currencies | (33 | ) | ||
Futures contracts | 8,350,292 | |||
Swap agreements | (1,969,299 | ) | ||
5,010,818 | ||||
Net realized and unrealized gain | 115,151,102 | |||
Net increase in net assets resulting from operations | $ | 109,184,757 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (5,966,345 | ) | $ | (8,841,931 | ) | ||
Net realized gain (loss) | 110,140,284 | (27,750,892 | ) | |||||
Change in net unrealized appreciation (depreciation) | 5,010,818 | (9,109,394 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 109,184,757 | (45,702,217 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (141,115 | ) | (1,076,721 | ) | ||||
Series ll | (1,965,605 | ) | (38,929,666 | ) | ||||
Total distributions from net investment income | (2,106,720 | ) | (40,006,387 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | — | (2,241,364 | ) | |||||
Series ll | — | (87,763,065 | ) | |||||
Total distributions from net realized gains | — | (90,004,429 | ) | |||||
Share transactions–net: | ||||||||
Series l | 4,731,130 | 20,107,013 | ||||||
Series ll | 70,235,119 | 107,582,311 | ||||||
Net increase in net assets resulting from share transactions | 74,966,249 | 127,689,324 | ||||||
Net increase (decrease) in net assets | 182,044,286 | (48,023,709 | ) | |||||
Net assets: | ||||||||
Beginning of year | 966,208,365 | 1,014,232,074 | ||||||
End of year (includes undistributed net investment income (loss) of $46,947,454 and $1,567,191, respectively) | $ | 1,148,252,651 | $ | 966,208,365 |
Notes to Consolidated Financial Statements
December 31, 2016
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 and other securities that may provide leveraged and non-leveraged exposure to commodities. 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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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 asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 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 the Consolidated Statement of Changes in Net Assets, or the net investment income per share and the 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 Consolidated Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from 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. |
Invesco V.I. Balanced-Risk Allocation Fund
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the consolidated financial statements. |
The 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 the 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.
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. |
Invesco V.I. Balanced-Risk Allocation Fund
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 equitize the Fund’s cash holdings or 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 cash or liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Cash held as collateral is recorded as deposits with brokers on the Consolidated Statement of Assets and Liabilities. 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. 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.
N. | Leverage Risk — Leverage exists when the 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 leveraged 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, 2016, the effective advisory fees incurred by the Fund was 0.92%.
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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2018, 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 0.79% and Series II shares to 1.04% of average daily net assets (the “expense limits”). Prior to May 1, 2016, the Adviser had contractually agreed, through April 30, 2017, to waive advisory fees and/or reimburse expenses of shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.78% and Series II shares to 1.03% of average daily net assets (the “expense limits”). 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, 2018. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $4,641,971.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $243,897 for accounting and fund administrative services and was reimbursed $1,735,309 for fees paid to 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, 2016, 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, 2016, 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, 2016. 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 | |||||||||||||
U.S. Treasury Securities | $ | — | $ | 180,889,836 | $ | — | $ | 180,889,836 | ||||||||
Commodity-Linked Securities | — | 23,817,293 | — | 23,817,293 | ||||||||||||
Money Market Funds | 924,812,062 | — | — | 924,812,062 | ||||||||||||
924,812,062 | 204,707,129 | — | 1,129,519,191 | |||||||||||||
Futures Contracts* | 9,998,588 | — | — | 9,998,588 | ||||||||||||
Swap Agreements* | — | (1,579,175 | ) | — | (1,579,175 | ) | ||||||||||
Total Investments | $ | 934,810,650 | $ | 203,127,954 | $ | — | $ | 1,137,938,604 |
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
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, 2016:
Derivative Assets | Value | |||||||||||||||
Commodity Risk | Equity Risk | Interest Rate Risk | Total | |||||||||||||
Unrealized appreciation on futures contracts — Exchange-Traded(a) | $ | 3,962,216 | $ | 8,153,373 | $ | 3,311,187 | $ | 15,426,776 | ||||||||
Unrealized appreciation on swap agreements — OTC | 479,346 | 278,045 | — | 757,391 | ||||||||||||
Total derivative assets | 4,441,562 | 8,431,418 | 3,311,187 | 16,184,167 | ||||||||||||
Derivatives not subject to master netting agreements | (3,962,216 | ) | (8,153,373 | ) | (3,311,187 | ) | (15,426,776 | ) | ||||||||
Total derivative assets subject to master netting agreements | $ | 479,346 | $ | 278,045 | $ | — | $ | 757,391 | ||||||||
Derivative Liabilities | Value | |||||||||||||||
Commodity Risk | Equity Risk | Interest Rate Risk | Total | |||||||||||||
Unrealized depreciation on futures contracts — Exchange-Traded(a) | $ | (1,189,783 | ) | $ | (1,496,372 | ) | $ | (2,742,033 | ) | $ | (5,428,188 | ) | ||||
Unrealized depreciation on swap agreements — OTC | (2,336,566 | ) | — | — | (2,336,566 | ) | ||||||||||
Total derivative liabilities | (3,526,349 | ) | (1,496,372 | ) | (2,742,033 | ) | (7,764,754 | ) | ||||||||
Derivatives not subject to master netting agreements | 1,189,783 | 1,496,372 | 2,742,033 | 5,428,188 | ||||||||||||
Total derivative liabilities subject to master netting agreements | $ | (2,336,566 | ) | $ | — | $ | — | $ | (2,336,566 | ) |
(a) | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swap agreements. Only current day’s variation margin receivable (payable) is reported within the Consolidated Statement of Assets and Liabilities. |
Invesco V.I. Balanced-Risk Allocation Fund
Offsetting Assets and Liabilities
The table below reflects the Fund’s exposure to Counterparties subject to either an ISDA Master Agreement or other agreement for OTC derivative transactions as of December 31, 2016.
Financial Derivative Assets | Financial Derivative Liabilities | Net Value of Derivatives | Collateral (Received)/Pledged | Net Amount(a) | ||||||||||||||||||||
Counterparty | Swap Agreements | Swap Agreements | Non-Cash | Cash | ||||||||||||||||||||
Fund | ||||||||||||||||||||||||
Goldman Sachs International | $ | 278,045 | $ | (638 | ) | $ | 277,407 | $ | — | $ | — | $ | 277,407 | |||||||||||
Subtotal — Fund | 278,045 | (638 | ) | 277,407 | — | — | 277,407 | |||||||||||||||||
Subsidiary | ||||||||||||||||||||||||
Barclays Bank PLC | — | (620,999 | ) | (620,999 | ) | — | 620,999 | — | ||||||||||||||||
Cargill, Inc. | — | (735,123 | ) | (735,123 | ) | — | 640,000 | (95,123 | ) | |||||||||||||||
Canadian Imperial Bank of Commerce | 9,559 | (899,469 | ) | (889,910 | ) | — | 889,910 | — | ||||||||||||||||
Goldman Sachs International | 283 | (534,186 | ) | (533,903 | ) | — | 533,903 | — | ||||||||||||||||
J.P. Morgan Chase Bank, N.A. | 479,346 | (915 | ) | 478,431 | — | — | 478,431 | |||||||||||||||||
Merrill Lynch International | 556,733 | (12,451 | ) | 544,282 | — | — | 544,282 | |||||||||||||||||
Morgan Stanley Capital Services LLC | — | (313,037 | ) | (313,037 | ) | — | — | (313,037 | ) | |||||||||||||||
Subtotal — Subsidiary | 1,045,921 | (3,116,180 | ) | (2,070,259 | ) | — | 2,684,812 | 614,553 | ||||||||||||||||
Total | $ | 1,323,966 | $ | (3,116,818 | ) | $ | (1,792,852 | ) | $ | — | $ | 2,684,812 | $ | 891,960 |
(a) | The Fund and the Subsidiary are recognized as separate legal entities and as such are subject to separate netting arrangements with the Counterparty. |
Effect of Derivative Investments for the year ended December 31, 2016
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 | ||||||||||||||||
Commodity Risk | Equity Risk | Interest Rate Risk | Total | |||||||||||||
Realized Gain (Loss): | ||||||||||||||||
Futures contracts | $ | 12,480,486 | $ | 38,298,718 | $ | 26,375,103 | $ | 77,154,307 | ||||||||
Swap agreements | 25,827,461 | 206,583 | (206,993 | ) | 25,827,051 | |||||||||||
Change in Net Unrealized Appreciation (Depreciation): | ||||||||||||||||
Futures contracts | 6,487,779 | 3,066,904 | (1,204,391 | ) | 8,350,292 | |||||||||||
Swap agreements | (2,245,570 | ) | 276,271 | — | (1,969,299 | ) | ||||||||||
Total | $ | 42,550,156 | $ | 41,848,476 | $ | 24,963,719 | $ | 109,362,351 |
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 | $ | 1,160,403,865 | $ | 207,218,808 |
Invesco V.I. Balanced-Risk Allocation Fund
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 | $ | 223,544,123 | ||
Total liabilities | (3,631,624 | ) | ||
Net assets | 219,912,499 | |||
Total investment income | 1,153,086 | |||
Net investment income (loss) | (1,173,914 | ) | ||
Net realized gain from: | ||||
Investment securities | 6,844,102 | |||
Futures contracts | 12,480,486 | |||
Swap agreements | 25,827,461 | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (1,346,256 | ) | ||
Futures contracts | 6,487,784 | |||
Swap agreements | (2,245,571 | ) | ||
Increase in net assets resulting from operations | $ | 46,874,092 |
NOTE 6—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees 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.
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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 2,106,720 | $ | 82,398,323 | ||||
Long-term capital gain | — | 47,612,493 | ||||||
Total distributions | $ | 2,106,720 | $ | 130,010,816 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 72,906,486 | ||
Undistributed long-term gain | 36,831,418 | |||
Net unrealized appreciation (depreciation) — investments | (3,255,603 | ) | ||
Net unrealized appreciation — other investments | 2,142,223 | |||
Temporary book/tax differences | (106,945 | ) | ||
Shares of beneficial interest | 1,039,735,072 | |||
Total net assets | $ | 1,148,252,651 |
Invesco V.I. Balanced-Risk Allocation 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 (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. 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 did not have a capital loss carryforward as of December 31, 2016.
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, 2016 was $49,700,000 and $53,267,091, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $56,783,622 and $100,005,000, 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 | $ | 102,114 | ||
Aggregate unrealized (depreciation) of investment securities | (3,357,717 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (3,255,603 | ) |
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 swap agreement income and distributions from the Subsidiary, on December 31, 2016, undistributed net investment income (loss) was increased by $53,453,328, undistributed net realized gain was decreased by $53,459,488 and shares of beneficial interest was increased by $6,160. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,079,260 | $ | 23,038,972 | 1,757,785 | $ | 21,010,182 | ||||||||||
Series II | 20,137,979 | 220,328,126 | 14,484,245 | 168,905,179 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 12,271 | 141,114 | 325,942 | 3,318,085 | ||||||||||||
Series II | 172,876 | 1,965,605 | 12,581,205 | 126,692,731 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,664,871 | ) | (18,448,956 | ) | (377,523 | ) | (4,221,254 | ) | ||||||||
Series II | (14,209,711 | ) | (152,058,612 | ) | (16,310,112 | ) | (188,015,599 | ) | ||||||||
Net increase in share activity | 6,527,804 | $ | 74,966,249 | 12,461,542 | $ | 127,689,324 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 84% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Balanced-Risk Allocation 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 (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 12/31/16 | $ | 10.20 | $ | (0.04 | ) | $ | 1.24 | $ | 1.20 | $ | (0.05 | ) | $ | — | $ | (0.05 | ) | $ | 11.35 | 11.74 | % | $ | 34,714 | 0.67 | %(d)(e) | 1.12 | %(d) | (0.33 | )%(d) | 120 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 12.30 | (0.07 | ) | (0.44 | ) | (0.51 | ) | (0.52 | ) | (1.07 | ) | (1.59 | ) | 10.20 | (4.10 | ) | 26,854 | 0.69 | 1.15 | (0.61 | ) | 44 | ||||||||||||||||||||||||||||||||||
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 | (e) | 1.11 | (0.65 | ) | 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 | (e) | 1.15 | (0.59 | ) | 188 | ||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 10.08 | (0.06 | ) | 1.22 | 1.16 | (0.02 | ) | — | (0.02 | ) | 11.22 | 11.51 | 1,113,539 | 0.92 | (d)(e) | 1.37 | (d) | (0.58 | )(d) | 120 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 12.17 | (0.10 | ) | (0.44 | ) | (0.54 | ) | (0.48 | ) | (1.07 | ) | (1.55 | ) | 10.08 | (4.40 | ) | 939,354 | 0.94 | 1.40 | (0.86 | ) | 44 | ||||||||||||||||||||||||||||||||||
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 | (e) | 1.36 | (0.90 | ) | 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 | (e) | 1.40 | (0.84 | ) | 188 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $30,690 and $1,007,995 for Series I and Series II shares, respectively. |
(e) | 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 0.12%, 0.09% and 0.02% for the years ended December 31, 2016, 2014 and 2012, respectively. |
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 the Invesco V.I. Balanced-Risk Allocation Fund:
In our opinion, the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, and the related consolidated statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the consolidated financial position of the Invesco V.I. Balanced-Risk Allocation Fund and its subsidiary (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, the results of their operations for the year then ended, the changes in their 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,012.20 | $ | 3.44 | $ | 1,021.72 | $ | 3.46 | 0.68 | % | ||||||||||||
Series II | 1,000.00 | 1,012.70 | 4.71 | 1,020.46 | 4.72 | 0.93 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Balanced-Risk Allocation Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2016:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0.00 | % | ||
U.S. Treasury Obligations* | 0.46 | % |
* | 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
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, 2016, Series I shares of Invesco V.I. Comstock Fund (the Fund) underperformed the Russell 1000 Value Index, the Fund’s style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 17.30 | % | |||
Series II Shares | 16.99 | ||||
S&P 500 Index▼ (Broad Market Index) | 11.96 | ||||
Russell 1000 Value Index▼ (Style-Specific Index) | 17.34 | ||||
Lipper VUF Large-Cap Value Funds Index∎ (Peer Group Index) | 15.55 |
Source(s): ▼FactSet Research Systems Inc.; ∎Lipper Inc.
Market conditions and your Fund
During the year ended December 31, 2016, the US economy continued to expand. US gross domestic product (GDP) showed the US economy grew by 3.5% in the third quarter.1 However, annualized GDP is expected to be much lower. Employment data were mixed, with unemployment ending the year at 4.7%.2 Oil prices traded in a range from the high $20s to the low $50s during the reporting period.3 Major US stock market indexes posted gains for the reporting period, with most major market indexes hitting record highs; however, the markets were fairly volatile during the first half of the year.
Stocks began calendar year 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets sharply lower. Markets again recovered, and major US equity indexes hit record highs during the
summer. Following the surprise outcome of the US presidential election, a stock market rally sent major US equity market indexes to new record highs. The rally was led by financials, gaining on the belief that they might benefit from reduced federal regulation. Also in November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 – its only increase during the reporting period.4
For the reporting period, most US equity market indexes delivered strong gains, with value stocks – as a group – outperforming growth stocks by a large margin, regardless of market capitalization. All sectors within the Fund’s style-specific benchmark, the Russell 1000 Value Index, had positive performance with the materials, energy, telecommunication services, industrials and financials sectors posting returns of over 20% for the reporting period.
On the positive side of sector performance, stock selection in and an overweight exposure to the financials sector
contributed to the Fund’s relative performance. Within banks, Bank of America and JPMorgan Chase were large contributors on a relative and absolute basis. Within diversified financials, Morgan Stanley was a top performer for the reporting period, outperforming the sector and style-specific benchmark. Financial stocks rallied during the second half of the year, notably post-election, as large banks rallied on expectations of a more lenient regulatory environment from the new presidential administration.
Strong stock selection in and an overweight exposure to the information technology sector also boosted the Fund’s relative performance for the year. Within software, Microsoft and Symantec were large contributors. Within hardware storage and peripherals, NetApp was a large contributor. Symantec’s stock rallied after it announced a deal to buy privately held Blue Coat, a technology and cloud access security firm. In the second half of the year, NetApp reported smaller-than-expected declines in its mature products area and growth in the company’s strategic solutions area. Investors also welcomed strong expense management.
Having no exposure to the real estate sector and material underweight exposure to the consumer staples sector were large contributors to the Fund’s relative performance, as these sectors were the bottom-performing sectors in the Russell 1000 Value index for the year. The portfolio has remained materially underweight in these areas of the market because we believe these sectors are generally overvalued, as investors have driven up stock prices in a quest for yield in a low interest rate environment.
Stock selection in the energy sector also enhanced relative performance. Devon Energy, Canadian Natural Resources
Portfolio Composition | |||||
By sector | % of total net assets |
Financials | 36.8 | % | |||
Energy | 17.1 | ||||
Consumer Discretionary | 10.5 | ||||
Information Technology | 9.8 | ||||
Health Care | 9.7 | ||||
Industrials | 9.5 | ||||
Consumer Staples | 3.1 | ||||
Materials | 1.8 | ||||
Telecommunication Services | 1.0 | ||||
Utilities | 0.6 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 0.1 |
Top 10 Equity Holdings* | |||||
% of total net assets |
1. Citigroup Inc. | 5.9 | % | |||
2. JPMorgan Chase & Co. | 4.7 | ||||
3. Bank of America Corp. | 4.2 | ||||
4. Carnival Corp. | 2.7 | ||||
5. Suncor Energy, Inc. | 2.5 | ||||
6. Cisco Systems, Inc. | 2.5 | ||||
7. PNC Financial Services Group, Inc. (The) | 2.1 | ||||
8. MetLife, Inc. | 2.1 | ||||
9. Royal Dutch Shell PLC- Class A -ADR | 2.0 | ||||
10. Morgan Stanley | 2.0 |
Total Net Assets | $ | 1.9 billion | |||
Total Number of Holdings* | 76 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. Comstock Fund
and SunCor Energy had strong performance and outperformed the style-specific benchmark and the energy sector. Devon Energy, a top energy holding, reported earnings higher than forecast for the first three quarters of the year.
On the negative side, a material overweight allocation to consumer discretionary stocks was a detractor for the reporting period. Having a material overweight exposure to Carnival was a large detractor, followed by media company, Viacom. The large cruise line operator’s stock sold off after the Brexit decision due to Carnival’s foreign exposure, even though the company beat earnings expectations during that time. Prior to the Brexit decision, investors were focused on oil prices and the impact on the cruise line’s margin recovery. We sold Viacom, a long-term holding, before the close of the reporting period after we came to the conclusion the company’s future risk-reward prospects had deteriorated.
Stock selection within the telecommunication services sector also dampened Fund performance. Fund performance was hindered due to Frontier Communications performing poorly and not owning AT&T, which posted returns over 20% for the year, outperforming the sector and style-specific benchmark.
Stock selection in the health care sector also dampened the Fund’s relative performance. Express Scripts, a pharmacy benefits manager, and Novartis, a major European pharmaceutical firm, were large detractors – both posting negative double-digit returns for the reporting period. We sold Express Scripts during the reporting period due to projected pricing and margin pressure, given potential regulations on prescription drugs.
We used currency forward contracts during the reporting period for the purpose of hedging currency exposure of non-US-based companies held in the Fund. Derivatives were used solely for the purpose of hedging and not for speculative purposes or leverage. The use of currency forward contracts had a positive impact on the Fund’s performance relative to the Russell 1000 Value Index for the reporting period.
At the close of the reporting period, the portfolio’s financials sector weighting was overweight to the Fund’s style-specific benchmark, as we had a favorable view of large banks within financials. We also maintained a constructive view on the long–term prospects for our energy holdings as we believe supply and demand for oil should balance over time. The portfolio’s exposure in each sector has a higher beta5 than the benchmark. Therefore, the portfolio should be more sensitive to broad moves within these sectors for the foreseeable future.
Thank you for your investment in Invesco V.I. Comstock Fund and for sharing our long-term investment horizon.
1 | Source: Bureau of Economic Analysis |
2 | Source: Bureau of Labor Statistics |
3 | Source: Thompson-Reuters |
4 | Source: US Federal Reserve |
5 | 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 and Chief Investment Officer for Invesco US value | ||
disciplines, 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 Graduate 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 from Columbia University. | ||
Charles DyReyes Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Comstock Fund. He joined | ||
Invesco in 2015. Mr. DyReyes earned a BS in finance from Lehigh University. | ||
James (Jay) 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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (4/30/99) | 6.93 | % | |||
10 Years | 6.09 | ||||
5 Years | 14.36 | ||||
1 Year | 17.30 | ||||
Series II Shares | |||||
Inception (9/18/00) | 6.97 | % | |||
10 Years | 5.82 | ||||
5 Years | 14.07 | ||||
1 Year | 16.99 |
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, prior to June 1, 2010, 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 0.83% and 1.08%, 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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, 2017. 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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. The Fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer.
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.
Emerging markets securities risk. Emerging markets (also referred to as developing markets) are generally subject to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
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. Shares of real estate related companies, which tend to be small- and mid-cap companies, may be more volatile and less liquid.
Sector focus risk. The Fund may from time to time invest a significant amount of its assets (i.e. over 25%) in one market sector or group of related industries. In this event, the Fund’s performance will depend to a greater extent on the overall condition of the sector or group of industries and there is increased risk that the Fund will lose significant value if conditions adversely affect that sector or group of industries.
Small- and mid-capitalization companies risks. Small- and mid-capitalization companies tend to be more vulnerable to changing market conditions, may have little or no operating history or track record of success, and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
Value investing style risk. A value investing style subjects the Fund 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.
Invesco V.I. Comstock Fund
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the U.S. 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, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.97% |
| |||||||
Aerospace & Defense–2.05% | ||||||||
Arconic Inc. | 589,517 | $ | 10,929,639 | |||||
Textron Inc. | 590,484 | 28,673,903 | ||||||
39,603,542 | ||||||||
Aluminum–0.29% | ||||||||
Alcoa Corp. | 196,505 | 5,517,860 | ||||||
Apparel, Accessories & Luxury Goods–0.83% | ||||||||
Michael Kors Holdings Ltd.(b) | 375,634 | 16,144,749 | ||||||
Asset Management & Custody Banks–3.21% | ||||||||
Bank of New York Mellon Corp. (The) | 505,580 | 23,954,380 | ||||||
State Street Corp. | 492,408 | 38,269,950 | ||||||
62,224,330 | ||||||||
Automobile Manufacturers–1.92% | ||||||||
General Motors Co. | 1,066,668 | 37,162,713 | ||||||
Automotive Retail–0.54% | ||||||||
Advance Auto Parts, Inc. | 61,551 | 10,409,505 | ||||||
Biotechnology–2.44% | ||||||||
AbbVie Inc. | 208,820 | 13,076,309 | ||||||
Biogen Inc.(b) | 65,945 | 18,700,683 | ||||||
Gilead Sciences, Inc. | 215,230 | 15,412,620 | ||||||
47,189,612 | ||||||||
Broadcasting–0.60% | ||||||||
CBS Corp.–Class B | 182,890 | 11,635,462 | ||||||
Building Products–1.37% | ||||||||
Johnson Controls International PLC | 645,611 | 26,592,717 | ||||||
Cable & Satellite–1.82% | ||||||||
Charter Communications, Inc.–Class A(b) | 49,815 | 14,342,735 | ||||||
Comcast Corp.–Class A | 302,733 | 20,903,713 | ||||||
35,246,448 | ||||||||
Communications Equipment–2.45% | ||||||||
Cisco Systems, Inc. | 1,569,195 | 47,421,073 | ||||||
Construction Machinery & Heavy Trucks–1.94% | ||||||||
Caterpillar Inc. | 405,429 | 37,599,485 | ||||||
Consumer Finance–1.30% | ||||||||
Ally Financial Inc. | 1,320,388 | 25,113,780 | ||||||
Data Processing & Outsourced Services–0.69% | ||||||||
PayPal Holdings, Inc.(b) | 339,306 | 13,392,408 | ||||||
Diversified Banks–17.22% | ||||||||
Bank of America Corp. | 3,715,513 | 82,112,837 | ||||||
Citigroup Inc. | 1,903,808 | 113,143,310 | ||||||
JPMorgan Chase & Co. | 1,044,251 | 90,108,419 | ||||||
U.S. Bancorp | 180,508 | 9,272,696 |
Shares | Value | |||||||
Diversified Banks–(continued) | ||||||||
Wells Fargo & Co. | 701,220 | $ | 38,644,234 | |||||
333,281,496 | ||||||||
Drug Retail–0.89% | ||||||||
CVS Health Corp. | 218,488 | 17,240,888 | ||||||
Electric Utilities–0.61% | ||||||||
FirstEnergy Corp. | 380,148 | 11,773,184 | ||||||
Electrical Components & Equipment–2.09% | ||||||||
Eaton Corp. PLC | 281,846 | 18,909,048 | ||||||
Emerson Electric Co. | 385,155 | 21,472,391 | ||||||
40,381,439 | ||||||||
Fertilizers & Agricultural Chemicals–0.62% | ||||||||
CF Industries Holdings, Inc. | 383,124 | 12,060,744 | ||||||
General Merchandise Stores–1.04% | ||||||||
Target Corp. | 278,204 | 20,094,675 | ||||||
Health Care Equipment–0.68% | ||||||||
Medtronic PLC | 183,601 | 13,077,899 | ||||||
Hotels, Resorts & Cruise Lines–2.71% | ||||||||
Carnival Corp. | 1,005,784 | 52,361,115 | ||||||
Hypermarkets & Super Centers–0.99% | ||||||||
Wal-Mart Stores, Inc. | 278,088 | 19,221,443 | ||||||
Industrial Conglomerates–1.32% | ||||||||
General Electric Co. | 808,983 | 25,563,863 | ||||||
Industrial Machinery–0.72% | ||||||||
Ingersoll-Rand PLC | 185,716 | 13,936,129 | ||||||
Integrated Oil & Gas–9.08% | ||||||||
BP PLC–ADR (United Kingdom) | 945,605 | 35,346,715 | ||||||
Chevron Corp. | 305,845 | 35,997,956 | ||||||
Occidental Petroleum Corp. | 239,487 | 17,058,659 | ||||||
Royal Dutch Shell PLC–Class A–ADR (United Kingdom) | 719,610 | 39,132,392 | ||||||
Suncor Energy, Inc. (Canada) | 1,476,199 | 48,256,945 | ||||||
175,792,667 | ||||||||
Integrated Telecommunication Services–0.66% | ||||||||
Frontier Communications Corp. | 3,777,402 | 12,767,619 | ||||||
Internet Software & Services–1.68% | ||||||||
eBay Inc.(b) | 906,749 | 26,921,378 | ||||||
Yahoo! Inc.(b) | 146,550 | 5,667,088 | ||||||
32,588,466 | ||||||||
Investment Banking & Brokerage–3.38% | ||||||||
Goldman Sachs Group, Inc. (The) | 111,516 | 26,702,506 | ||||||
Morgan Stanley | 917,989 | 38,785,035 | ||||||
65,487,541 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Shares | Value | |||||||
Life & Health Insurance–3.02% | ||||||||
Aflac, Inc. | 259,026 | $ | 18,028,209 | |||||
MetLife, Inc. | 751,610 | 40,504,263 | ||||||
58,532,472 | ||||||||
Managed Health Care–1.06% | ||||||||
Anthem, Inc. | 143,252 | 20,595,340 | ||||||
Movies & Entertainment–1.05% | ||||||||
Twenty-First Century Fox, Inc.–Class B | 748,998 | 20,410,195 | ||||||
Multi-Line Insurance–1.55% | ||||||||
American International Group, Inc. | 458,836 | 29,966,579 | ||||||
Oil & Gas Equipment & Services–2.20% | ||||||||
Halliburton Co. | 442,448 | 23,932,012 | ||||||
Weatherford International PLC(b) | 3,729,825 | 18,611,827 | ||||||
42,543,839 | ||||||||
Oil & Gas Exploration & Production–5.83% | ||||||||
Canadian Natural Resources Ltd. (Canada) | 513,665 | 16,367,968 | ||||||
Devon Energy Corp. | 727,803 | 33,238,763 | ||||||
Hess Corp. | 432,005 | 26,909,591 | ||||||
Marathon Oil Corp. | 1,100,346 | 19,046,989 | ||||||
QEP Resources Inc.(b) | 934,406 | 17,202,415 | ||||||
112,765,726 | ||||||||
Packaged Foods & Meats–0.28% | ||||||||
Mondelez International, Inc.–Class A | 123,644 | 5,481,139 | ||||||
Paper Packaging–0.92% | ||||||||
International Paper Co. | 334,910 | 17,770,325 | ||||||
Personal Products–0.51% | ||||||||
Unilever N.V.–New York Shares (United Kingdom) | 238,614 | 9,797,491 | ||||||
Pharmaceuticals–5.53% | ||||||||
Merck & Co., Inc. | 457,038 | 26,905,827 | ||||||
Novartis AG (Switzerland) | 221,003 | 16,081,232 | ||||||
Pfizer Inc. | 1,117,130 | 36,284,382 | ||||||
Sanofi -ADR (France) | 688,733 | 27,852,363 | ||||||
107,123,804 |
Shares | Value | |||||||
Property & Casualty Insurance–1.47% | ||||||||
Allstate Corp. (The) | 382,946 | $ | 28,383,958 | |||||
Regional Banks–5.62% | ||||||||
Citizens Financial Group, Inc. | 638,003 | 22,732,047 | ||||||
Fifth Third Bancorp | 1,356,167 | 36,575,824 | ||||||
KeyCorp | 440,231 | 8,043,020 | ||||||
PNC Financial Services Group, Inc. (The) | 354,937 | 41,513,432 | ||||||
108,864,323 | ||||||||
Semiconductors–1.23% | ||||||||
Intel Corp. | 656,099 | 23,796,711 | ||||||
Soft Drinks–0.42% | ||||||||
Coca-Cola Co. (The) | 194,551 | 8,066,084 | ||||||
Systems Software–1.78% | ||||||||
Microsoft Corp. | 453,717 | 28,193,974 | ||||||
Symantec Corp. | 266,031 | 6,355,481 | ||||||
34,549,455 | ||||||||
Technology Hardware, Storage & Peripherals–1.98% | ||||||||
HP Inc. | 530,853 | 7,877,858 | ||||||
NetApp, Inc. | 863,473 | 30,454,693 | ||||||
38,332,551 | ||||||||
Wireless Telecommunication Services–0.38% | ||||||||
Vodafone Group PLC (United Kingdom) | 2,989,483 | 7,354,352 | ||||||
Total Common Stocks & Other Equity Interests (Cost $1,671,394,947) |
| 1,935,217,196 | ||||||
Money Market Funds–1.45% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(c) | 16,894,576 | 16,894,576 | ||||||
Treasury Portfolio–Institutional Class, 0.37%(c) | 11,263,050 | 11,263,050 | ||||||
Total Money Market Funds |
| 28,157,626 | ||||||
TOTAL INVESTMENTS–101.42% |
| 1,963,374,822 | ||||||
OTHER ASSETS LESS LIABILITIES–(1.42)% |
| (27,526,484 | ) | |||||
NET ASSETS–100.00% | $ | 1,935,848,338 |
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. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: | ||||
Investments, at value (Cost $1,671,394,947) | $ | 1,935,217,196 | ||
Investments in affiliated money market funds, at value and cost | 28,157,626 | |||
Total investments, at value (Cost $1,699,552,573) | 1,963,374,822 | |||
Cash | 74,286 | |||
Foreign currencies, at value (Cost $1,346) | 1,343 | |||
Receivable for: | ||||
Investments sold | 203 | |||
Fund shares sold | 30,043 | |||
Dividends | 2,120,625 | |||
Fund expenses absorbed | 75,185 | |||
Investment for trustee deferred compensation and retirement plans | 189,062 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 2,987,358 | |||
Total assets | 1,968,852,927 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 30,280,726 | |||
Accrued fees to affiliates | 2,455,071 | |||
Accrued trustees’ and officers’ fees and benefits | 1,226 | |||
Accrued other operating expenses | 49,156 | |||
Trustee deferred compensation and retirement plans | 218,410 | |||
Total liabilities | 33,004,589 | |||
Net assets applicable to shares outstanding | $ | 1,935,848,338 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,557,430,648 | ||
Undistributed net investment income | 36,453,985 | |||
Undistributed net realized gain | 75,159,873 | |||
Net unrealized appreciation | 266,803,832 | |||
$ | 1,935,848,338 | |||
Net Assets: |
| |||
Series I | $ | 256,079,643 | ||
Series II | $ | 1,679,768,695 | ||
Shares outstanding, no par value, |
| |||
Series I | 13,704,309 | |||
Series II | 90,235,544 | |||
Series I: | ||||
Net asset value per share | $ | 18.69 | ||
Series II: | ||||
Net asset value per share | $ | 18.62 |
Investment income: | ||||
Dividends (net of foreign withholding taxes of $974,494) | $ | 54,221,437 | ||
Dividends from affiliated money market funds | 327,227 | |||
Other income | 4,518 | |||
Total investment income | 54,553,182 | |||
Expenses: | ||||
Advisory fees | 10,368,667 | |||
Administrative services fees | 3,810,722 | |||
Distribution fees — Series II | 3,890,577 | |||
Transfer agent fees | 53,479 | |||
Trustees’ and officers’ fees and benefits | 48,778 | |||
Reports to shareholders | 8,516 | |||
Professional services fees | 50,914 | |||
Other | 34,294 | |||
Total expenses | 18,265,947 | |||
Less: Fees waived | (213,318 | ) | ||
Net expenses | 18,052,629 | |||
Net investment income | 36,500,553 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 71,337,037 | |||
Foreign currencies | (11,647 | ) | ||
Forward foreign currency contracts | 7,198,210 | |||
78,523,600 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 177,932,878 | |||
Foreign currencies | 27,519 | |||
Forward foreign currency contracts | 707,460 | |||
178,667,857 | ||||
Net realized and unrealized gain | 257,191,457 | |||
Net increase in net assets resulting from operations | $ | 293,692,010 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: | ||||||||
Net investment income | $ | 36,500,553 | $ | 27,144,608 | ||||
Net realized gain | 78,523,600 | 146,668,828 | ||||||
Change in net unrealized (depreciation) appreciation | 178,667,857 | (299,481,881 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 293,692,010 | (125,668,445 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (3,755,275 | ) | (6,885,163 | ) | ||||
Series ll | (21,043,734 | ) | (28,122,100 | ) | ||||
Total distributions from net investment income | (24,799,009 | ) | (35,007,263 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (18,737,448 | ) | (974,858 | ) | ||||
Series ll | (126,507,707 | ) | (4,644,340 | ) | ||||
Total distributions from net realized gains | (145,245,155 | ) | (5,619,198 | ) | ||||
Share transactions–net: | ||||||||
Series l | (92,188,106 | ) | 22,959,786 | |||||
Series ll | 22,299,020 | (153,528,318 | ) | |||||
Net increase in (decrease) net assets resulting from share transactions | (69,889,086 | ) | (130,568,532 | ) | ||||
Net increase in (decrease) net assets | 53,758,760 | (296,863,438 | ) | |||||
Net assets: | ||||||||
Beginning of year | 1,882,089,578 | 2,178,953,016 | ||||||
End of year (includes undistributed net investment income of $36,453,985 and $24,761,927, respectively) | $ | 1,935,848,338 | $ | 1,882,089,578 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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. Comstock Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. Comstock 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 the 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, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
Invesco V.I. Comstock Fund
—The Adviser has contractually agreed, through at least April 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $213,318.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $394,168 for accounting and fund administrative services and was reimbursed $3,416,554 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $7,174 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, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interests | $ | 1,927,862,844 | $ | 7,354,352 | $ | — | $ | 1,935,217,196 | ||||||||
Money Market Funds | 28,157,626 | — | — | 28,157,626 | ||||||||||||
1,956,020,470 | 7,354,352 | — | 1,963,374,822 | |||||||||||||
Forward Foreign Currency Contracts* | — | 2,987,358 | — | 2,987,358 | ||||||||||||
Total Investments | $ | 1,956,020,470 | $ | 10,341,710 | $ | — | $ | 1,966,362,180 |
* | Unrealized appreciation. |
Invesco V.I. Comstock Fund
NOTE 4—Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
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, 2016:
Value | ||||
Derivative Assets | Currency Risk | |||
Unrealized appreciation on forward foreign currency contracts outstanding | $ | 2,987,358 | ||
Derivatives not subject to master netting agreements | — | |||
Total derivative assets subject to master netting agreements | $ | 2,987,358 |
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Contract to | ||||||||||||||||||||||||||
Settlement Date | Counterparty | Deliver | Receive | Notional Value | Unrealized Appreciation | |||||||||||||||||||||
01/20/17 | Barclays Bank PLC | CAD | 18,245,978 | USD | 13,912,840 | $ | 13,591,208 | $ | 321,632 | |||||||||||||||||
01/20/17 | Barclays Bank PLC | CHF | 3,300,023 | USD | 3,267,592 | 3,245,844 | 21,748 | |||||||||||||||||||
01/20/17 | Barclays Bank PLC | EUR | 15,171,581 | USD | 16,149,511 | 15,987,486 | 162,025 | |||||||||||||||||||
01/20/17 | Barclays Bank PLC | GBP | 7,066,930 | USD | 8,961,242 | 8,716,703 | 244,539 | |||||||||||||||||||
01/20/17 | CIBC World Markets Corp. | CAD | 18,245,988 | USD | 13,908,169 | 13,591,215 | 316,954 | |||||||||||||||||||
01/20/17 | CIBC World Markets Corp. | CHF | 3,300,023 | USD | 3,267,479 | 3,245,844 | 21,635 | |||||||||||||||||||
01/20/17 | CIBC World Markets Corp. | EUR | 15,171,581 | USD | 16,149,314 | 15,987,486 | 161,828 | |||||||||||||||||||
01/20/17 | CIBC World Markets Corp. | GBP | 7,039,167 | USD | 8,926,121 | 8,682,458 | 243,663 | |||||||||||||||||||
01/20/17 | Goldman Sachs International | CAD | 18,245,978 | USD | 13,911,820 | 13,591,208 | 320,612 | |||||||||||||||||||
01/20/17 | Goldman Sachs International | CHF | 3,300,023 | USD | 3,267,349 | 3,245,844 | 21,505 | |||||||||||||||||||
01/20/17 | Goldman Sachs International | EUR | 15,187,330 | USD | 16,165,561 | 16,004,082 | 161,479 | |||||||||||||||||||
01/20/17 | Goldman Sachs International | GBP | 7,039,167 | USD | 8,927,142 | 8,682,458 | 244,684 | |||||||||||||||||||
01/20/17 | RBC Capital Markets Corp. | CAD | 18,245,978 | USD | 13,910,091 | 13,591,208 | 318,883 | |||||||||||||||||||
01/20/17 | RBC Capital Markets Corp | CHF | 3,287,182 | USD | 3,254,474 | 3,233,214 | 21,260 | |||||||||||||||||||
01/20/17 | RBC Capital Markets Corp | EUR | 15,171,581 | USD | 16,147,326 | 15,987,486 | 159,840 | |||||||||||||||||||
01/20/17 | RBC Capital Markets Corp | GBP | 7,039,167 | USD | 8,927,529 | 8,682,458 | 245,071 | |||||||||||||||||||
Total open forward foreign currency contracts — currency risk |
| $ | 2,987,358 |
Currency Abbreviations:
CAD | – Canadian Dollar | |
CHF | – Swiss Franc | |
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Invesco V.I. Comstock Fund
Offsetting Assets and Liabilities
The table below reflects the Fund’s exposure to Counterparties subject to either an ISDA Master Agreement or other agreement for OTC derivative transactions as of December 31, 2016.
Financial Derivative Assets | Financial Derivative Liabilities | Collateral (Received)/ Pledged | ||||||||||||||||||||||
Counterparty | Forward Foreign Currency Contracts | Forward Foreign Currency Contracts | Net Value of Derivatives | Non-Cash | Cash | Net Amount | ||||||||||||||||||
Fund | ||||||||||||||||||||||||
Barclays Bank PLC | $ | 749,944 | $ | — | $ | 749,944 | $ | — | $ | — | $ | 749,944 | ||||||||||||
CIBC World Markets Corp. | 744,080 | — | 744,080 | — | — | 744,080 | ||||||||||||||||||
Goldman Sachs International | 748,280 | — | 748,280 | — | — | 748,280 | ||||||||||||||||||
RBC Capital Markets Corp. | 745,054 | — | 745,054 | — | — | 745,054 | ||||||||||||||||||
Total | $ | 2,987,358 | $ | — | $ | 2,987,358 | $ | — | $ | — | $ | 2,987,358 |
Effect of Derivative Investments for the year ended December 31, 2016
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 | ||||
Currency Risk | ||||
Realized Gain: | ||||
Forward foreign currency contracts | $ | 7,198,210 | ||
Change in Net Unrealized Appreciation: | ||||
Forward foreign currency contracts | 707,460 | |||
Total | $ | 7,905,670 |
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
Forward Foreign Currency Contracts | ||||
Average notional value | $ | 160,929,728 |
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. Comstock 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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 38,036,033 | $ | 35,007,263 | ||||
Long-term capital gain | 132,008,131 | 5,619,198 | ||||||
Total distributions | $ | 170,044,164 | $ | 40,626,461 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 47,684,018 | ||
Undistributed long-term gain | 67,721,937 | |||
Net unrealized appreciation — investments | 263,235,125 | |||
Net unrealized appreciation (depreciation) — other investments | (5,775 | ) | ||
Temporary book/tax differences | (217,615 | ) | ||
Shares of beneficial interest | 1,557,430,648 | |||
Total net assets | $ | 1,935,848,338 |
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, 2016.
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, 2016 was $373,722,044 and 489,509,061, 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 | $ | 389,141,907 | ||
Aggregate unrealized (depreciation) of investment securities | (125,906,782 | ) | ||
Net unrealized appreciation of investment securities | $ | 263,235,125 |
Cost of investments for tax purposes is $1,700,139,697.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and private foreign investment companies, on December 31, 2016, undistributed net investment income was decreased by $9,486 and undistributed net realized gain was increased by $9,486. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Comstock Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,383,440 | $ | 23,426,576 | 3,760,569 | $ | 70,725,463 | ||||||||||
Series II | 9,559,621 | 166,299,943 | 5,016,751 | 92,293,330 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 1,332,508 | 22,492,723 | 468,137 | 7,860,021 | ||||||||||||
Series II | 8,772,380 | 147,551,441 | 1,957,374 | 32,766,440 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (7,929,844 | ) | (138,107,405 | ) | (2,957,578 | ) | (55,625,698 | ) | ||||||||
Series II | (16,614,390 | ) | (291,552,364 | ) | (14,920,435 | ) | (278,588,088 | ) | ||||||||
Net (decrease) in share activity | (3,496,285 | ) | $ | (69,889,086 | ) | (6,675,182 | ) | $ | (130,568,532 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 53% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | $ | 17.57 | $ | 0.38 | $ | 2.47 | $ | 2.85 | $ | (0.29 | ) | $ | (1.44 | ) | $ | (1.73 | ) | $ | 18.69 | 17.30 | % | $ | 256,080 | 0.77 | %(d) | 0.78 | %(d) | 2.20 | %(d) | 21 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 19.16 | 0.28 | (1.45 | ) | (1.17 | ) | (0.37 | ) | (0.05 | ) | (0.42 | ) | 17.57 | (5.98 | ) | 332,411 | 0.78 | 0.83 | 1.52 | 16 | ||||||||||||||||||||||||||||||||||||
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 | 0.83 | 1.73 | 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 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 17.51 | 0.34 | 2.45 | 2.79 | (0.24 | ) | (1.44 | ) | (1.68 | ) | 18.62 | 16.99 | 1,679,769 | 1.02 | (d) | 1.03 | (d) | 1.95 | (d) | 21 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 19.08 | 0.24 | (1.44 | ) | (1.20 | ) | (0.32 | ) | (0.05 | ) | (0.37 | ) | 17.51 | (6.19 | ) | 1,549,679 | 1.03 | 1.08 | 1.27 | 16 | ||||||||||||||||||||||||||||||||||||
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 | 1.08 | 1.48 | 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 |
(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 $283,527 and $1,556,231 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 the 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 the Invesco V.I. Comstock Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,174.30 | $ | 4.21 | $ | 1,021.27 | $ | 3.91 | 0.77 | % | ||||||||||||
Series II | 1,000.00 | 1,173.20 | 5.57 | 1,020.01 | 5.18 | 1.02 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. 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, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 132,008,131 | ||
Corporate Dividends Received Deduction* | 92.23 | % | ||
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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
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, 2016, Series I shares of Invesco V.I. Core Equity Fund (the Fund) underperformed the Russell 1000 Index, the Fund’s style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 10.26 | % | |||
Series II Shares | 10.02 | ||||
S&P 500 Index▼ (Broad Market Index) | 11.96 | ||||
Russell 1000 Index▼ (Style-Specific Index) | 12.05 | ||||
VUF Large-Cap Core Funds Index∎ (Peer Group Index) | 10.97 |
Source(s): ▼FactSet Research Systems Inc.; ∎Lipper Inc.
Market conditions and your Fund
During the year ended December 31, 2016, the US economy continued to expand. US gross domestic product (GDP) showed the US economy grew by 3.5% in the third quarter.1 However, annualized GDP is expected to be much lower. Employment data were mixed, with a surprise uptick from 4.9% in August to 5.0% in September, but with unemployment ending the year at 4.7%.2 Oil prices traded in a range from the high $20s to the low $50s during the reporting period.3
Major US stock market indexes posted gains for the reporting period, with most major market indexes hitting record highs; however, the markets were fairly volatile during the first half of the year. Stocks began calendar year 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets
sharply lower. Markets again recovered, and major US equity indexes hit record highs during the summer. Following the surprise outcome of the US presidential election, a stock market rally sent major equity indexes to new record highs. The rally was led by financials, gaining on the belief that they might benefit from reduced federal regulation. In November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 – its only increase during the reporting period.4
During the year, stock selection in the information technology (IT), energy and consumer discretionary sectors delivered positive performance for the Fund. In addition, overweight exposure to the financials and energy sectors benefited the Fund. The largest detractors from Fund performance relative to the Fund’s style-specific benchmark included stock selection in the financials, health care and telecommunication service sectors.
Stock selection in the strong-performing IT sector was advantageous to the
Fund during the reporting period. The largest contributor to Fund performance relative to the style-specific benchmark was Taiwan Semiconductor Manufacturing Company, a parts supplier to the iPhone 7. During the year, the company benefited from a broader rally in technology companies and record profits as demand for new iPhones fueled orders for its processor chips. Analog Devices, a multinational semiconductor company, benefited from better-than-expected earnings in each of the past four quarters and positive annual growth estimates within the industry in the future.
The largest individual detractor from the Fund’s performance versus the style-specific benchmark was Allergan, a specialty pharmaceutical company. The company saw its stock price decline due to the cancellation of its planned merger with Pfizer (not a Fund holding), earnings below consensus estimates and greater uncertainty about its organic growth rate. Another detractor from Fund performance for the year was Shire, a biotech-nology company, which reported lower earnings and higher-than-expected selling, general and administrative costs.
Finally, the Fund’s conservative positioning and allocation to cash hampered performance during the year. We have been quite active in deploying cash during periods of market volatility, and we remain focused on putting these assets back to work.
The Fund’s largest overweight position relative to the Russell 1000 Index for the year was in the financials sector, and a slight overweight position in the health care sector. The Fund’s largest underweight positions were in the consumer staples and energy sectors, and a slight underweight position in the industrials sector.
Portfolio Composition | |||||
By sector | % of total net assets |
Information Technology | 21.4 | % | |||
Financials | 17.8 | ||||
Health Care | 13.1 | ||||
Consumer Discretionary | 12.4 | ||||
Industrials | 10.2 | ||||
Energy | 8.0 | ||||
Consumer Staples | 5.7 | ||||
Utilities | 2.0 | ||||
Telecommunication Services | 1.1 | ||||
Money Market Funds | |||||
Plus Other Assets Less Liabilities | 8.3 |
Top 10 Equity Holdings* % of total net assets | |||||
1. American Express Co. | 3.5 | % | |||
2. Taiwan Semiconductor Manufacturing Co. Ltd. | 3.2 | ||||
3. Analog Devices, Inc. | 3.0 | ||||
4. QUALCOMM, Inc. | 2.7 | ||||
5. Comcast Corp.-Class A | 2.5 | ||||
6. Thermo Fisher Scientific, Inc. | 2.5 | ||||
7. Progressive Corp. (The) | 2.4 | ||||
8. International Business Machines Corp. | 2.3 | ||||
9. General Electric Co. | 2.1 | ||||
10. Cognizant Technology Solutions Corp.-Class A | 2.1 |
Total Net Assets | $ | 1.2 billion | |||
Total Number of Holdings* | 56 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. Core Equity Fund
As always, the Fund focuses on companies that provide an attractive return on invested capital, trade at attractive valuations and have management teams with a long-term perspective. In short, we seek to take advantage of the market’s volatile behavior and short-term focus. We believe our conservative approach should position the Fund to navigate the evolving economic backdrop.
We thank you for your continued investment in Invesco V.I. Core Equity Fund.
1 | Source: Bureau of Economic Analysis |
2 | Source: Bureau of Labor Statistics |
3 | Source: Thompson-Reuters |
4 | Source: US Federal Reserve |
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 Invesco’s 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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (5/2/94) | 7.92 | % | |||
10 Years | 5.78 | ||||
5 Years | 10.59 | ||||
1 Year | 10.26 | ||||
Series II Shares | |||||
Inception (10/24/01) | 6.31 | % | |||
10 Years | 5.52 | ||||
5 Years | 10.32 | ||||
1 Year | 10.02 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and
principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.81% and 1.06%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.82% and 1.07%, 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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, 2018. 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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Cash/cash equivalents risk. In rising markets, holding cash or cash equivalents will negatively affect the Fund’s performance relative to its benchmark.
Debt securities risk. The prices of debt securities held by the Fund will be affected by changes in interest rates, the creditworthiness of the issuer and other factors. An increase in prevailing interest rates typically causes the value of existing debt securities to fall and often has a greater impact on longer-duration debt securities and higher quality debt securities. Falling interest rates will cause the Fund to reinvest the proceeds of debt securities that have been repaid by the issuer at lower interest rates. Falling interest rates may also reduce the Fund’s distributable income because interest payments on floating rate debt instruments held by the Fund will decline. The Fund could lose money on investments in debt securities if the issuer or borrower fails to meet its obligations to make interest payments and/or to repay principal in a timely manner. Changes in an issuer’s financial strength, the market’s perception of such strength or in the credit rating of the issuer or the security may affect the value of debt securities. The Adviser’s credit analysis may fail to anticipate such changes, which could result in buying a debt security at an inopportune time or failing to sell a debt security in advance of a price decline or other credit event.
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 government debt risk. Investments in foreign government debt securities (sometimes referred to as sovereign debt securities) 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 adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange
controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Small- and mid-capitalization companies risks. Small- and mid-capitalization companies tend to be more vulnerable to changing market conditions, may have little or no operating history or track record of success, and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
Invesco V.I. Core Equity 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® 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, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–91.75% |
| |||||||
Advertising–1.43% | ||||||||
Publicis Groupe S.A. (France) | 252,118 | $ | 17,394,794 | |||||
Aerospace & Defense–2.38% | ||||||||
General Dynamics Corp. | 84,413 | 14,574,749 | ||||||
United Technologies Corp. | 130,157 | 14,267,810 | ||||||
28,842,559 | ||||||||
Air Freight & Logistics–1.43% | ||||||||
United Parcel Service, Inc.–Class B | 151,030 | 17,314,079 | ||||||
Apparel, Accessories & Luxury Goods–3.32% | ||||||||
Hanesbrands, Inc. | 476,003 | 10,267,385 | ||||||
LVMH Moet Hennessy Louis Vuitton S.E. (France) | 87,325 | 16,649,310 | ||||||
PVH Corp. | 148,400 | 13,391,616 | ||||||
40,308,311 | ||||||||
Asset Management & Custody Banks–1.57% | ||||||||
Northern Trust Corp. | 213,322 | 18,996,324 | ||||||
Biotechnology–6.53% | ||||||||
AbbVie Inc. | 290,645 | 18,200,190 | ||||||
Biogen Inc.(b) | 65,159 | 18,477,789 | ||||||
Celgene Corp.(b) | 202,851 | 23,480,003 | ||||||
Shire PLC–ADR | 111,687 | 19,029,231 | ||||||
79,187,213 | ||||||||
Building Products–1.07% | ||||||||
Johnson Controls International PLC | 314,536 | 12,955,738 | ||||||
Cable & Satellite–2.54% | ||||||||
Comcast Corp.–Class A | 445,910 | 30,790,086 | ||||||
Communications Equipment–1.20% | ||||||||
F5 Networks, Inc.(b) | 100,911 | 14,603,840 | ||||||
Consumer Finance–3.51% | ||||||||
American Express Co. | 575,483 | 42,631,781 | ||||||
Distillers & Vintners–1.21% | ||||||||
Diageo PLC (United Kingdom) | 568,463 | 14,710,343 | ||||||
Diversified Banks–2.99% | ||||||||
Svenska Handelsbanken AB–Class A (Sweden) | 1,352,839 | 18,804,284 | ||||||
U.S. Bancorp | 339,779 | 17,454,447 | ||||||
36,258,731 | ||||||||
Drug Retail–1.82% | ||||||||
Walgreens Boots Alliance, Inc. | 266,207 | 22,031,291 | ||||||
Electric Utilities–0.98% | ||||||||
Duke Energy Corp. | 153,434 | 11,909,547 | ||||||
Electronic Manufacturing Services–1.76% | ||||||||
TE Connectivity Ltd. | 307,608 | 21,311,082 |
Shares | Value | |||||||
Health Care Facilities–1.42% | ||||||||
HCA Holdings, Inc.(b) | 232,957 | $ | 17,243,477 | |||||
Home Improvement Retail–1.29% | ||||||||
Home Depot, Inc. (The) | 116,693 | 15,646,197 | ||||||
Household Appliances–1.04% | ||||||||
Whirlpool Corp. | 69,531 | 12,638,650 | ||||||
Household Products–1.53% | ||||||||
Procter & Gamble Co. (The) | 221,451 | 18,619,600 | ||||||
Housewares & Specialties–1.27% | ||||||||
Newell Brands, Inc. | 344,715 | 15,391,525 | ||||||
Hypermarkets & Super Centers–1.16% | ||||||||
Wal-Mart Stores, Inc. | 204,147 | 14,110,641 | ||||||
Industrial Conglomerates–2.08% | ||||||||
General Electric Co. | 799,603 | 25,267,455 | ||||||
Industrial Machinery–3.20% | ||||||||
Illinois Tool Works Inc. | 151,714 | 18,578,896 | ||||||
Stanley Black & Decker Inc. | 176,879 | 20,286,253 | ||||||
38,865,149 | ||||||||
Insurance Brokers–1.78% | ||||||||
Marsh & McLennan Cos., Inc. | 318,761 | 21,545,056 | ||||||
Integrated Oil & Gas–1.51% | ||||||||
Suncor Energy, Inc. (Canada) | 560,524 | 18,323,530 | ||||||
Internet Software & Services–1.77% | ||||||||
Alphabet Inc.–Class C(b) | 27,860 | 21,502,905 | ||||||
IT Consulting & Other Services–4.41% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 450,556 | 25,244,653 | ||||||
International Business Machines Corp. | 170,348 | 28,276,064 | ||||||
53,520,717 | ||||||||
Life & Health Insurance–1.97% | ||||||||
AIA Group Ltd. (Hong Kong) | 4,279,400 | 23,948,811 | ||||||
Life Sciences Tools & Services–2.45% | ||||||||
Thermo Fisher Scientific, Inc. | 210,450 | 29,694,495 | ||||||
Movies & Entertainment–1.53% | ||||||||
Time Warner Inc. | 192,540 | 18,585,886 | ||||||
Multi-Sector Holdings–1.95% | ||||||||
Berkshire Hathaway Inc.–Class A(b) | 97 | 23,679,737 | ||||||
Multi-Utilities–0.98% | ||||||||
WEC Energy Group, Inc. | 202,065 | 11,851,112 | ||||||
Oil & Gas Equipment & Services–3.41% | ||||||||
Halliburton Co. | 349,347 | 18,896,179 | ||||||
Schlumberger Ltd. | 115,295 | 9,679,015 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Shares | Value | |||||||
Oil & Gas Equipment & Services–(continued) | ||||||||
Tenaris S.A.–ADR (Luxembourg) | 359,187 | $ | 12,826,568 | |||||
41,401,762 | ||||||||
Oil & Gas Exploration & Production–3.13% | ||||||||
Concho Resources Inc.(b) | 142,421 | 18,885,025 | ||||||
Range Resources Corp. | 554,622 | 19,056,812 | ||||||
37,941,837 | ||||||||
Pharmaceuticals–2.72% | ||||||||
Allergan PLC(b) | 90,888 | 19,087,389 | ||||||
Merck & Co., Inc. | 235,653 | 13,872,892 | ||||||
32,960,281 | ||||||||
Property & Casualty Insurance–2.39% | ||||||||
Progressive Corp. (The) | 815,532 | 28,951,386 | ||||||
Regional Banks–1.66% | ||||||||
First Republic Bank | 219,081 | 20,186,123 | ||||||
Semiconductors–8.90% | ||||||||
Analog Devices, Inc. | 508,250 | 36,909,115 | ||||||
QUALCOMM, Inc. | 501,370 | 32,689,324 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | 6,873,823 | 38,378,751 | ||||||
107,977,190 |
Shares | Value | |||||||
Systems Software–3.37% | ||||||||
Microsoft Corp. | 331,359 | $ | 20,590,648 | |||||
Oracle Corp. | 526,863 | 20,257,883 | ||||||
40,848,531 | ||||||||
Wireless Telecommunication Services–1.09% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 540,167 | 13,196,280 | ||||||
Total Common Stocks & Other Equity Interests |
| 1,113,144,052 | ||||||
Money Market Funds–9.95% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(c) | 72,461,378 | 72,461,378 | ||||||
Treasury Portfolio–Institutional Class, 0.37%(c) | 48,307,586 | 48,307,586 | ||||||
Total Money Market Funds | 120,768,964 | |||||||
TOTAL INVESTMENTS–101.70% |
| 1,233,913,016 | ||||||
OTHER ASSETS LESS LIABILITIES–(1.70)% |
| (20,617,090 | ) | |||||
NET ASSETS–100.00% |
| $ | 1,213,295,926 |
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. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $888,534,235) | $ | 1,113,144,052 | ||
Investments in affiliated money market funds, at value and cost | 120,768,964 | |||
Total investments, at value (Cost $1,009,303,199) | 1,233,913,016 | |||
Foreign currencies, at value (Cost $1,838,969) | 1,801,721 | |||
Receivable for: | ||||
Fund shares sold | 356,497 | |||
Dividends | 1,485,459 | |||
Investment for trustee deferred compensation and retirement plans | 420,952 | |||
Other assets | 191 | |||
Total assets | 1,237,977,836 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 22,467,598 | |||
Fund shares reacquired | 664,544 | |||
Accrued fees to affiliates | 1,011,937 | |||
Accrued trustees’ and officers’ fees and benefits | 683 | |||
Accrued other operating expenses | 60,582 | |||
Trustee deferred compensation and retirement plans | 476,566 | |||
Total liabilities | 24,681,910 | |||
Net assets applicable to shares outstanding | $ | 1,213,295,926 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 916,674,097 | ||
Undistributed net investment income | 11,825,531 | |||
Undistributed net realized gain | 60,247,353 | |||
Net unrealized appreciation | 224,548,945 | |||
$ | 1,213,295,926 | |||
Net Assets: |
| |||
Series I | $ | 1,033,699,792 | ||
Series II | $ | 179,596,134 | ||
Shares outstanding, no par value, |
| |||
Series I | 29,890,146 | |||
Series II | 5,265,855 | |||
Series I: | ||||
Net asset value per share | $ | 34.58 | ||
Series II: | ||||
Net asset value per share | $ | 34.11 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $604,704) | $ | 21,921,934 | ||
Dividends from affiliated money market funds | 459,140 | |||
Total investment income | 22,381,074 | |||
Expenses: | ||||
Advisory fees | 7,001,094 | |||
Administrative services fees | 2,407,284 | |||
Custodian fees | 93,897 | |||
Distribution fees — Series II | 444,673 | |||
Transfer agent fees | 84,530 | |||
Trustees’ and officers’ fees and benefits | 46,332 | |||
Reports to shareholders | 7,750 | |||
Professional services fees | 45,852 | |||
Other | 29,333 | |||
Total expenses | 10,160,745 | |||
Less: Fees waived | (158,304 | ) | ||
Net expenses | 10,002,441 | |||
Net investment income | 12,378,633 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 63,873,949 | |||
Foreign currencies | (67,153 | ) | ||
63,806,796 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 35,580,039 | |||
Foreign currencies | (38,790 | ) | ||
35,541,249 | ||||
Net realized and unrealized gain | 99,348,045 | |||
Net increase in net assets resulting from operations | $ | 111,726,678 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income | $ | 12,378,633 | $ | 9,312,542 | ||||
Net realized gain | 63,806,796 | 81,552,026 | ||||||
Change in net unrealized appreciation (depreciation) | 35,541,249 | (159,207,239 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 111,726,678 | (68,342,671 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (7,743,417 | ) | (11,263,836 | ) | ||||
Series ll | (879,585 | ) | (1,739,714 | ) | ||||
Total distributions from net investment income | (8,623,002 | ) | (13,003,550 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (69,406,591 | ) | (103,008,374 | ) | ||||
Series ll | (12,096,765 | ) | (19,872,167 | ) | ||||
Total distributions from net realized gains | (81,503,356 | ) | (122,880,541 | ) | ||||
Share transactions–net: | ||||||||
Series l | 94,841,524 | (3,612,941 | ) | |||||
Series ll | (2,788,171 | ) | 25,857,596 | |||||
Net increase in net assets resulting from share transactions | 92,053,353 | 22,244,655 | ||||||
Net increase (decrease) in net assets | 113,653,673 | (181,982,107 | ) | |||||
Net assets: | ||||||||
Beginning of year | 1,099,642,253 | 1,281,624,360 | ||||||
End of year (includes undistributed net investment income of $11,825,531 and $8,131,523, respectively) | $ | 1,213,295,926 | $ | 1,099,642,253 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Core Equity Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. Core Equity Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. 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 the 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, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed
Invesco V.I. Core Equity Fund
below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $158,304.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $268,584 for accounting and fund administrative services and was reimbursed $2,138,700 for fees paid to 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, 2016, 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, 2016, 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, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interest | $ | 1,019,456,836 | $ | 93,687,216 | $ | — | $ | 1,113,144,052 | ||||||||
Money Market Fund | 120,768,964 | — | — | 120,768,964 | ||||||||||||
Total Investment | $ | 1,140,225,800 | $ | 93,687,216 | $ | — | $ | 1,233,913,016 |
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
Invesco V.I. Core Equity Fund
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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 8,623,002 | $ | 18,551,080 | ||||
Long-term capital gain | 81,503,356 | 117,333,011 | ||||||
Total distributions | $ | 90,126,358 | $ | 135,884,091 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 13,753,597 | ||
Undistributed long-term gain | 62,131,535 | |||
Net unrealized appreciation — investments | 221,271,325 | |||
Net unrealized appreciation (depreciation) — other investments | (60,872 | ) | ||
Temporary book/tax differences | (473,756 | ) | ||
Shares of beneficial interest | 916,674,097 | |||
Total net assets | $ | 1,213,295,926 |
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, 2016.
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, 2016 was $388,466,382 and $418,255,919, 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 | $ | 254,986,077 | ||
Aggregate unrealized (depreciation) of investment securities | (33,714,752 | ) | ||
Net unrealized appreciation of investment securities | $ | 221,271,325 |
Cost of investments for tax purposes is $1,012,641,691.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, on December 31, 2016, undistributed net investment income was decreased by $61,623 and undistributed net realized gain was increased by $61,623. 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, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 4,633,218 | $ | 163,930,451 | 1,187,179 | $ | 45,584,411 | ||||||||||
Series II | 229,629 | 7,596,362 | 510,959 | 20,186,238 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 2,245,997 | 77,150,008 | 3,461,745 | 114,272,210 | ||||||||||||
Series II | 382,783 | 12,976,350 | 662,941 | 21,611,881 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,224,160 | ) | (146,238,935 | ) | (4,152,164 | ) | (163,469,562 | ) | ||||||||
Series II | (680,023 | ) | (23,360,883 | ) | (414,744 | ) | (15,940,523 | ) | ||||||||
Net increase in share activity | 2,587,444 | $ | 92,053,353 | 1,255,916 | $ | 22,244,655 |
(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 12/31/16 | $ | 33.84 | $ | 0.39 | $ | 3.07 | $ | 3.46 | $ | (0.28 | ) | $ | (2.44 | ) | $ | (2.72 | ) | $ | 34.58 | 10.26 | % | $ | 1,033,700 | 0.84 | %(d) | 0.85 | %(d) | 1.11 | %(d) | 38 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 41.00 | 0.32 | (2.79 | ) | (2.47 | ) | (0.46 | ) | (4.23 | ) | (4.69 | ) | 33.84 | (5.75 | ) | 921,516 | 0.89 | 0.90 | 0.81 | 45 | ||||||||||||||||||||||||||||||||||||
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 | 0.90 | 1.01 | 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 | ||||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 33.40 | 0.30 | 3.03 | 3.33 | (0.18 | ) | (2.44 | ) | (2.62 | ) | 34.11 | 10.02 | 179,596 | 1.09 | (d) | 1.10 | (d) | 0.86 | (d) | 38 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 40.53 | 0.22 | (2.75 | ) | (2.53 | ) | (0.37 | ) | (4.23 | ) | (4.60 | ) | 33.40 | (5.98 | ) | 178,126 | 1.14 | 1.15 | 0.56 | 45 | ||||||||||||||||||||||||||||||||||||
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 | 1.15 | 0.76 | 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 |
(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 $968,147 and $177,869 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 the 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 the Invesco V.I. Core Equity Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,055.60 | $ | 4.03 | $ | 1,021.22 | $ | 3.96 | 0.78 | % | ||||||||||||
Series II | 1,000.00 | 1,054.40 | 5.32 | 1,019.96 | 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, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Core Equity Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 81,503,356 | ||
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. 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
Invesco V.I. Core Plus Bond 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. VICPB-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, 2016, Series I shares of Invesco V.I. Core Plus Bond Fund (the Fund), outperformed the Fund’s broad market/style-specific index, the Bloomberg Barclays U.S. Aggregate Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.66 | % | |||
Series II Shares | 6.35 | ||||
Bloomberg Barclays U.S. Aggregate Index▼ (Broad Market/Style-Specific Index) | 2.65 | ||||
Lipper VUF Core Plus Bond Funds Index◾ (Peer Group Index) | 3.43 |
Source(s): ▼FactSet Research Systems Inc.; ◾Lipper Inc.
Market conditions and your Fund
The year ended December 31, 2016 was one marked by systemic global risks and interest rate volatility. It began amid heightened global financial-market volatility triggered by economic growth concerns. In January 2016, the confluence of global growth concerns, particularly with respect to emerging economies such as China; the effects of slower growth with respect to oil demand and lower oil prices; and the impact of lower demand and lower prices on energy company profits and solvency – all came together to produce a “perfect storm” that roiled global financial markets. From the beginning of the reporting period through mid-February 2016, the 10-year US Treasury yield plummeted 64 basis points to 1.63%.1 (A basis point is one one-hundredth of a percentage point.) This caused Treasury prices to rise as Treasury bonds played their traditional role of buffering risk-asset volatility. Riskier asset classes posted significant losses.
Despite the US Federal Reserve (the Fed) moving ahead with its first interest rate hike in nearly a decade in December 2015, the Fed and other central banks quickly moved to calm markets through either rhetoric or accommodative monetary
policy. The Fed issued language stating that risks to the economy would slow the frequency of rate hikes and that the neutral rate would likely be lower than it has been historically. The Bank of Japan and the European Central Bank adopted negative interest rates in an attempt to stimulate growth by forcing investors to spend rather than save. These actions, together with the stabilization in oil prices, calmed markets and induced a significant rally across most risk assets.
In June 2016, the UK vote to leave the European Union, coupled with negative global government interest rates, had the effect of driving the 10-year US Treasury yield to an all-time low of 1.37% in July.1 Toward year end, US Treasury yields spiked following the outcome of the US presidential election. The president-elect’s economic policies were viewed by some to be positive for US growth and inflation as significant personal and corporate tax reductions, infrastructure spending and renegotiated trade agreements could potentially have the effect of boosting US gross domestic product. Fed policy further supported rising yields and a steepened yield curve given Fed rhetoric of a stronger US economy and a significantly improved employment picture, confirming the December interest rate hike and alluding to additional rate
hikes in 2017. The 10-year US Treasury yield ended the reporting period at 2.44%, 17 basis points higher than at the beginning of the year.2
The broader bond market, as represented by the Bloomberg Barclays U.S. Aggregate Index, returned 2.65% for the year. This was largely attributable to income (bond coupon payments) of underlying debt, as well as the outperformance of credit-related fixed income sectors relative to Treasuries. All fixed income sectors (Treasuries, government-related, corporate and securitized) posted positive returns for the year. Out-of-index exposure, such as high yield and emerging market (EM) debt provided strong gains despite volatile commodity prices and the specter of Fed interest rate hikes. Helping to support returns in high yield and EM debt were accommodative global central bank policy and signs of recovery in various EM economies.
The Fund generated positive returns for the reporting period and outperformed its broad market/style-specific benchmark, the Bloomberg Barclays U.S. Aggregate Index. Overweight exposure to investment grade credit, particularly focused within the energy sector, was one of the most notable contributors to the Fund’s relative performance for the reporting period. Overweight exposure to and security selection in commercial mortgage-backed securities, particularly non-agency securities, also added to the Fund’s performance relative to the broad market/style-specific index. The Fund’s out-of-index exposure to high yield and EM debt also contributed to the Fund’s relative performance. Security selection in the consumer discretionary sector was the most notable detractor from Fund performance versus the broad market/ style-specific index for the reporting period. Exposure to credit derivatives used to hedge credit risk performed as expect-
Portfolio Composition | |||||
By security type, based on total investments |
Bonds and Notes | 56.2 | % | |||
U.S. Government Sponsored Agency Mortgage-Backed Securities | 19.8 | ||||
Asset-Backed Securities | 10.0 | ||||
U.S. Treasury Securities | 6.7 | ||||
Security Types Each Less Than 1% of Portfolio | 1.3 | ||||
Money Market Funds | 6.0 |
Top Five Debt Issuers* |
1. | Federal National Mortgage Association | 16.4 | % | ||||
2. | U.S. Treasury | 8.2 | |||||
3. | Federal Home Loan Mortgage Corp. | 4.4 | |||||
4. | Government National Mortgage Association | 2.9 | |||||
5. | Moody’s Corp. | 2.3 |
Total Net Assets
| $
| 15.6 million
|
| ||||
Total Number of Holdings* | 396 |
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.
Data presented here are as of
December 31, 2016.
Invesco V.I. Core Plus Bond Fund
ed and detracted slightly from the Fund’s relative performance. The Fund’s allocations to cash holdings weighed on relative performance as we managed risk and awaited better opportunities to deploy cash during the third quarter of 2016.
The Fund benefited from incremental income earned from transactions in the highly liquid to-be-announced (TBA) market for agency mortgage-backed securities (MBS). Such transactions involve the Fund selling an MBS to a financial institution, with an agreement to repurchase a substantially similar security at an agreed upon price and date. Cash received by the Fund as a result of these repurchase transactions may be invested in short-term instruments, and the income from these investments, together with any additional fee income received from this activity, may generate income for the Fund.
The Fund also may use active duration and yield curve positioning for risk management and for generating excess return versus its broad market/style-specific benchmark. Duration measures a portfolio’s price sensitivity to interest rate changes. Yield curve positioning refers to actively emphasizing particular points (maturities) along the yield curve with favorable risk-return expectations. Duration of the portfolio was maintained close to that of the benchmark, on average, and the timing of changes and the degree of variance from the Fund’s benchmark during the reporting period detracted modestly from relative returns. Buying and selling US Treasury futures and interest rate swaptions were important tools used during the reporting period for the management of interest rate risk and to maintain the Fund’s targeted portfolio duration.
Part of the Fund’s strategy to manage credit and currency risk in the portfolio during the reporting period entailed purchasing and selling credit and currency derivatives. We managed credit market risk by purchasing and selling protection through credit default swaps at various points throughout the year. Currency management was carried out via currency forwards and options on an as-needed basis and was effective in managing the currency positioning within the Fund during the reporting period.
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 tends to fall. The 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. Core Plus Bond Fund and for sharing our long-term investment horizon.
1 | Source: US Federal Reserve |
2 | Source: Bloomberg L.P. |
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.
Matt Brill Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Core Plus Bond Fund. | ||
He joined Invesco in 2013. Mr. Brill earned a BA in economics from Washington and Lee University. | ||
Chuck Burge Portfolio Manager, is manager of Invesco V.I. Core Plus Bond 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. |
Michael Hyman Portfolio Manager, is manager of Invesco V.I. Core Plus Bond Fund. He joined Invesco in 2013. | ||
Mr. Hyman earned a BSE in finance from Pennsylvania State University and an MBA from the Stern School of Business at New York University. | ||
Joseph Portera Portfolio Manager, is manager of Invesco V.I. Core Plus Bond Fund. He joined Invesco in 2012. | ||
Mr. Portera earned BA and MA degrees in Soviet studies and an MA in international political economy and development from Fordham University. | ||
Rashique Rahman Portfolio Manager, is manager of Invesco V.I. Core Plus Bond Fund. Mr. Rahman is the Head | ||
of Emerging Markets for Invesco Fixed Income. He joined Invesco in 2014. Mr. Rahman did undergraduate work at the University of California, Los Angeles, and earned an MA and an MBA from Columbia University. | ||
Scott Roberts Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Core Plus Bond Fund. | ||
He joined Invesco in 2000. Mr. Roberts earned a BBA in finance from the University of Houston. | ||
Robert Waldner Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Core Plus Bond Fund. | ||
He joined Invesco in 2013. Mr. Waldner earned a BSE degree in civil engineering from Princeton University. |
Invesco V.I. Core Plus Bond Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/06
1 | Source: FactSet Research Systems Inc. |
Past performance cannot guarantee
comparable future results.
The Lipper VUF Core Plus Bond Fund Index is not shown on the chart as the index does not have 10 years of performance history.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (5/5/93) | 4.38 | % | |||
10 Years | 3.61 | ||||
5 Years | 4.92 | ||||
1 Year | 6.66 | ||||
Series II Shares | |||||
Inception (3/14/02) | 3.91 | % | |||
10 Years | 3.35 | ||||
5 Years | 4.64 | ||||
1 Year | 6.35 |
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 0.61% and 0.86%, 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 1.69% and 1.94%, 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 Plus Bond 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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, 2017. 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, 2018. See current prospectus for more information. |
Invesco V.I. Core Plus Bond Fund
Invesco V.I. Core Plus Bond Fund’s investment objective is total return, comprised of current income and capital appreciation.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Active trading risk. Active trading of portfolio securities may result in added expenses and a lower return.
Changing fixed income market conditions risk. The current 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 near, at or below zero. Increases 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.
Collateralized loan obligations risk. CLOs are subject to the risks of substantial losses due to actual defaults by underlying borrowers, which will be greater during periods of economic or financial stress. CLOs may also lose value due to collateral defaults and disappearance of subordinate tranches, market anticipation of defaults, and investor aversion to CLO securities as a class. The risks of CLOs will be greater if the Fund invests in CLOs that hold loans of uncreditworthy borrowers or if the Fund holds subordinate tranches of the CLO that absorbs losses from the defaults before senior tranches. In addition, CLOs are subject to interest rate risk and credit risk.
Debt securities risk. The prices of debt securities held by the Fund will be affected by changes in interest rates, the creditworthiness of the issuer and other factors. An increase in prevailing interest rates typically causes the value of existing debt securities to fall and often has a greater impact on longer-duration debt securities and higher quality debt securities. Falling interest rates will cause the Fund to reinvest the proceeds of debt securities that have been repaid by the issuer at lower interest rates. Falling interest rates may also reduce the Fund’s distributable
income because interest payments on floating rate debt instruments held by the Fund will decline. The Fund could lose money on investments in debt securities if the issuer or borrower fails to meet its obligations to make interest payments and/or to repay principal in a timely manner. Changes in an issuer’s financial strength, the market’s perception of such strength or in the credit rating of the issuer or the security may affect the value of debt securities. The Adviser’s credit analysis may fail to anticipate such changes, which could result in buying a debt security at an inopportune time or failing to sell a debt security in advance of a price decline or other credit event.
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.
Emerging markets securities risk. Emerging markets (also referred to as
developing markets) are generally subject to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
High yield debt securities (junk bond) risk. Investments in high yield debt securities (“junk bonds”) and other lower-rated securities will subject the Fund to substantial risk of loss. These securities are considered to be speculative with respect to the issuer’s ability to pay interest and principal when due, are more susceptible to default or decline in market value and are less liquid than investment grade debt securities. Prices of high yield debt securities tend to be very volatile.
Liquidity risk. The Fund may be unable to sell illiquid investments at the time or price it desires and, as a result, could lose its entire investment in such investments. Liquid securities can become illiquid during
Invesco V.I. Core Plus Bond Fund
periods of market stress. If a significant amount of the Fund’s securities become illiquid, the Fund may not be able to timely pay redemption proceeds and may need to sell securities at significantly reduced prices.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Mortgage-and asset-backed securities risk. Mortgage- and asset-backed securities, including collateralized debt obligations and collateralized mortgage obligations, are subject to prepayment or call risk, which is the risk that a borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. This could result in the Fund reinvesting these early payments at lower interest rates, thereby reducing the Fund’s income. Mortgage- and asset-backed securities also are subject to extension risk, which is the risk that an unexpected rise in interest rates could reduce the rate of prepayments, causing the price of the mortgage- and asset-backed securities and the Fund’s share price to fall. 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 Fund may invest in mortgage pools that include subprime mortgages, which are loans made to borrowers with weakened credit histories or with lower capacity to make timely payments on their mortgages. Privately issued mortgage-related securities are not subject to the same underwriting requirements as those with government or
government-sponsored entity guarantees and, therefore, mortgage loans underlying privately issued mortgage-related securities may have less favorable collateral, credit risk or other underwriting characteristics, and wider variances in interest rate, term, size, purpose and borrower characteristics.
Municipal securities risk. The risk of a municipal obligation generally depends on the financial and credit status of the issuer. 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 the security. Failure of a municipal security issuer to comply with applicable tax requirements may make income paid thereon taxable, resulting in a decline in the security’s value. In addition, there could be changes in applicable tax laws or tax treatments that reduce or eliminate the current federal income tax exemption on municipal securities or otherwise adversely affect the current federal or state tax status of municipal securities.
TBA transactions risk. TBA transactions involve the risk of loss if the securities received are less favorable than what was anticipated by the Fund when entering into the TBA transaction, or if the counterparty fails to deliver the securities. 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. 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. In addition, taking short positions results in a form of leverage, which could increase the volatility of the Fund’s share price.
US government obligations risk. Obligations of US government agencies and authorities receive varying levels of support and may not be backed by the full faith and credit of the US government, which could affect the Fund’s ability to recover should they default. No assurance can be given that the US government will provide financial support to its agencies and authorities if it is not obligated by law to do so.
When-issued, delayed delivery and forward commitment risks. When-issued and delayed delivery transactions subject the Fund to market risk because the value or yield of a security at delivery may be more or less than the purchase price or yield generally available when delivery occurs,
and counterparty risk because the Fund relies on the buyer or seller, as the case may be, to consummate the transaction. These transactions also have a leveraging effect on the Fund because the Fund commits to purchase securities that it does not have to pay for until a later date, which increases the Fund’s overall investment exposure and, as a result, its volatility.
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 loans that periodically pay interest.
About indexes used in this report
The Bloomberg Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Lipper VUF Core Plus Bond Funds Index is an unmanaged index considered representative of core plus bond 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. Core Plus Bond Fund
Schedule of Investments(a)
December 31, 2016
Principal Amount | Value | |||||||
Bonds & Notes–68.79% |
| |||||||
Aerospace & Defense–0.07% | ||||||||
Bombardier Inc. (Canada), Sr. Unsec. Notes, 6.00%, 10/15/2022(b) | $ | 2,000 | $ | 1,908 | ||||
Moog Inc., Sr. Unsec. Gtd. Notes, 5.25%, 12/01/2022(b) | 2,000 | 2,050 | ||||||
TransDigm Inc., Sr. Unsec. Gtd. Sub. Global Notes, 6.50%, 05/15/2025 | 7,000 | 7,367 | ||||||
11,325 | ||||||||
Agricultural & Farm Machinery–0.04% | ||||||||
Titan International Inc., Sr. Sec. Gtd. First Lien Global Notes, 6.88%, 10/01/2020 | 7,000 | 6,895 | ||||||
Airlines–2.19% | ||||||||
American Airlines Pass Through Trust, | ||||||||
Series 2015-2, Class B, | ||||||||
Sec. Third Lien Pass Through Ctfs., | ||||||||
4.40%, 03/22/2025 | 32,918 | 32,774 | ||||||
Series 2016-1, Class AA, | ||||||||
Sr. Sec. First Lien Pass Through Ctfs., | ||||||||
3.58%, 01/15/2028 | 31,922 | 32,141 | ||||||
Series 2016-3, Class AA, | ||||||||
Sr. Sec. First Lien Pass Through Ctfs., | ||||||||
3.00%, 04/15/2030 | 52,000 | 50,083 | ||||||
Delta Air Lines Pass Through Trust, Series 2010-2, Class A, Sr. Sec. First Lien Pass Through Ctfs., 4.95%, 11/23/2020 | 26,806 | 28,086 | ||||||
LATAM Airlines Group S.A. Pass Through Trust (Chile), Series 2015-1, Class A, Sec. Global Pass Through Ctfs., | 111,386 | 109,367 | ||||||
United Airlines Pass Through Trust, | 45,211 | 46,116 | ||||||
US Airways Pass Through Trust, Series 2012-1, Class B, Sec. Second Lien Pass Through Ctfs., 8.00%, 04/01/2021 | 755 | 834 | ||||||
WestJet Airlines Ltd. (Canada), Sr. Unsec. Gtd. Notes, 3.50%, 06/16/2021(b) | 42,000 | 42,110 | ||||||
341,511 | ||||||||
Alternative Carriers–0.03% | ||||||||
Level 3 Financing, Inc., Sr. Unsec. Gtd. Global Notes, 5.38%, 05/01/2025 | 5,000 | 5,100 | ||||||
Aluminum–0.08% | ||||||||
Arconic Inc., Sr. Unsec. Global Notes, | 12,000 | 12,772 | ||||||
Apparel Retail–0.03% | ||||||||
L Brands, Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 11/01/2035 | 2,000 | 2,047 | ||||||
Men’s Wearhouse, Inc. (The), Sr. Unsec. Gtd. Global Notes, 7.00%, 07/01/2022 | 2,000 | 1,973 | ||||||
4,020 |
Principal Amount | Value | |||||||
Apparel, Accessories & Luxury Goods–0.12% | ||||||||
Hanesbrands Inc., Sr. Unsec. Gtd. Notes, | ||||||||
4.63%, 05/15/2024(b) | $ | 9,000 | $ | 8,769 | ||||
4.88%, 05/15/2026(b) | 10,000 | 9,794 | ||||||
18,563 | ||||||||
Asset Management & Custody Banks–1.78% | ||||||||
Blackstone Holdings Finance Co. LLC, Sr. Unsec. Gtd. Notes, 5.00%, 06/15/2044(b) | 90,000 | 88,983 | ||||||
Carlyle Holdings II Finance LLC, Sr. Unsec. Gtd. Notes, 5.63%, 03/30/2043(b) | 75,000 | 73,917 | ||||||
CommScope Technologies Finance LLC, Sr. Unsec. Gtd. Notes, | 4,000 | 4,240 | ||||||
First Data Corp., Sr. Unsec. Gtd. Notes, 7.00%, 12/01/2023(b) | 10,000 | 10,700 | ||||||
Legg Mason, Inc., Sr. Unsec. Global Notes, 4.75%, 03/15/2026 | 90,000 | 92,839 | ||||||
Prime Security Services Borrower, LLC/Prime Finance, Inc., Sec. Gtd. Second Lien Notes, | 6,000 | 6,563 | ||||||
277,242 | ||||||||
Auto Parts & Equipment–0.03% | ||||||||
Dana Inc., Sr. Unsec. Notes, 5.50%, 12/15/2024 | 5,000 | 5,100 | ||||||
Automobile Manufacturers–0.25% | ||||||||
General Motors Financial Co., Inc., Sr. Unsec. Gtd. Notes, 3.15%, 01/15/2020 | 39,000 | 39,184 | ||||||
Automotive Retail–0.08% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/2020 | 12,000 | 12,871 | ||||||
Brewers–0.36% | ||||||||
Anheuser-Busch InBev Finance, Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, 3.65%, 02/01/2026 | 55,000 | 55,872 | ||||||
Broadcasting–0.13% | ||||||||
Clear Channel Worldwide Holdings, Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 03/15/2020 | 6,000 | 6,000 | ||||||
iHeartCommunications, Inc., Sr. Sec. Gtd. First Lien Global Notes, | 4,000 | 3,290 | ||||||
Netflix, Inc., Sr. Unsec. Global Notes, 5.75%, 03/01/2024 | 3,000 | 3,232 | ||||||
Nexstar Escrow Corp., Sr. Unsec. Gtd. Notes, 5.63%, 08/01/2024(b) | 4,000 | 3,980 | ||||||
Tribune Media Co., Sr. Unsec. Gtd. Global Notes, 5.88%, 07/15/2022 | 3,000 | 3,060 | ||||||
19,562 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Building Products–0.03% | ||||||||
Allegion PLC, Sr. Unsec. Gtd. Notes, 5.88%, 09/15/2023 | $ | 2,000 | $ | 2,124 | ||||
Gibraltar Industries Inc., Sr. Unsec. Gtd. Sub. Global Notes, 6.25%, 02/01/2021 | 2,000 | 2,065 | ||||||
4,189 | ||||||||
Cable & Satellite–2.50% | ||||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Sr. Unsec. Notes, 5.75%, 02/15/2026(b) | 10,000 | 10,375 | ||||||
Charter Communications Operating, LLC/ | ||||||||
4.91%, 07/23/2025 | 89,000 | 93,650 | ||||||
6.83%, 10/23/2055 | 27,000 | 31,605 | ||||||
Comcast Corp., Sr. Unsec. Gtd. Global Notes, 3.40%, 07/15/2046 | 30,000 | 26,039 | ||||||
Cox Communications, Inc., | ||||||||
Sr. Unsec. Notes, | ||||||||
3.35%, 09/15/2026(b) | 50,000 | 47,777 | ||||||
9.38%, 01/15/2019(b) | 140,000 | 158,208 | ||||||
DISH DBS Corp., Sr. Unsec. Gtd. Global Notes, 5.88%, 11/15/2024 | 12,000 | 12,405 | ||||||
Intelsat Jackson Holdings S.A. (Luxembourg), Sr. Unsec. Gtd. Global Notes, | ||||||||
7.25%, 04/01/2019 | 2,000 | 1,690 | ||||||
7.25%, 10/15/2020 | 2,000 | 1,560 | ||||||
Sirius XM Radio Inc., Sr. Unsec. Gtd. Notes, | ||||||||
5.38%, 04/15/2025(b) | 2,000 | 2,005 | ||||||
5.38%, 07/15/2026(b) | 5,000 | 4,913 | ||||||
390,227 | ||||||||
Casinos & Gaming–0.12% | ||||||||
Boyd Gaming Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 05/15/2023 | 4,000 | 4,320 | ||||||
MGM Resorts International, Sr. Unsec. Gtd. Notes, | ||||||||
6.00%, 03/15/2023 | 3,000 | 3,248 | ||||||
7.75%, 03/15/2022 | 5,000 | 5,787 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sr. Unsec. Gtd. Notes, 5.50%, 03/01/2025(b) | 5,000 | 4,975 | ||||||
18,330 | ||||||||
Commercial Printing–0.04% | ||||||||
Multi-Color Corp., Sr. Unsec. Gtd. Notes, | 6,000 | 6,300 | ||||||
Commodity Chemicals–0.05% | ||||||||
Tronox Finance LLC, Sr. Unsec. Gtd. Global Notes, 6.38%, 08/15/2020 | 4,000 | 3,760 | ||||||
Valvoline Inc., Sr. Unsec. Gtd. Notes, 5.50%, 07/15/2024(b) | 4,000 | 4,140 | ||||||
7,900 |
Principal Amount | Value | |||||||
Communications Equipment–0.05% | ||||||||
Hughes Satellite Systems Corp., | ||||||||
Sr. Sec. Gtd. First Lien Notes, | ||||||||
5.25%, 08/01/2026(b) | $ | 2,000 | $ | 1,968 | ||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
7.63%, 06/15/2021 | 5,000 | 5,512 | ||||||
7,480 | ||||||||
Construction & Engineering–0.42% | ||||||||
Valmont Industries, Inc., Sr. Unsec. Gtd. Global Notes, 5.25%, 10/01/2054 | 75,000 | 65,400 | ||||||
Construction Machinery & Heavy Trucks–0.05% | ||||||||
Meritor Inc., Sr. Unsec. Gtd. Notes, | ||||||||
6.25%, 02/15/2024 | 3,000 | 2,948 | ||||||
6.75%, 06/15/2021 | 5,000 | 5,112 | ||||||
8,060 | ||||||||
Consumer Finance–0.68% | ||||||||
Ally Financial Inc., Sr. Unsec. Global Notes, | ||||||||
4.63%, 03/30/2025 | 5,000 | 4,888 | ||||||
5.13%, 09/30/2024 | 3,000 | 3,060 | ||||||
Synchrony Financial, Sr. Unsec. Global Notes, 4.50%, 07/23/2025 | 95,000 | 97,717 | ||||||
105,665 | ||||||||
Copper–0.25% | ||||||||
Freeport-McMoRan Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
3.88%, 03/15/2023 | 2,000 | 1,842 | ||||||
5.40%, 11/14/2034 | 2,000 | 1,700 | ||||||
Lundin Mining Corp. (Canada), Sr. Sec. Gtd. First Lien Notes, 7.88%, 11/01/2022(b) | 33,000 | 36,094 | ||||||
39,636 | ||||||||
Data Processing & Outsourced Services–0.20% | ||||||||
Fidelity National Information Services, Inc., Sr. Unsec. Global Notes, 4.50%, 08/15/2046 | 33,000 | 31,479 | ||||||
Diversified Banks–7.40% | ||||||||
Bank of America Corp., | ||||||||
Series Z, Jr. Unsec. Sub. | 85,000 | 89,038 | ||||||
Series DD, Jr. Unsec. Sub. Notes, 6.30%(c) | 30,000 | 31,275 | ||||||
BBVA Bancomer S.A. (Mexico), Unsec. Sub. Notes, 6.75%, 09/30/2022(b) | 150,000 | 164,221 | ||||||
Citigroup Inc., | ||||||||
Series Q, Jr. Unsec. Sub. Global Notes, 5.95%(c) | 40,000 | 40,700 | ||||||
Series R, Jr. Unsec. Sub. Global Notes, 6.13%(c) | 65,000 | 67,600 | ||||||
Series T, Jr. Unsec. Sub. Global Notes, 6.25%(c) | 34,000 | 35,148 | ||||||
Corp. Andina de Fomento (Supranational), Sr. Unsec. Global Notes, 4.38%, 06/15/2022 | 50,000 | 52,671 | ||||||
Crédit Agricole S.A. (France), Unsec. Sub. Notes, 4.38%, 03/17/2025(b) | 200,000 | 196,610 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
HSBC Holdings PLC (United Kingdom), Sr. Unsec. Global Notes, 4.00%, 03/30/2022 | $ | 45,000 | $ | 46,676 | ||||
JPMorgan Chase & Co., | ||||||||
Sr. Unsec. Medium-Term Global Bonds, | ||||||||
2.30%, 08/15/2021 | 65,000 | 63,812 | ||||||
Unsec. Sub. Global Notes, | ||||||||
3.63%, 12/01/2027 | 35,000 | 33,893 | ||||||
Series 1, Jr. Unsec. Sub. Global Notes, 7.90%(c) | 30,000 | 31,275 | ||||||
Series V, Jr. Unsec. Sub. Global Notes, 5.00%(c) | 40,000 | 40,100 | ||||||
Standard Chartered PLC (United Kingdom), Unsec. Sub. Notes, 4.30%, 02/19/2027(b) | 200,000 | 189,970 | ||||||
Wells Fargo & Co., | ||||||||
Unsec. Sub. Medium-Term Notes, | ||||||||
4.75%, 12/07/2046 | 25,000 | 25,334 | ||||||
Series U, Jr. Unsec. Sub. Global Notes, 5.88%(c) | 45,000 | 47,025 | ||||||
1,155,348 | ||||||||
Diversified Chemicals–0.11% | ||||||||
Chemours Co. (The), Sr. Unsec. Gtd. Global Notes, 6.63%, 05/15/2023 | 17,000 | 17,021 | ||||||
Diversified Metals & Mining–0.75% | ||||||||
Glencore Finance Canada Ltd. (Switzerland), Sr. Unsec. Gtd. Notes, 2.70%, 10/25/2017(b) | 25,000 | 25,188 | ||||||
HudBay Minerals, Inc. (Canada), Sr. Unsec. Gtd. Notes, | ||||||||
7.25%, 01/15/2023(b) | 2,000 | 2,085 | ||||||
7.63%, 01/15/2025(b) | 2,000 | 2,095 | ||||||
Southern Copper Corp. (Peru), Sr. Unsec. Global Notes, 3.88%, 04/23/2025 | 23,000 | 22,583 | ||||||
Teck Resources Ltd. (Canada), | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
4.75%, 01/15/2022 | 4,000 | 4,040 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
4.50%, 01/15/2021 | 54,000 | 55,080 | ||||||
Sr. Unsec. Notes, | ||||||||
6.13%, 10/01/2035 | 6,000 | 5,865 | ||||||
116,936 | ||||||||
Diversified REIT’s–1.32% | ||||||||
Spirit Realty, L.P., Sr. Unsec. Gtd. Notes, 4.45%, 09/15/2026(b) | 15,000 | 14,080 | ||||||
Trust F/1401 (Mexico), Sr. Unsec. Notes, 5.25%, 01/30/2026(b) | 200,000 | 191,166 | ||||||
205,246 | ||||||||
Diversified Support Services–0.01% | ||||||||
Ritchie Bros. Auctioneers Inc. (Canada), Sr. Unsec. Gtd. Notes, 5.38%, 01/15/2025(b) | 2,000 | 2,050 | ||||||
Drug Retail–1.06% | ||||||||
CVS Pass Through Trust, Sr. Sec. First Lien Mortgage Pass Through Ctfs., 5.77%, 01/10/2033(b) | 146,912 | 164,794 |
Principal Amount | Value | |||||||
Electric Utilities–0.80% | ||||||||
Georgia Power Co., Sr. Unsec. Notes, 2.85%, 05/15/2022 | $ | 58,000 | $ | 57,972 | ||||
Southern Co. (The), Series B, Jr. Unsec. Sub. Global Notes, 5.50%, 03/15/2057 | 66,000 | 66,834 | ||||||
124,806 | ||||||||
Electrical Components & Equipment–0.05% | ||||||||
Sensata Technologies B.V., Sr. Unsec. Gtd. Notes, 4.88%, 10/15/2023(b) | 7,000 | 7,219 | ||||||
Environmental & Facilities Services–0.01% | ||||||||
Advanced Disposal Services, Inc., Sr. Unsec. Gtd. | 2,000 | 2,005 | ||||||
Financial Exchanges & Data–2.36% | ||||||||
Moody’s Corp., | ||||||||
Sr. Unsec. Global Bonds, | ||||||||
5.50%, 09/01/2020 | 110,000 | 120,531 | ||||||
Sr. Unsec. Global Notes, | ||||||||
2.75%, 07/15/2019 | 45,000 | 45,520 | ||||||
4.88%, 02/15/2024 | 138,000 | 149,444 | ||||||
5.25%, 07/15/2044 | 35,000 | 38,457 | ||||||
Nasdaq, Inc., Sr. Unsec. Notes, 3.85%, 06/30/2026 | 15,000 | 14,877 | ||||||
368,829 | ||||||||
Food Distributors–0.03% | ||||||||
US Foods, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 06/15/2024(b) | 4,000 | 4,170 | ||||||
Gas Utilities–0.10% | ||||||||
AmeriGas Partners, L.P./AmeriGas Finance Corp., Sr. Unsec. Global Notes, | ||||||||
5.63%, 05/20/2024 | 4,000 | 4,110 | ||||||
5.88%, 08/20/2026 | 2,000 | 2,040 | ||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Global Notes, 6.50%, 05/01/2021 | 5,000 | 4,975 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.50%, 06/01/2024 | 4,000 | 4,060 | ||||||
15,185 | ||||||||
General Merchandise Stores–0.01% | ||||||||
Dollar Tree, Inc., Sr. Unsec. Gtd. Global Notes, 5.75%, 03/01/2023 | 2,000 | 2,125 | ||||||
Health Care Equipment–0.56% | ||||||||
Abbott Laboratories, Sr. Unsec. Global Notes, | ||||||||
3.75%, 11/30/2026 | 50,000 | 49,692 | ||||||
4.90%, 11/30/2046 | 37,000 | 38,043 | ||||||
87,735 | ||||||||
Health Care Facilities–0.35% | ||||||||
Acadia Healthcare Co., Inc., Sr. Unsec. Gtd. Global Notes, 6.50%, 03/01/2024 | 2,000 | 2,035 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Health Care Facilities–(continued) | ||||||||
Community Health Systems, Inc., | ||||||||
Sr. Sec. Gtd. First Lien Global Notes, | ||||||||
5.13%, 08/15/2018 | $ | 2,000 | $ | 1,973 | ||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
6.88%, 02/01/2022 | 2,917 | 2,042 | ||||||
HCA, Inc., | ||||||||
Sr. Sec. Gtd. First Lien Global Notes, | ||||||||
6.50%, 02/15/2020 | 19,000 | 20,786 | ||||||
Sr. Sec. Gtd. First Lien Notes, | ||||||||
5.25%, 04/15/2025 | 4,000 | 4,177 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.88%, 02/15/2026 | 8,000 | 8,250 | ||||||
HealthSouth Corp., Sr. Unsec. Gtd. Global Notes, 5.75%, 09/15/2025 | 2,000 | 2,007 | ||||||
LifePoint Health, Inc., Sr. Unsec. Gtd. Notes, 5.38%, 05/01/2024(b) | 2,000 | 1,965 | ||||||
Tenet Healthcare Corp., | ||||||||
Sec. Gtd. Second Lien Notes, | ||||||||
7.50%, 01/01/2022(b) | 2,000 | 2,100 | ||||||
Sr. Unsec. Global Notes, | ||||||||
6.75%, 06/15/2023 | 2,000 | 1,770 | ||||||
8.13%, 04/01/2022 | 5,000 | 4,737 | ||||||
Universal Health Services, Inc, Sr. Sec. Gtd. First Lien Notes, 5.00%, 06/01/2026(b) | 2,000 | 1,958 | ||||||
53,800 | ||||||||
Health Care REIT’s–0.75% | ||||||||
HCP, Inc., Sr. Unsec. Global Notes, 4.00%, 12/01/2022 | 71,000 | 72,652 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 6.75%, 12/15/2021 | 40,000 | 44,701 | ||||||
117,353 | ||||||||
Health Care Services–0.24% | ||||||||
AMN Healthcare, Inc., Sr. Unsec. Gtd. Notes, 5.13%, 10/01/2024(b) | 2,000 | 2,005 | ||||||
DaVita Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 05/01/2025 | 2,000 | 1,988 | ||||||
MPH Acquisition Holdings LLC, Sr. Unsec. Gtd. Notes, 7.13%, 06/01/2024(b) | 8,000 | 8,420 | ||||||
Orlando Lutheran Towers Inc., Unsec. Bonds, 8.00%, 07/01/2017 | 25,000 | 25,118 | ||||||
37,531 | ||||||||
Home Entertainment Software–0.26% | ||||||||
Electronic Arts Inc., Sr. Unsec. Global Notes, 3.70%, 03/01/2021 | 40,000 | 41,292 | ||||||
Homebuilding–0.95% | ||||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Notes, 8.75%, 03/15/2022(b) | 3,000 | 3,255 | ||||||
MDC Holdings, Inc., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/2043 | 165,000 | 139,012 | ||||||
Meritage Homes Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
6.00%, 06/01/2025 | 3,000 | 3,068 | ||||||
7.15%, 04/15/2020 | 2,000 | 2,190 | ||||||
147,525 |
Principal Amount | Value | |||||||
Hotel and Resort REIT’s–0.82% | ||||||||
Hospitality Properties Trust, Sr. Unsec. Global Notes, 4.25%, 02/15/2021 | $ | 90,000 | $ | 93,017 | ||||
Host Hotels & Resorts L.P., Series F, Sr. Unsec. Global Notes, 4.50%, 02/01/2026 | 35,000 | 35,534 | ||||||
128,551 | ||||||||
Hotels, Resorts & Cruise Lines–0.03% | ||||||||
Choice Hotels International, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 07/01/2022 | 4,000 | 4,288 | ||||||
Household Products–0.03% | ||||||||
Reynolds Group Issuer Inc./LLC (New Zealand), Sr. Unsec. Gtd. Notes, 7.00%, 07/15/2024(b) | 2,000 | 2,125 | ||||||
Spectrum Brands, Inc., Sr. Unsec. Gtd. Global Notes, 5.75%, 07/15/2025 | 2,000 | 2,083 | ||||||
4,208 | ||||||||
Independent Power Producers & Energy Traders–0.14% | ||||||||
AES Corp. (The), Sr. Unsec. Notes, 5.50%, 04/15/2025 | 6,000 | 6,000 | ||||||
Calpine Corp., | ||||||||
Sr. Sec. Gtd. First Lien Notes, | ||||||||
5.88%, 01/15/2024(b) | 2,000 | 2,100 | ||||||
Sr. Unsec. Global Notes, | ||||||||
5.50%, 02/01/2024 | 4,000 | 3,880 | ||||||
Dynegy Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/2024 | 4,000 | 3,715 | ||||||
NRG Energy, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
6.25%, 05/01/2024 | 2,000 | 1,975 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
6.63%, 01/15/2027(b) | 4,000 | 3,805 | ||||||
21,475 | ||||||||
Industrial REIT’s–1.25% | ||||||||
PLA Administradora Industrial, S. de R.L. de C.V. (Mexico), Sr. Unsec. Notes, 5.25%, 11/10/2022(b) | 200,000 | 195,000 | ||||||
Integrated Oil & Gas–1.45% | ||||||||
Ecopetrol S.A. (Colombia), Sr. Unsec. Global Notes, 4.13%, 01/16/2025 | 38,000 | 36,052 | ||||||
Petróleos Mexicanos (Mexico), | ||||||||
Sr. Unsec. Gtd. Global Bonds, | ||||||||
6.63%, 06/15/2035 | 23,000 | 22,848 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.38%, 03/13/2022(b) | 21,000 | 21,486 | ||||||
6.50%, 03/13/2027(b) | 52,000 | 53,865 | ||||||
6.75%, 09/21/2047(b) | 85,000 | 80,405 | ||||||
Shell International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Notes, 4.00%, 05/10/2046 | 13,000 | 12,431 | ||||||
227,087 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Integrated Telecommunication Services–1.73% | ||||||||
AT&T Inc., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
4.75%, 05/15/2046 | $ | 44,000 | $ | 41,841 | ||||
Sr. Unsec. Notes, | ||||||||
4.45%, 04/01/2024 | 30,000 | 31,271 | ||||||
CenturyLink, Inc., Series Y, Sr. Unsec. Global Notes, 7.50%, 04/01/2024 | 1,000 | 1,054 | ||||||
Cincinnati Bell Inc., Sr. Unsec. Gtd. Notes, 7.00%, 07/15/2024(b) | 2,000 | 2,125 | ||||||
Frontier Communications Corp., Sr. Unsec. Global Notes, | ||||||||
8.88%, 09/15/2020 | 2,000 | 2,140 | ||||||
11.00%, 09/15/2025 | 2,000 | 2,075 | ||||||
GCI, Inc., Sr. Unsec. Global Notes, 6.88%, 04/15/2025 | 2,000 | 2,032 | ||||||
SBA Communications Corp., Sr. Unsec. Notes, 4.88%, 09/01/2024(b) | 4,000 | 3,965 | ||||||
T-Mobile USA, Inc., | ||||||||
Sr. Unsec. Gtd. Global Bonds, | ||||||||
6.84%, 04/28/2023 | 2,000 | 2,147 | ||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
6.38%, 03/01/2025 | 20,000 | 21,450 | ||||||
Verizon Communications Inc., Sr. Unsec. Global Notes, | ||||||||
2.63%, 08/15/2026 | 60,000 | 55,327 | ||||||
4.13%, 08/15/2046 | 22,000 | 19,946 | ||||||
5.01%, 08/21/2054 | 58,000 | 57,795 | ||||||
5.15%, 09/15/2023 | 25,000 | 27,607 | ||||||
270,775 | ||||||||
Internet & Direct Marketing Retail–1.80% | ||||||||
Expedia, Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 02/15/2026 | 65,000 | 67,086 | ||||||
QVC, Inc., Sr. Sec. Gtd. First Lien Global Notes, | ||||||||
4.45%, 02/15/2025 | 80,000 | 76,964 | ||||||
5.45%, 08/15/2034 | 150,000 | 136,350 | ||||||
280,400 | ||||||||
Investment Banking & Brokerage–0.59% | ||||||||
Cantor Fitzgerald, L.P., Unsec. Notes, 6.50%, 06/17/2022(b) | 34,000 | 35,942 | ||||||
Goldman Sachs Group, Inc. (The), Series L, Jr. Unsec. Sub. Notes, 5.70%(c) | 55,000 | 56,650 | ||||||
92,592 | ||||||||
Leisure Products–0.03% | ||||||||
Vista Outdoor Inc., Sr. Unsec. Gtd. Global Notes, 5.88%, 10/01/2023 | 5,000 | 5,256 | ||||||
Life & Health Insurance–4.04% | ||||||||
Dai-ichi Life Insurance Co., Ltd. (The) (Japan), Jr. Unsec. Sub. | 200,000 | 188,000 | ||||||
MetLife, Inc., Series C, Jr. Unsec. Sub. Global Notes, 5.25%(c) | 65,000 | 66,300 | ||||||
Nationwide Financial Services, Inc., Sr. Unsec. Notes, 5.38%, 03/25/2021(b) | 165,000 | 180,774 |
Principal Amount | Value | |||||||
Life & Health Insurance–(continued) | ||||||||
Prudential Financial, Inc., Jr. Unsec. Sub. Global Notes, 8.88%, 06/15/2068 | $ | 130,000 | $ | 140,562 | ||||
TIAA Asset Management Finance Co. LLC, Sr. Unsec. Notes, 4.13%, 11/01/2024(b) | 55,000 | 55,733 | ||||||
631,369 | ||||||||
Managed Health Care–1.24% | ||||||||
Aetna, Inc., Sr. Unsec. Global Notes, 3.20%, 06/15/2026 | 51,000 | 50,487 | ||||||
4.25%, 06/15/2036 | 57,000 | 57,250 | ||||||
Centene Corp., Sr. Unsec. Notes, 4.75%, 01/15/2025 | 2,000 | 1,960 | ||||||
Cigna Corp., Sr. Unsec. Notes, 4.50%, 03/15/2021 | 45,000 | 47,824 | ||||||
UnitedHealth Group Inc., Sr. Unsec. Global Notes, 3.75%, 07/15/2025 | 35,000 | 36,255 | ||||||
193,776 | ||||||||
Marine–0.02% | ||||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. First Lien Mortgage Notes, 8.13%, 11/15/2021(b) | 4,000 | 3,410 | ||||||
Metal & Glass Containers–0.01% | ||||||||
Berry Plastics Corp., Sec. Gtd. Second Lien Global Notes, 6.00%, 10/15/2022 | 2,000 | 2,128 | ||||||
Movies & Entertainment–0.67% | ||||||||
AMC Entertainment Holdings, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 5.75%, 06/15/2025 | 5,000 | 5,137 | ||||||
Lions Gate Entertainment Corp., Sr. Unsec. Gtd. Notes, 5.88%, 11/01/2024(b) | 2,000 | 2,035 | ||||||
Pinnacle Entertainment, Inc., Sr. Unsec. Notes, 5.63%, 05/01/2024(b) | 6,000 | 6,045 | ||||||
Time Warner Cable, Inc., Sr. Sec. Gtd. First Lien Global Deb., 6.75%, 07/01/2018 | 55,000 | 58,747 | ||||||
Twenty-First Century Fox America, Inc., Sr. Unsec. Gtd. Notes, 4.75%, 11/15/2046(b) | 20,000 | 20,118 | ||||||
Viacom Inc., Sr. Unsec. Global Notes, 3.45%, 10/04/2026 | 13,000 | 12,034 | ||||||
104,116 | ||||||||
Multi-Line Insurance–2.66% | ||||||||
AIG Global Funding, Sec. Notes, 2.70%, 12/15/2021(b) | 42,000 | 41,950 | ||||||
American Financial Group, Inc., | ||||||||
Sr. Unsec. Notes, | ||||||||
3.50%, 08/15/2026 | 20,000 | 19,262 | ||||||
9.88%, 06/15/2019 | 180,000 | 211,064 | ||||||
American International Group, Inc., Sr. Unsec. Global Notes, 3.90%, 04/01/2026 | 45,000 | 45,751 | ||||||
Nationwide Mutual Insurance Co., Unsec. Sub. Notes, 4.95%, 04/22/2044(b) | 100,000 | 97,701 | ||||||
415,728 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Office REIT’s–0.54% | ||||||||
Alexandria Real Estate Equities, Inc., Sr. Unsec. Gtd. Global Notes, 3.95%, 01/15/2027 | $ | 40,000 | $ | 39,560 | ||||
Piedmont Operating Partnership L.P., Sr. Unsec. Gtd. Global Notes, 4.45%, 03/15/2024 | 45,000 | 44,493 | ||||||
84,053 | ||||||||
Office Services & Supplies–0.84% | ||||||||
Pitney Bowes Inc., Sr. Unsec. Global Notes, | ||||||||
3.38%, 10/01/2021 | 55,000 | 53,275 | ||||||
4.63%, 03/15/2024 | 35,000 | 34,389 | ||||||
Steelcase, Inc., Sr. Unsec. Global Bonds, 6.38%, 02/15/2021 | 39,000 | 43,337 | ||||||
131,001 | ||||||||
Oil & Gas Drilling–0.05% | ||||||||
Ensco PLC, Sr. Unsec. Global Notes, 4.50%, 10/01/2024 | 2,000 | 1,725 | ||||||
Precision Drilling Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 5.25%, 11/15/2024 | 2,000 | 1,850 | ||||||
Rowan Cos., Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 06/15/2025 | 2,000 | 2,050 | ||||||
Transocean Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 04/15/2031 | 2,000 | 1,670 | ||||||
7,295 | ||||||||
Oil & Gas Equipment & Services–0.29% | ||||||||
Petrofac Ltd. (United Kingdom), Sr. Unsec. Gtd. Notes, 3.40%, 10/10/2018(b) | 41,000 | 41,685 | ||||||
SESI, L.L.C., Sr. Unsec. Gtd. Global Notes, 7.13%, 12/15/2021 | 2,000 | 2,030 | ||||||
Weatherford International Ltd., Sr. Unsec. Gtd. Notes, 6.50%, 08/01/2036 | 2,000 | 1,610 | ||||||
45,325 | ||||||||
Oil & Gas Exploration & Production–0.68% | ||||||||
Antero Resources Corp., Sr. Unsec. Gtd. Global Notes, 5.63%, 06/01/2023 | 4,000 | 4,100 | ||||||
Concho Resources Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
5.50%, 10/01/2022 | 4,000 | 4,165 | ||||||
5.50%, 04/01/2023 | 2,000 | 2,078 | ||||||
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 09/15/2022 | 4,000 | 4,020 | ||||||
Gulfport Energy Corp., Sr. Unsec. Gtd. Notes, 6.00%, 10/15/2024(b) | 4,000 | 4,060 | ||||||
Hess Corp., Sr. Unsec. Global Notes, 5.80%, 04/01/2047 | 17,000 | 17,713 | ||||||
Newfield Exploration Co., Sr. Unsec. Global Notes, 5.63%, 07/01/2024 | 5,000 | 5,237 | ||||||
Oasis Petroleum Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
6.88%, 01/15/2023 | 2,000 | 2,060 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
6.50%, 11/01/2021 | 2,000 | 2,060 | ||||||
Parsley Energy LLC/Parsley Finance Corp., Sr. Unsec. Gtd. Notes, 6.25%, 06/01/2024(b) | 2,000 | 2,110 |
Principal Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Pioneer Natural Resources Co., Sr. Unsec. Notes, 6.65%, 03/15/2017 | $ | 30,000 | $ | 30,345 | ||||
QEP Resources, Inc., Sr. Unsec. Notes, 6.88%, 03/01/2021 | 4,000 | 4,270 | ||||||
Rice Energy Inc., Sr. Unsec. Gtd. Global Notes, 6.25%, 05/01/2022 | 4,000 | 4,120 | ||||||
RSP Permian, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
6.63%, 10/01/2022 | 5,000 | 5,312 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.25%, 01/15/2025(b) | 2,000 | 2,020 | ||||||
SM Energy Co., Sr. Unsec. Global Notes, 6.13%, 11/15/2022 | 2,000 | 2,035 | ||||||
Southwestern Energy Co., Sr. Unsec. Global Notes, 4.10%, 03/15/2022 | 2,000 | 1,900 | ||||||
Whiting Petroleum Corp., Sr. Unsec. Gtd. Global Notes, 6.25%, 04/01/2023 | 4,000 | 4,020 | ||||||
WPX Energy Inc., Sr. Unsec. Global Notes, 6.00%, 01/15/2022 | 4,000 | 4,120 | ||||||
105,745 | ||||||||
Oil & Gas Refining & Marketing–0.29% | ||||||||
Chevron Phillips Chemical Co. LLC, Sr. Unsec. Notes, 3.40%, 12/01/2026(b) | 45,000 | 44,905 | ||||||
Oil & Gas Storage & Transportation–4.44% | ||||||||
Antero Midstream Partners LP/Antero Midstream Finance Corp., Sr. Unsec. Gtd. Notes, 5.38%, 09/15/2024(b) | 2,000 | 2,045 | ||||||
Enbridge Inc. (Canada), | ||||||||
Sr. Unsec. Notes, | ||||||||
5.60%, 04/01/2017 | 72,000 | 72,806 | ||||||
Series 2016-A, Unsec. Sub. Global Notes, | ||||||||
6.00%, 01/15/2077 | 62,000 | 62,404 | ||||||
Energy Transfer Equity, L.P., Sr. Sec. First Lien Notes, 5.88%, 01/15/2024 | 4,000 | 4,140 | ||||||
Energy Transfer Partners, L.P., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
4.65%, 06/01/2021 | 26,000 | 27,553 | ||||||
Sr. Unsec. Notes, | ||||||||
4.75%, 01/15/2026 | 61,000 | 63,203 | ||||||
5.15%, 03/15/2045 | 51,000 | 48,934 | ||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Notes, 3.75%, 02/15/2025 | 74,000 | 75,404 | ||||||
EQT Midstream Partners L.P., Sr. Unsec. Notes, 4.00%, 08/01/2024 | 65,000 | 64,143 | ||||||
Holly Energy Partners L.P./Holly Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.00%, 08/01/2024(b) | 8,000 | 8,380 | ||||||
Kinder Morgan Energy Partners, L.P., Sr. Unsec. Gtd. Notes, 5.40%, 09/01/2044 | 74,000 | 74,563 | ||||||
MPLX LP, Sr. Unsec. Gtd. Global Notes, 4.88%, 06/01/2025 | 3,000 | 3,084 | ||||||
Plains All American Pipeline L.P./ PAA Finance Corp., Sr. Unsec. Bonds, 4.50%, 12/15/2026 | 11,000 | 11,127 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Oil & Gas Storage & Transportation–(continued) | ||||||||
Sabine Pass Liquefaction, LLC, | ||||||||
Sr. Sec. First Lien Global Notes, | ||||||||
5.63%, 03/01/2025 | $ | 2,000 | $ | 2,146 | ||||
Sr. Sec. Notes, | ||||||||
5.00%, 03/15/2027(b) | 27,000 | 27,371 | ||||||
Southern Natural Gas Co., L.L.C., Sr. Unsec. Notes, 5.90%, 04/01/2017(b) | 18,000 | 18,158 | ||||||
Targa Resources Partners L.P./ Targa Resources Partners Finance Corp., | ||||||||
Sr. Unsec. Gtd. Global Bonds, | ||||||||
5.25%, 05/01/2023 | 2,000 | 2,020 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.13%, 02/01/2025(b) | 4,000 | 3,980 | ||||||
Tesoro Logistics L.P./Tesoro Logistics Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 05/01/2024 | 2,000 | 2,150 | ||||||
Willams Cos. Inc. (The), Sr. Unsec. Global Notes, 4.55%, 06/24/2024 | 2,000 | 2,010 | ||||||
Williams Partners L.P., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
3.60%, 03/15/2022 | 84,000 | 84,490 | ||||||
Sr. Unsec. Notes, | ||||||||
4.13%, 11/15/2020 | 32,000 | 33,284 | ||||||
693,395 | ||||||||
Other Diversified Financial Services–0.68% | ||||||||
Football Trust V, Sec. Pass Through Ctfs., 5.35%, 10/05/2020(b) | 100,000 | 106,414 | ||||||
Packaged Foods & Meats–0.26% | ||||||||
JBS USA Lux S.A./JBS USA Finance Inc. (Brazil), Sr. Unsec. Gtd. Notes, 5.75%, 06/15/2025(b) | 2,000 | 2,048 | ||||||
Kraft Heinz Foods Co. (The), Sr. Unsec. Gtd. Global Notes, 4.38%, 06/01/2046 | 20,000 | 18,809 | ||||||
Lamb Weston Holdings, Inc., Sr. Unsec. Gtd. Notes, | ||||||||
4.63%, 11/01/2024(b) | 12,000 | 12,090 | ||||||
4.88%, 11/01/2026(b) | 8,000 | 7,950 | ||||||
40,897 | ||||||||
Paper Packaging–0.01% | ||||||||
Graphic Packaging International Inc., Sr. Unsec. Gtd. Notes, 4.88%, 11/15/2022 | 2,000 | 2,060 | ||||||
Paper Products–0.09% | ||||||||
Clearwater Paper Corp., Sr. Unsec. Gtd. Global Notes, 4.50%, 02/01/2023 | 14,000 | 13,772 | ||||||
Pharmaceuticals–2.00% | ||||||||
Bristol-Myers Squibb Co., Sr. Unsec. Deb., 6.88%, 08/01/2097 | 74,000 | 101,764 | ||||||
Mylan N.V., Sr. Unsec. Gtd. Notes, 3.95%, 06/15/2026(b) | 56,000 | 52,480 | ||||||
Teva Pharmaceutical Finance Netherlands III B.V. (Israel), Sr. Unsec. Gtd. Global Notes, | ||||||||
2.20%, 07/21/2021 | 50,000 | 47,861 | ||||||
3.15%, 10/01/2026 | 27,000 | 24,904 | ||||||
4.10%, 10/01/2046 | 42,000 | 36,078 |
Principal Amount | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Valeant Pharmaceuticals International, Inc., Sr. Unsec. Gtd. Notes, 5.63%, 12/01/2021(b) | $ | 9,000 | $ | 7,020 | ||||
Zoetis, Inc., Sr. Unsec. Global Notes, 4.50%, 11/13/2025 | 40,000 | 42,381 | ||||||
312,488 | ||||||||
Property & Casualty Insurance–0.89% | ||||||||
Allstate Corp. (The), Sr. Unsec. Notes, 4.20%, 12/15/2046 | 20,000 | 20,494 | ||||||
Arch Capital Finance LLC, Sr. Unsec. Gtd. Notes, 5.03%, 12/15/2046 | 22,000 | 23,103 | ||||||
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/07/2087(b) | 45,000 | 50,794 | ||||||
W.R. Berkley Corp., Sr. Unsec. Notes, 7.38%, 09/15/2019 | 40,000 | 44,985 | ||||||
139,376 | ||||||||
Regional Banks–1.77% | ||||||||
CIT Group Inc., Sr. Unsec. Global Notes, | ||||||||
5.00%, 08/15/2022 | 4,000 | 4,170 | ||||||
5.00%, 08/01/2023 | 2,000 | 2,075 | ||||||
5.25%, 03/15/2018 | 20,000 | 20,700 | ||||||
Fifth Third Bancorp, | ||||||||
Unsec. Sub. Notes, | ||||||||
4.30%, 01/16/2024 | 55,000 | 56,820 | ||||||
Series J, Jr. Unsec. Sub. | 45,000 | 42,075 | ||||||
Huntington Bancshares, Inc., Sr. Unsec. Global Notes, 2.30%, 01/14/2022 | 125,000 | 121,178 | ||||||
M&T Bank Corp., Series F, Jr. Unsec. Sub. Global Notes, 5.13%(c) | 31,000 | 29,993 | ||||||
277,011 | ||||||||
Reinsurance–0.41% | ||||||||
Reinsurance Group of America, Inc., Sr. Unsec. Medium-Term Notes, 4.70%, 09/15/2023 | 60,000 | 63,747 | ||||||
Renewable Electricity–0.23% | ||||||||
Oglethorpe Power Corp., Sr. Sec. First Mortgage Bonds, 4.55%, 06/01/2044 | 36,000 | 35,906 | ||||||
Residential REIT’s–0.75% | ||||||||
Essex Portfolio L.P., Sr. Unsec. Gtd. Global Notes, 3.63%, 08/15/2022 | 115,000 | 117,198 | ||||||
Restaurants–0.74% | ||||||||
1011778 BC ULC/ New Red Finance, Inc. (Canada), Sec. Gtd. Second Lien Notes, 6.00%, 04/01/2022(b) | 94,000 | 99,053 | ||||||
Brinker International Inc., Sr. Unsec. Gtd. Notes, 5.00%, 10/01/2024(b) | 16,000 | 16,085 | ||||||
115,138 | ||||||||
Retail REIT’s–0.24% | ||||||||
Brixmor Operating Partnership LP, Sr. Unsec. Global Notes, 3.25%, 09/15/2023 | 38,000 | 36,762 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Semiconductors–0.31% | ||||||||
Analog Devices, Inc., Sr. Unsec. Global Notes, | ||||||||
3.13%, 12/05/2023 | $ | 30,000 | $ | 29,815 | ||||
4.50%, 12/05/2036 | 10,000 | 10,128 | ||||||
Micron Technology, Inc., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
5.50%, 02/01/2025 | 2,000 | 2,000 | ||||||
Sr. Unsec. Notes, | ||||||||
5.25%, 08/01/2023(b) | 4,000 | 4,035 | ||||||
5.25%, 01/15/2024(b) | 2,000 | 2,000 | ||||||
47,978 | ||||||||
Sovereign Debt–1.30% | ||||||||
Argentine Republic Government International Bond (Argentina), Sr. Unsec. Notes, 6.25%, 04/22/2019(b) | 150,000 | 160,500 | ||||||
Mexico Government International Bond (Mexico), Sr. Unsec. Global Notes, 4.00%, 10/02/2023 | 14,000 | 14,069 | ||||||
Peruvian Government International Bond (Peru), Sr. Unsec. Global Bonds, 4.13%, 08/25/2027 | 8,000 | 8,343 | ||||||
Uruguay Government International Bond (Uruguay), Sr. Unsec. Global Notes, 4.38%, 10/27/2027 | 20,000 | 20,151 | ||||||
203,063 | ||||||||
Specialized Consumer Services–0.03% | ||||||||
ServiceMaster Co., LLC (The), | ||||||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.13%, 11/15/2024(b) | 2,000 | 2,040 | ||||||
Sr. Unsec. Notes, | ||||||||
7.45%, 08/15/2027 | 3,000 | 3,105 | ||||||
5,145 | ||||||||
Specialized Finance–2.93% | ||||||||
AerCap Global Aviation Trust (Netherlands), Jr. Unsec. Gtd. Sub. Notes, 6.50%, 06/15/2045(b) | 235,000 | 238,231 | ||||||
Air Lease Corp., Sr. Unsec. Global Notes, | ||||||||
3.00%, 09/15/2023 | 64,000 | 60,940 | ||||||
3.38%, 06/01/2021 | 60,000 | 60,712 | ||||||
3.88%, 04/01/2021 | 85,000 | 87,816 | ||||||
Aircastle Ltd., Sr. Unsec. Notes, | ||||||||
5.00%, 04/01/2023 | 2,000 | 2,058 | ||||||
5.50%, 02/15/2022 | 7,000 | 7,455 | ||||||
457,212 | ||||||||
Specialized REIT’s–3.19% | ||||||||
Communications Sales & Leasing, Inc./CSL Capital LLC, Sr. Unsec. Gtd. Notes, 7.13%, 12/15/2024(b) | 4,000 | 4,040 | ||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. First Lien Notes, 4.88%, 08/15/2020(b) | 120,000 | 127,933 | ||||||
EPR Properties, | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
4.50%, 04/01/2025 | 43,000 | 42,172 | ||||||
7.75%, 07/15/2020 | 253,000 | 285,796 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.75%, 08/15/2022 | 20,000 | 21,504 |
Principal Amount | Value | |||||||
Specialized REIT’s–(continued) | ||||||||
Equinix Inc., Sr. Unsec. Notes, 5.88%, 01/15/2026 | $ | 5,000 | $ | 5,275 | ||||
GLP Capital LP/GLP Financing II Inc., Sr. Unsec. Gtd. Notes, 5.38%, 04/15/2026 | 5,000 | 5,250 | ||||||
Lamar Media Corp., Sr. Unsec. Gtd. Global Notes, 5.75%, 02/01/2026 | 4,000 | 4,220 | ||||||
Rayonier A.M. Products Inc., Sr. Unsec. Gtd. Notes, 5.50%, 06/01/2024(b) | 2,000 | 1,890 | ||||||
498,080 | ||||||||
Specialty Chemicals–0.07% | ||||||||
Ashland LLC, Sr. Unsec. Gtd. Global Notes, 4.75%, 08/15/2022 | 2,000 | 2,080 | ||||||
Kraton Polymers LLC/Kraton Polymers Capital Corp., Sr. Unsec. Gtd. Notes, 10.50%, 04/15/2023(b) | 2,000 | 2,270 | ||||||
PolyOne Corp., Sr. Unsec. Global Notes, 5.25%, 03/15/2023 | 2,000 | 2,035 | ||||||
PQ Corp., Sr. Sec. Gtd. First Lien Notes, 6.75%, 11/15/2022(b) | 4,000 | 4,300 | ||||||
10,685 | ||||||||
Steel–0.07% | ||||||||
ArcelorMittal (Luxembourg), | ||||||||
Sr. Unsec. Global Bonds, | ||||||||
6.13%, 06/01/2025 | 2,000 | 2,200 | ||||||
Sr. Unsec. Global Notes, | ||||||||
8.00%, 10/15/2039 | 2,000 | 2,200 | ||||||
FMG Resources (August 2006) Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, 6.88%, 04/01/2022(b) | 4,000 | 4,165 | ||||||
United States Steel Corp., Sr. Unsec. Global Notes, 7.50%, 03/15/2022 | 2,000 | 2,050 | ||||||
10,615 | ||||||||
Systems Software–0.18% | ||||||||
Oracle Corp., Sr. Unsec. Global Notes, 4.00%, 07/15/2046 | 30,000 | 28,658 | ||||||
Technology Distributors–0.22% | ||||||||
Avnet, Inc., Sr. Unsec. Global Notes, 4.63%, 04/15/2026 | 35,000 | 34,021 | ||||||
Technology Hardware, Storage & Peripherals–1.38% | ||||||||
Diamond 1 Finance Corp./Diamond 2 Finance Corp., | ||||||||
Sr. Sec. Gtd. First Lien Notes, | ||||||||
6.02%, 06/15/2026(b) | 92,000 | 99,678 | ||||||
8.35%, 07/15/2046(b) | 24,000 | 29,809 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
7.13%, 06/15/2024(b) | 6,000 | 6,660 | ||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. Global Bonds, | ||||||||
4.75%, 01/01/2025 | 45,000 | 42,666 | ||||||
5.75%, 12/01/2034 | 38,000 | 32,490 | ||||||
Western Digital Corp., Sr. Unsec. Gtd. Notes, 10.50%, 04/01/2024(b) | 4,000 | 4,740 | ||||||
216,043 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Thrifts & Mortgage Finance–0.27% | ||||||||
First Niagara Financial Group Inc., Unsec. Sub. Notes, 7.25%, 12/15/2021 | $ | 35,000 | $ | 41,656 | ||||
Trading Companies & Distributors–0.07% | ||||||||
BMC East, LLC, Sr. Sec. Gtd. First Lien Notes, 5.50%, 10/01/2024(b) | 4,000 | 4,000 | ||||||
United Rentals North America, Inc., Sr. Unsec. Gtd. Notes, | ||||||||
5.50%, 05/15/2027 | 2,000 | 2,000 | ||||||
6.13%, 06/15/2023 | 5,000 | 5,319 | ||||||
11,319 | ||||||||
Trucking–0.23% | ||||||||
Avis Budget Car Rental LLC/ Avis Budget Finance Inc., Sr. Unsec. Gtd. Global Notes, 5.50%, 04/01/2023 | 2,000 | 1,970 | ||||||
Kenan Advantage Group Inc. (The), Sr. Unsec. Notes, 7.88%, 07/31/2023(b) | 2,000 | 2,030 | ||||||
Penske Truck Leasing Co., L.P./PTL Finance Corp., Sr. Unsec. Notes, 3.40%, 11/15/2026(b) | 33,000 | 31,593 | ||||||
35,593 | ||||||||
Wireless Telecommunication Services–0.13% | ||||||||
Sprint Communications Inc., Sr. Unsec. Gtd. Notes, 7.00%, 03/01/2020(b) | 8,000 | 8,700 | ||||||
Sprint Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
7.25%, 09/15/2021 | 7,000 | 7,441 | ||||||
7.88%, 09/15/2023 | 4,000 | 4,280 | ||||||
20,421 | ||||||||
Total Bonds & Notes | 10,738,789 | |||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–24.22% |
| |||||||
Collateralized Mortgage Obligations–0.49% | ||||||||
Ginnie Mae REMICs, IO, | ||||||||
1.58%, 09/20/2064(d) | 297,790 | 30,407 | ||||||
1.68%, 12/20/2064(d) | 511,157 | 45,837 | ||||||
76,244 | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–4.36% | ||||||||
Pass Through Ctfs., | ||||||||
6.50%, 04/01/2017 to 08/01/2032 | 1,626 | 1,837 | ||||||
6.00%, 05/01/2017 to 06/01/2017 | 172 | 173 | ||||||
5.50%, 09/01/2017 | 461 | 464 | ||||||
Pass Through Ctfs., TBA, | ||||||||
3.50%, 01/01/2047(e) | 518,000 | 530,443 | ||||||
4.00%, 01/01/2047(e) | 140,000 | 147,057 | ||||||
679,974 | ||||||||
Federal National Mortgage Association (FNMA)–16.44% | ||||||||
Pass Through Ctfs., | ||||||||
6.50%, 02/01/2017 to 09/01/2031 | 1,120 | 1,299 | ||||||
7.00%, 05/01/2017 to 09/01/2032 | 8,625 | 9,189 | ||||||
5.00%, 11/01/2018 | 2,814 | 2,882 | ||||||
7.50%, 04/01/2029 | 2,119 | 2,276 | ||||||
3.50%, 12/01/2030 | 66,616 | 69,876 |
Principal Amount | Value | |||||||
Federal National Mortgage Association (FNMA)–(continued) | ||||||||
Pass Through Ctfs., TBA, | ||||||||
4.00%, 01/01/2027(e) | $ | 320,000 | $ | 336,444 | ||||
2.50%, 01/01/2032(e) | 291,000 | 291,483 | ||||||
3.00%, 01/01/2032 to 01/01/2047(e) | 1,165,000 | 1,163,609 | ||||||
3.50%, 01/01/2047(e) | 672,000 | 688,800 | ||||||
2,565,858 | ||||||||
Government National Mortgage Association (GNMA)–2.93% | ||||||||
Pass Through Ctfs., | ||||||||
7.50%, 06/15/2023 | 2,601 | 2,803 | ||||||
8.50%, 11/15/2024 | 1,094 | 1,099 | ||||||
7.00%, 07/15/2031 to 08/15/2031 | 1,248 | 1,433 | ||||||
6.50%, 11/15/2031 to 03/15/2032 | 2,644 | 3,023 | ||||||
6.00%, 11/15/2032 | 1,258 | 1,462 | ||||||
Pass Through Ctfs., TBA, | ||||||||
3.00%, 01/01/2047(e) | 220,000 | 222,771 | ||||||
4.00%, 01/01/2047(e) | 212,000 | 225,018 | ||||||
457,609 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities (Cost $3,789,323) |
| 3,779,685 | ||||||
Asset-Backed Securities–12.25% |
| |||||||
Adjustable Rate Mortgage Trust, Series 2004-2, Class 6A1, Variable Rate Pass Through Ctfs., 3.12%, 02/25/2035(d) | 28,906 | 28,696 | ||||||
Banc of America Commercial Mortgage Trust, Series 2015-UBS7, Class AS, Pass Through Ctfs., 3.99%, 09/15/2048 | 70,000 | 72,340 | ||||||
Barclays Bank Commercial Mortgage Securities Trust, Series 2015-RRI, Class D, Floating Rate Pass Through Ctfs., 3.60%, 05/15/2032(b)(d) | 230,000 | 229,824 | ||||||
Bear Stearns Adjustable Rate Mortgage Trust, | ||||||||
Series 2005-2, Class A1, | ||||||||
Floating Rate Pass Through Ctfs., | ||||||||
2.92%, 03/25/2035(d) | 105,669 | 106,442 | ||||||
Series 2005-2, Class A2, | ||||||||
Floating Rate Pass Through Ctfs., | ||||||||
3.13%, 03/25/2035(d) | 12,861 | 12,977 | ||||||
Series 2005-5, Class A1, | ||||||||
Floating Rate Pass Through Ctfs., | ||||||||
2.58%, 08/25/2035(d) | 20,517 | 20,670 | ||||||
Chase Mortgage Trust, | ||||||||
Series 2016-1, Class M3, | ||||||||
Pass Through Ctfs., | ||||||||
3.75%, 04/25/2045(b) | 84,735 | 82,450 | ||||||
Series 2016-2, Class M3, | ||||||||
Pass Through Ctfs., | ||||||||
3.75%, 12/25/2045(b) | 90,991 | 88,435 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Commercial Mortgage Trust, Series 2015-CR23, Class CMB, Variable Rate Pass Through Ctfs., 3.68%, 05/10/2048(b)(d) | $ | 150,000 | $ | 149,136 | ||||
Series 2015-CR25, Class B, | ||||||||
Variable Rate Pass Through Ctfs., | ||||||||
4.55%, 08/10/2048(d) | 72,000 | 75,403 | ||||||
Series 2016-GCT, Class B, | ||||||||
Pass Through Ctfs., | ||||||||
3.09%, 08/10/2029(b) | 100,000 | 99,775 | ||||||
Credit Suisse First Boston Mortgage Securities Corp, Series 2004-AR5, Class 3A1, Variable Rate Pass Through Ctfs., 2.97%, 06/25/2034(d) | 36,341 | 35,988 | ||||||
GMACM Mortgage Loan Trust, Series 2006-AR1, Class 1A1, Variable Rate Pass Through Ctfs., 3.41%, 04/19/2036(d) | 111,744 | 100,350 | ||||||
JP Morgan Chase Commercial Mortgage Securities Trust, Series 2013-LC11, Class C, Pass Through Ctfs., 3.96%, 04/15/2046 | 50,000 | 49,375 | ||||||
MAPS CLO Fund II Ltd. (Cayman Islands), Series 2007-2A, Class A2, Floating Rate Pass Through Ctfs., | 250,000 | 247,476 | ||||||
Merrill Lynch Mortgage Investors Trust, Series 2005-3, Class 3A, Floating Rate Pass Through Ctfs., | 28,427 | 28,194 | ||||||
Morgan Stanley Capital I Trust, Series 2006-HQ10, Class AJ, Pass Through Ctfs., 5.39%, 11/12/2041 | 24,230 | 24,261 | ||||||
Structured Adjustable Rate Mortgage Loan Trust, | ||||||||
Series 2004-12, Class 3A2, | ||||||||
Variable Rate Pass Through Ctfs., | ||||||||
3.20%, 09/25/2034(d) | 34,160 | 33,793 | ||||||
Series 2004-16, Class 2A, | ||||||||
Variable Rate Pass Through Ctfs., | ||||||||
3.21%, 11/25/2034(d) | 44,402 | 44,397 | ||||||
Series 2004-16, Class 5A3, | ||||||||
Variable Rate Pass Through Ctfs., | ||||||||
3.07%, 11/25/2034(d) | 12,166 | 12,178 | ||||||
Thornburg Mortgage Securities Trust, | ||||||||
Series 2005-1, Class A3, | ||||||||
Variable Rate Pass Through Ctfs., | ||||||||
2.63%, 04/25/2045(d) | 98,814 | 99,298 | ||||||
Series 2005-2, Class A1, | ||||||||
Floating Rate Pass Through Ctfs., | ||||||||
2.69%, 07/25/2045(d) | 46,314 | 44,839 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2006-C27, Class AJ, Variable Rate Pass Through Ctfs., 5.83%, 07/15/2045(d) | 90,000 | 91,219 | ||||||
Wells Fargo Mortgage Backed Securities Trust, Series 2004-Z, Class 2A1, Variable Rate Pass Through Ctfs., 3.00%, 12/25/2034(d) | 49,483 | 50,067 | ||||||
WFRBS Commercial Mortgage Trust, Series 2012-C6, Class B, Pass Through Ctfs., 4.70%, 04/15/2045 | 80,000 | 85,589 | ||||||
Total Asset-Backed Securities | 1,913,172 |
Principal Amount | Value | |||||||
U.S. Treasury Securities–8.20% |
| |||||||
U.S. Treasury Bills–0.32% | ||||||||
0.59%, 05/11/2017(f)(g) | $ | 50,000 | $ | 49,896 | ||||
U.S. Treasury Notes–5.52% | ||||||||
1.75%, 11/30/2021 | 353,100 | 350,163 | ||||||
2.13%, 11/30/2023 | 260,800 | 258,786 | ||||||
2.00%, 11/15/2026 | 263,000 | 252,671 | ||||||
861,620 | ||||||||
U.S. Treasury Bonds–2.36% | ||||||||
2.25%, 08/15/2046 | 440,200 | 369,201 | ||||||
Total U.S. Treasury Securities | 1,280,717 | |||||||
Shares | ||||||||
Preferred Stocks–1.21% |
| |||||||
Investment Banking & Brokerage–0.87% | ||||||||
Morgan Stanley, Series F, 6.88% Pfd. | 5,000 | 135,200 | ||||||
Reinsurance–0.34% | ||||||||
Reinsurance Group of America, Inc., 6.20% Unsec. Sub. Pfd. | 2,000 | 53,960 | ||||||
Total Preferred Stocks | 189,160 | |||||||
Principal Amount | ||||||||
Municipal Obligations–0.40% |
| |||||||
Georgia (State of) Municipal Electric Authority (Plant Vogtle Units 3 & 4 Project J); Series 2010 A, Taxable Build America RB, 6.64%, 04/01/2057 | $ | 50,000 | 61,741 | |||||
Shares | ||||||||
Common Stocks & Other Equity Interests–0.00% |
| |||||||
Broadcasting–0.00% | ||||||||
Adelphia Recovery Trust–Series ACC-1(h) | 87,412 | 53 | ||||||
Diversified Support Services–0.00% | ||||||||
ACC Claims Holdings, LLC(i) | 73,980 | 277 | ||||||
Total Common Stocks & Other Equity Interests |
| 330 | ||||||
Money Market Funds–7.31% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(j) | 684,717 | 684,717 | ||||||
Treasury Portfolio–Institutional Class, 0.37%(j) | 456,478 | 456,478 | ||||||
Total Money Market Funds | 1,141,195 | |||||||
TOTAL INVESTMENTS–122.38% (Cost $18,914,841) | 19,104,789 | |||||||
OTHER ASSETS LESS LIABILITIES–(22.38)% | (3,493,706 | ) | ||||||
NET ASSETS–100.00% | $ | 15,611,083 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Investment Abbreviations:
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Gtd. | – Guaranteed | |
IO | – Interest Only | |
Jr. | – Junior | |
Pfd. | – Preferred | |
RB | – Revenue Bonds | |
REIT | – Real Estate Investment Trust | |
REMICS | – Real Estate Mortgage Investment Conduits | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
TBA | – To Be Announced | |
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, 2016 was $4,656,067, which represented 29.83% of the Fund’s Net Assets. |
(c) | Perpetual bond with no specified maturity date. |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2016. |
(e) | Security purchased on a forward commitment basis. This security is subject to dollar roll transactions. See Note 1K. |
(f) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(g) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1J and Note 4. |
(h) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. |
(i) | Non-income producing security. |
(j) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Statement of Assets and Liabilities
December 31, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $17,773,646) | $ | 17,963,594 | ||
Investments in affiliated money market funds, at value and cost | 1,141,195 | |||
Total investments, at value (Cost $18,914,841) | 19,104,789 | |||
Receivable for: | ||||
Investments sold | 26,109 | |||
Fund shares sold | 12,101 | |||
Dividends and interest | 162,198 | |||
Premiums paid on swap agreements — OTC | 1,927 | |||
Investment for trustee deferred compensation and retirement plans | 58,864 | |||
Other assets | 1,343 | |||
Total assets | 19,367,331 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 3,626,892 | |||
Fund shares reacquired | 1,093 | |||
Swaps payable — OTC | 83 | |||
Variation margin — futures | 6,666 | |||
Accrued fees to affiliates | 10,125 | |||
Accrued trustees’ and officers’ fees and benefits | 541 | |||
Accrued other operating expenses | 47,011 | |||
Trustee deferred compensation and retirement plans | 60,978 | |||
Unrealized depreciation on swap agreements — OTC | 2,859 | |||
Total liabilities | 3,756,248 | |||
Net assets applicable to shares outstanding | $ | 15,611,083 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 22,232,386 | ||
Undistributed net investment income | 555,060 | |||
Undistributed net realized gain (loss) | (7,372,604 | ) | ||
Net unrealized appreciation | 196,241 | |||
$ | 15,611,083 | |||
Net Assets: |
| |||
Series I | $ | 15,485,486 | ||
Series II | $ | 125,597 | ||
Shares outstanding, no par value, |
| |||
Series I | 2,492,320 | |||
Series II | 20,303 | |||
Series I: | ||||
Net asset value per share | $ | 6.21 | ||
Series II: | ||||
Net asset value per share | $ | 6.19 |
Investment income: |
| |||
Interest | $ | 654,609 | ||
Dividends | 11,758 | |||
Dividends from affiliated money market funds | 2,947 | |||
Total investment income | 669,314 | |||
Expenses: | ||||
Advisory fees | 70,684 | |||
Administrative services fees | 77,479 | |||
Custodian fees | 6,278 | |||
Distribution fees — Series II | 367 | |||
Transfer agent fees | 8,804 | |||
Trustees’ and officers’ fees and benefits | 19,761 | |||
Reports to shareholders | 11,831 | |||
Professional services fees | 46,639 | |||
Other | 22,059 | |||
Total expenses | 263,902 | |||
Less: Fees waived and expenses reimbursed | (176,693 | ) | ||
Net expenses | 87,209 | |||
Net investment income | 582,105 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 179,305 | |||
Futures contracts | (75,221 | ) | ||
Swap agreements | (6,579 | ) | ||
97,505 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 325,096 | |||
Futures contracts | 8,273 | |||
Swap agreements | 5,447 | |||
338,816 | ||||
Net realized and unrealized gain | 436,321 | |||
Net increase in net assets resulting from operations | $ | 1,018,426 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Statement of Changes in Net Assets
For the years ended December 31, 2016 and 2015
2016 | 2015 | |||||||
Operations: | ||||||||
Net investment income | $ | 582,105 | $ | 645,281 | ||||
Net realized gain | 97,505 | 157,261 | ||||||
Change in net unrealized appreciation (depreciation) | 338,816 | (847,554 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 1,018,426 | (45,012 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (646,158 | ) | (743,970 | ) | ||||
Series ll | (4,899 | ) | (6,999 | ) | ||||
Total distributions from net investment income | (651,057 | ) | (750,969 | ) | ||||
Share transactions–net: | ||||||||
Series l | (463,972 | ) | (1,446,156 | ) | ||||
Series ll | (35,515 | ) | 3,318 | |||||
Net increase (decrease) in net assets resulting from share transactions | (499,487 | ) | (1,442,838 | ) | ||||
Net increase (decrease) in net assets | (132,118 | ) | (2,238,819 | ) | ||||
Net assets: | ||||||||
Beginning of year | 15,743,201 | 17,982,020 | ||||||
End of year (includes undistributed net investment income of $555,060 and $575,778, respectively) | $ | 15,611,083 | $ | 15,743,201 |
Notes to Financial Statements
December 31, 2016
NOTE 1—Significant Accounting Policies
Invesco V.I. Core Plus Bond 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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Core Plus Bond 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 asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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 Plus Bond Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Lower-Rated Securities — The Fund may invest in lower-quality debt securities, i.e., “junk bonds”. Investments in lower-rated securities or unrated securities of comparable quality tend to be more sensitive to economic conditions than higher rated securities. Junk bonds involve a greater risk of default by the issuer because such securities are generally unsecured and are often subordinated to other creditors’ claims. |
J. | 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 may be 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 roll 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. | 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. A swap agreement may be negotiated bilaterally and traded over-the-counter (“OTC”) between two parties (“uncleared/OTC”) or, in some instances, must be transacted through a future commission merchant (“FCM”) and cleared through a clearinghouse that serves as a central Counterparty (“centrally cleared swap”). These agreements may contain among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency 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
Invesco V.I. Core Plus Bond Fund
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 cash or liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Cash held as collateral is recorded as deposits with brokers on the Statement of Assets and Liabilities. 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, 2016 for which the Fund is the seller of protection are disclosed in the open swap agreements table. 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.
M. | Leverage Risk — Leverage exists when the Fund can lose more than it originally invests because it purchases or sells an instrument or enters into a transaction without investing an amount equal to the full economic exposure of the instrument or transaction. |
N. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||||||
First $500 million | 0 | .45% | ||||||
Next $500 million | 0 | .425% | ||||||
Next $1.5 billion | 0 | .40% | ||||||
Next $2.5 billion | 0 | .375% | ||||||
Over $5 billion | 0 | .35% |
Invesco V.I. Core Plus Bond Fund
For the year ended December 31, 2016, the effective advisory fees incurred by the Fund was 0.45%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2017, 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 0.61% and Series II shares to 0.86% of average daily net assets (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $70,684 and reimbursed Fund expenses of $106,009.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $50,000 for accounting and fund administrative services and was reimbursed $27,479 for fees paid to 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, 2016, 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, 2016, 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. Core Plus Bond Fund
The following is a summary of the tiered valuation input levels, as of December 31, 2016. 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 | |||||||||||||
Bonds & Notes | $ | — | $ | 10,738,789 | $ | — | $ | 10,738,789 | ||||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities | — | 3,779,685 | — | 3,779,685 | ||||||||||||
Asset-Backed Securities | — | 1,913,172 | — | 1,913,172 | ||||||||||||
U.S. Treasury Securities | — | 1,280,717 | — | 1,280,717 | ||||||||||||
Preferred Stocks | 189,160 | — | — | 189,160 | ||||||||||||
Municipal Obligations | — | 61,741 | — | 61,741 | ||||||||||||
Common Stocks & Other Equity Interests | — | 53 | 277 | 330 | ||||||||||||
Money Market Funds | 1,141,195 | — | — | 1,141,195 | ||||||||||||
1,330,355 | 17,774,157 | 277 | 19,104,789 | |||||||||||||
Futures Contracts* | 9,152 | — | — | 9,152 | ||||||||||||
Swap Agreements* | — | (2,859 | ) | — | (2,859 | ) | ||||||||||
Total Investments | $ | 1,339,507 | $ | 17,771,298 | $ | 277 | $ | 19,111,082 |
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
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, 2016:
Value | ||||||||||||
Derivative Assets | Credit Risk | Interest Rate Risk | Total | |||||||||
Unrealized appreciation on futures contracts — Exchange-Traded(a) | $ | — | $ | 18,241 | $ | 18,241 | ||||||
Total derivative assets | — | 18,241 | 18,241 | |||||||||
Derivatives not subject to master netting agreements | — | (18,241 | ) | (18,241 | ) | |||||||
Total derivative assets subject to master netting agreements | $ | — | $ | — | $ | — | ||||||
Value | ||||||||||||
Derivative Liabilities | Credit Risk | Interest Rate Risk | Total | |||||||||
Unrealized depreciation on futures contracts — Exchange-Traded(a) | $ | — | $ | (9,089 | ) | $ | (9,089 | ) | ||||
Unrealized depreciation on swap agreements — OTC | (2,859 | ) | — | (2,859 | ) | |||||||
Total derivative liabilities | (2,859 | ) | (9,089 | ) | (11,948 | ) | ||||||
Derivatives not subject to master netting agreements | — | 9,089 | 9,089 | |||||||||
Total derivative liabilities subject to master netting agreements | $ | (2,859 | ) | $ | — | $ | (2,859 | ) |
(a) | Includes cumulative appreciation (depreciation) on futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
Invesco V.I. Core Plus Bond 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 | 3 | March-2017 | $ | 650,063 | $ | (756 | ) | ||||||||||||
U.S. Treasury 5 Year Notes | Long | 17 | March-2017 | 2,000,289 | (8,244 | ) | ||||||||||||||
U.S. 10 Year Notes | Short | 10 | March-2017 | (1,242,813 | ) | 4,039 | ||||||||||||||
U.S. Ultra Bond | Short | 7 | March-2017 | (1,121,750 | ) | 14,202 | ||||||||||||||
U.S. Long Bond | Long | 1 | March-2017 | 150,656 | (89 | ) | ||||||||||||||
Total futures contracts — interest rate risk | $ | 9,152 |
Open Over-The-Counter Credit Default Swap Agreements — Credit Risk | ||||||||||||||||||||||||||||||
Counterparty | Reference Entity | Buy/Sell Protection | (Pay)/Receive Fixed Rate | Expiration Date | Implied Credit Spread(a) | Notional Value | Upfront Payments Paid (Received) | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Merrill Lynch International | Citigroup Inc. | Buy | (1.00 | )% | 06/20/2017 | 0.22 | % | $ | 250,000 | $ | 1,927 | $ | (2,859 | ) |
(a) | Implied credit spreads represent the current level as of December 31, 2016 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
The table below reflects the Fund’s exposure to Counterparties subject to either an ISDA Master Agreement or other agreement for OTC derivative transactions as of December 31, 2016.
Financial Derivative Assets | Financial Derivative Liabilities | Net Value Derivatives | Collateral (Received)/Pledged | Net Amount | ||||||||||||||||||||||||||||
Counterparty | Swap Agreements | Total Assets | Swap Agreements | Total Liabilities | Non-Cash | Cash | ||||||||||||||||||||||||||
Merrill Lynch International | $ | 1,927 | $ | 1,927 | $ | 2,942 | $ | 2,942 | $ | (1,015 | ) | $ | — | $ | — | $ | (1,015 | ) |
Effect of Derivative Investments for the year ended December 31, 2016
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 | ||||||||||||
Credit Risk | Interest Rate Risk | Total | ||||||||||
Realized Gain (Loss): | ||||||||||||
Futures contracts | $ | — | $ | (75,221 | ) | $ | (75,221 | ) | ||||
Swap agreements | (6,579 | ) | — | (6,579 | ) | |||||||
Change in Net Unrealized Appreciation (Depreciation): | ||||||||||||
Futures contracts | — | 8,273 | 8,273 | |||||||||
Swap agreements | 5,447 | — | 5,447 | |||||||||
Total | $ | (1,132 | ) | $ | (66,948 | ) | $ | (68,080 | ) |
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 | $ | 6,119,863 | $ | 250,000 |
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. Core Plus Bond 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. The Fund may not purchase additional securities when any borrowings from banks exceed 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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 651,057 | $ | 750,969 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 613,790 | ||
Net unrealized appreciation — investments | 185,586 | |||
Net unrealized appreciation (depreciation) — other investments | (2,859 | ) | ||
Temporary book/tax differences | (58,728 | ) | ||
Capital loss carryforward | (7,359,092 | ) | ||
Shares of beneficial interest | 22,232,386 | |||
Total net assets | $ | 15,611,083 |
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 has a capital loss carryforward as of December 31, 2016, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 7,359,092 | $ | — | $ | 7,359,092 |
* | 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, 2016 was $63,941,167 and $64,054,852, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $20,800,406 and $21,517,182, 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 | $ | 418,518 | ||
Aggregate unrealized (depreciation) of investment securities | (232,932 | ) | ||
Net unrealized appreciation of investment securities | $ | 185,586 |
Cost of investments for tax purposes is $18,919,203.
Invesco V.I. Core Plus Bond Fund
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of capital loss carryforward limitations, dollar rolls and swap transactions, on December 31, 2016, undistributed net investment income was increased by $48,234, undistributed net realized gain (loss) was increased by $447,858 and shares of beneficial interest was decreased by $496,092. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 234,703 | $ | 1,481,864 | 109,942 | $ | 689,898 | ||||||||||
Series II | 2 | 14 | 1 | 8 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 102,079 | 646,158 | 121,962 | 743,970 | ||||||||||||
Series II | 716 | 4,517 | 1,080 | 6,568 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (412,191 | ) | (2,591,994 | ) | (451,515 | ) | (2,880,024 | ) | ||||||||
Series II | (6,221 | ) | (40,046 | ) | (515 | ) | (3,258 | ) | ||||||||
Net increase (decrease) in share activity | (80,912 | ) | $ | (499,487 | ) | (219,045 | ) | $ | (1,442,838 | ) |
(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. |
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, (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 12/31/16 | $ | 6.07 | $ | 0.23 | $ | 0.18 | $ | 0.41 | $ | (0.27 | ) | $ | 6.21 | 6.66 | % | $ | 15,485 | 0.55 | %(d) | 1.68 | %(d) | 3.71 | %(d) | 474 | % | |||||||||||||||||||||||
Year ended 12/31/15 | 6.39 | 0.24 | (0.26 | ) | (0.02 | ) | (0.30 | ) | 6.07 | (0.37 | ) | 15,587 | 0.65 | 1.73 | 3.81 | 416 | ||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 6.23 | 0.26 | 0.24 | 0.50 | (0.34 | ) | 6.39 | 8.03 | 17,821 | 0.75 | 1.77 | 4.04 | 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 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 6.04 | 0.22 | 0.18 | 0.40 | (0.25 | ) | 6.19 | 6.52 | 126 | 0.80 | (d) | 1.93 | (d) | 3.46 | (d) | 474 | ||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 6.36 | 0.22 | (0.26 | ) | (0.04 | ) | (0.28 | ) | 6.04 | (0.64 | ) | 156 | 0.90 | 1.98 | 3.56 | 416 | ||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 6.19 | 0.24 | 0.24 | 0.48 | (0.31 | ) | 6.36 | 7.85 | 161 | 1.00 | 2.02 | 3.79 | 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 |
(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 $15,561 and $147 for Series I and Series II shares, respectively. |
Invesco V.I. Core Plus Bond 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 the Invesco V.I. Core Plus Bond 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 the Invesco V.I. Core Plus Bond Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
Invesco V.I. Core Plus Bond 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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio2 | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2,3 | Ending Account Value (12/31/16) | Expenses Paid During Period 2,4 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,003.70 | $ | 2.57 | $ | 1,022.57 | $ | 2.59 | 0.51 | % | ||||||||||||
Series II | 1,000.00 | 1,002.10 | 3.82 | 1,021.32 | 3.86 | 0.76 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. The Fund received a reimbursement of custody expenses in the amount of $7,753. The annualized ratios restated as if this reimbursement had been in effect throughout the entire most recent fiscal half year are 0.60% and 0.85% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had not been in effect throughout the entire most recent fiscal half year are $3.02 and $4.28 for Series I and Series II shares, respectively. |
4 | The hypothetical expenses paid restated as if the changes discussed above had not been in effect throughout the entire most recent fiscal half year are $3.05 and $4.32 for Series I and Series II shares, respectively. |
Invesco V.I. Core Plus Bond 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, 2016:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0.83 | % | ||
U.S. Treasury Obligations* | 4.53 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Core Plus Bond 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 Plus Bond Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A |
Invesco V.I. Core Plus Bond 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A |
Invesco V.I. Core Plus Bond 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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 Plus Bond Fund
| ||||
Annual Report to Shareholders
| December 31, 2016 | |||
| ||||
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, 2016, Series I shares of Invesco V.I. Diversified Dividend Fund (the Fund) underperformed the Russell 1000 Value Index, the Fund’s style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 14.81 | % | |||
Series II Shares | 14.54 | ||||
S&P 500 Index▼ (Broad Market Index) | 11.96 | ||||
Russell 1000 Value Index▼ (Style-Specific Index) | 17.34 | ||||
Lipper VUF Large-Cap Value Funds Index∎ (Peer Group Index) | 15.55 |
Source(s): ▼FactSet Research Systems Inc.; ∎Lipper Inc.
Market conditions and your Fund
During the year ended December 31, 2016, the US economy continued to expand. Major US stock market indexes posted gains for the reporting period, but they were fairly volatile. Stocks began calendar year of 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over Fed policy. Markets recovered in February and posted gains until June when UK voters opted to leave the European Union, sending markets sharply lower. Markets recovered in the summer and rallied even more after the US presidential election as investors expected tax reform, infrastructure spending and regulatory changes to stimulate economic activity. Within the S&P 500 Index, the energy, telecommunication services and financials sectors were the best-performing sectors for the year, while the health care, real estate and consumer staples sectors were the worst. It’s important to view the market’s ups and downs during the year within the
context of the long-term economic cycle, which began in June 2009. This cycle is one of the longest expansions on record with one of the largest bull markets, despite a historically low recovery in revenue versus previous cycle troughs.1 As always, we remain focused on our assessment of each investment’s risk-reward profile.
Our total return approach continues 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. We look for dividend-paying companies with strong profitability, solid balance sheets and capital allocation policies that support sustained or increasing dividends and share repurchases. We perform extensive fundamental research, incorporating both financial statement analysis and an assessment of the potential reward relative to the downside risk, to determine a fair valuation over our
two- to three-year investment horizon for each stock. We believe this process may provide a valuable combination of dividend income, price appreciation and capital preservation. We also maintain a rigorous sell discipline and consider selling or reducing shares in stocks that no longer meet our investment criteria.
Telecommunication services holding AT&T was the largest contributor to the Fund’s performance for the year. The company continued to make progress on its integration of DirecTV and announced the launch of DirecTV Now. AT&T also lowered its cost structure and supported free cash flow via deal synergies, cost savings and capital expenditure efficiencies. In October, the company announced its intention to acquire content company Time Warner (not a Fund holding).
Many of the Fund’s financials sector holdings posted strong gains during the year. Regional bank Zions Bancorp performed particularly well. The bank reduced its costs by reorganizing and streamlining key operations, which improved its operational efficiency. The firm also experienced strong growth in commercial and industrials loans.
Utilities sector holding Exelon was also a strong contributor to the Fund’s performance. The company acquired Pepco Holdings (not a Fund holding) in March as part of an ongoing shift toward a more regulated profile. Additionally, Exelon’s stock performed well following favorable energy legislation in Illinois and New York that could benefit merchant power generators with low carbon emissions.
UK retailer Marks & Spencer was the largest detractor from Fund performance. Shares of the company fell as its clothing and home business revenue declined due
Portfolio Composition | |||||
By sector | % of total net assets |
Consumer Staples | 20.5% | ||||
Financials | 15.3 | ||||
Utilities | 13.5 | ||||
Industrials | 8.2 | ||||
Consumer Discretionary | 7.4 | ||||
Energy | 6.1 | ||||
Telecommunication Services | 5.2 | ||||
Health Care | 3.6 | ||||
Materials | 2.6 | ||||
Information Technology | 1.8 | ||||
Real Estate | 0.9 | ||||
Money Market Funds Plus Other Assets Less Liabilities |
| 14.9 |
Top 10 Equity Holdings* | |||||
% of total net assets | |||||
1. AT&T Inc. | 3.0% | ||||
2. General Mills, Inc. | 2.8 | ||||
3. PPL Corp. | 2.7 | ||||
4. Coca-Cola Co. (The) | 2.7 | ||||
5. Hartford Financial Services Group, Inc. (The) | 2.7 | ||||
6. Exelon Corp. | 2.6 | ||||
7. Suncor Energy, Inc. | 2.5 | ||||
8. Procter & Gamble Co. (The) | 2.1 | ||||
9. Campbell Soup Co. | 2.0 | ||||
10. American Express Co. | 1.9 |
Total Net Assets | $ | 655.5 million | |||
Total Number of Holdings* | 72 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Data presented here are as of December 31, 2016.
Invesco V.I. Diversified Dividend Fund
to online competition and lower price retailers. The UK’s decision to leave the European Union also adversely impacted the company as it increased the cost of goods sourced abroad.
The health care sector was the worst-performing sector during the year, and pharmaceutical holding Eli Lilly was a detractor for the Fund. The company’s stock declined after it published disappointing results in an Alzheimer’s drug trial.
Within the financials sector, asset management company Legg Mason was a key detractor from the Fund’s performance. The company’s stock price was negatively affected by the market’s view of acquisitions announced during the reporting period, outflows in several of its affiliates’ fund products and concern over pending regulatory proposals, which may negatively impact both operating margins and future potential organic growth for the asset management industry.
Within the Russell 1000 Value Index, the materials, energy, telecommunication services, industrials and financials sectors were the best-performing sectors, while the health care, real estate, consumer staples and consumer discretionary sectors were the worst-performing during the year. The Fund’s overweight position in the consumer staples sector detracted from its performance versus the style-specific index.
The Fund has successfully navigated multiple market cycles over its history with a consistent long-term mandate to emphasize capital appreciation, current income and capital preservation.
It has been our privilege to oversee Invesco V.I. Diversified Dividend Fund, and we thank you for your continued investment.
1 | Source: National Bureau of Economic Research, Ned Davis Research and FactSet Research Systems Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Meggan Walsh Chartered Financial Analyst, Portfolio Manager and Head of Invesco’s dividend value team, is lead manager | ||
of Invesco V.I. Diversified Dividend Fund. She joined Invesco in 1991. Ms. Walsh earned a BS in finance from the University of Maryland and an MBA from Loyola University Maryland. | ||
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 Stanford University’s Graduate School of Business. | ||
Chris McMeans Chartered Financial Analyst, Portfolio Manager is manager of Invesco V.I. Diversified Dividend Fund. He | ||
joined Invesco in 2008. Mr. McMeans earned a BA in economics from The University of Texas at Austin and an MBA with honors from the University of Houston. |
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 12/31/06
1 Source: FactSet Research Systems Inc.
2 Source: Lipper Inc.
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (3/1/90) | 8.23% | ||||
10 Years | 6.50 | ||||
5 Years | 15.52 | ||||
1 Year | 14.81 | ||||
Series II Shares | |||||
Inception (6/5/00) | 5.57% | ||||
10 Years | 6.23 | ||||
5 Years | 15.23 | ||||
1 Year | 14.54 |
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, prior to June 1, 2010, 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 0.71% and 0.96%, 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 0.72% and 0.97%, 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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, 2018. 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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | 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 adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Value investing style risk. A value investing style subjects the Fund 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.
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, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–85.07% |
| |||||||
Aerospace & Defense–1.81% | ||||||||
General Dynamics Corp. | 39,856 | $ | 6,881,537 | |||||
Raytheon Co. | 35,013 | 4,971,846 | ||||||
11,853,383 | ||||||||
Air Freight & Logistics–0.49% | ||||||||
United Parcel Service, Inc.–Class B | 27,845 | 3,192,151 | ||||||
Apparel Retail–0.51% | ||||||||
TJX Cos., Inc. (The) | 44,160 | 3,317,741 | ||||||
Apparel, Accessories & Luxury Goods–1.00% | ||||||||
Coach, Inc. | 96,126 | 3,366,333 | ||||||
Columbia Sportswear Co. | 55,248 | 3,220,958 | ||||||
6,587,291 | ||||||||
Asset Management & Custody Banks–1.17% | ||||||||
Federated Investors, Inc. -Class B | 156,474 | 4,425,085 | ||||||
Legg Mason, Inc. | 108,116 | 3,233,749 | ||||||
7,658,834 | ||||||||
Brewers–1.25% | ||||||||
Heineken N.V. (Netherlands) | 109,374 | 8,191,687 | ||||||
Construction Machinery & Heavy Trucks–0.83% | ||||||||
Joy Global Inc. | 194,933 | 5,458,124 | ||||||
Consumer Finance–1.86% | ||||||||
American Express Co. | 164,889 | 12,214,977 | ||||||
Data Processing & Outsourced Services–0.77% | ||||||||
Automatic Data Processing, Inc. | 49,317 | 5,068,801 | ||||||
Department Stores–0.23% | ||||||||
Marks & Spencer Group PLC (United Kingdom) | 356,889 | 1,537,010 | ||||||
Drug Retail–1.20% | ||||||||
Walgreens Boots Alliance, Inc. | 95,234 | 7,881,566 | ||||||
Electric Utilities–9.39% | ||||||||
American Electric Power Co., Inc. | 143,802 | 9,053,774 | ||||||
Duke Energy Corp. | 122,624 | 9,518,075 | ||||||
Entergy Corp. | 114,580 | 8,418,193 | ||||||
Exelon Corp. | 475,635 | 16,880,286 | ||||||
PPL Corp. | 518,248 | 17,646,344 | ||||||
61,516,672 | ||||||||
Electrical Components & Equipment–2.48% | ||||||||
ABB Ltd. (Switzerland) | 347,476 | 7,314,487 | ||||||
Emerson Electric Co. | 160,766 | 8,962,704 | ||||||
16,277,191 | ||||||||
Food Distributors–1.43% | ||||||||
Sysco Corp. | 169,089 | 9,362,458 |
Shares | Value | |||||||
General Merchandise Stores–1.24% | ||||||||
Target Corp. | 112,144 | $ | 8,100,161 | |||||
Health Care Equipment–0.80% | ||||||||
Stryker Corp. | 43,778 | 5,245,042 | ||||||
Hotels, Resorts & Cruise Lines–0.55% | ||||||||
Accor S.A. (France) | 96,375 | 3,594,002 | ||||||
Household Products–3.03% | ||||||||
Kimberly-Clark Corp. | 54,195 | 6,184,733 | ||||||
Procter & Gamble Co. (The) | 162,838 | 13,691,419 | ||||||
19,876,152 | ||||||||
Housewares & Specialties–0.76% | ||||||||
Newell Brands, Inc. | 110,837 | 4,948,872 | ||||||
Human Resource & Employment Services–0.65% | ||||||||
Robert Half International, Inc. | 87,303 | 4,258,640 | ||||||
Industrial Machinery–1.90% | ||||||||
Flowserve Corp. | 195,141 | 9,376,525 | ||||||
Pentair PLC (United Kingdom) | 55,119 | 3,090,522 | ||||||
12,467,047 | ||||||||
Integrated Oil & Gas–5.13% | ||||||||
Royal Dutch Shell PLC -Class B (United Kingdom) | 196,091 | 5,596,979 | ||||||
Suncor Energy, Inc. (Canada) | 498,513 | 16,297,219 | ||||||
TOTAL S.A. (France) | 229,228 | 11,700,453 | ||||||
33,594,651 | ||||||||
Integrated Telecommunication Services–5.19% | ||||||||
AT&T Inc. | 460,903 | 19,602,205 | ||||||
BT Group PLC (United Kingdom) | 1,600,622 | 7,249,933 | ||||||
Deutsche Telekom AG (Germany) | 417,068 | 7,164,392 | ||||||
34,016,530 | ||||||||
Investment Banking & Brokerage–0.56% | ||||||||
Charles Schwab Corp. (The) | 93,217 | 3,679,275 | ||||||
Life & Health Insurance–0.23% | ||||||||
Lincoln National Corp. | 23,230 | 1,539,452 | ||||||
Motorcycle Manufacturers–1.53% | ||||||||
Harley-Davidson, Inc. | 172,122 | 10,041,598 | ||||||
Movies & Entertainment–0.82% | ||||||||
Time Warner Inc. | 55,352 | 5,343,129 | ||||||
Multi-Line Insurance–2.67% | ||||||||
Hartford Financial Services Group, Inc. (The) | 366,605 | 17,468,728 | ||||||
Multi-Utilities–4.16% | ||||||||
Consolidated Edison, Inc. | 127,694 | 9,408,494 | ||||||
Dominion Resources, Inc. | 154,411 | 11,826,338 |
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–(continued) | ||||||||
Sempra Energy | 60,200 | $ | 6,058,528 | |||||
27,293,360 | ||||||||
Oil & Gas Drilling–0.65% | ||||||||
Nabors Industries Ltd. | 261,410 | 4,287,124 | ||||||
Oil & Gas Equipment & Services–0.33% | ||||||||
Baker Hughes Inc. | 32,978 | 2,142,581 | ||||||
Packaged Foods & Meats–8.27% | ||||||||
Campbell Soup Co. | 221,538 | 13,396,403 | ||||||
General Mills, Inc. | 301,478 | 18,622,296 | ||||||
Kraft Heinz Co. (The) | 134,511 | 11,745,500 | ||||||
Mead Johnson Nutrition Co. | 47,947 | 3,392,730 | ||||||
Mondelez International, Inc.–Class A | 159,730 | 7,080,831 | ||||||
54,237,760 | ||||||||
Paper Packaging–2.58% | ||||||||
Avery Dennison Corp. | 37,836 | 2,656,844 | ||||||
International Paper Co. | 193,354 | 10,259,363 | ||||||
Sonoco Products Co. | 75,988 | 4,004,568 | ||||||
16,920,775 | ||||||||
Personal Products–0.52% | ||||||||
L’Oreal S.A. (France) | 18,592 | 3,393,266 | ||||||
Pharmaceuticals–2.85% | ||||||||
Bristol-Myers Squibb Co. | 74,831 | 4,373,124 | ||||||
Eli Lilly and Co. | 121,719 | 8,952,432 | ||||||
Johnson & Johnson | 46,619 | 5,370,975 | ||||||
18,696,531 | ||||||||
Property & Casualty Insurance–0.65% | ||||||||
Travelers Cos., Inc. (The) | 34,998 | 4,284,455 | ||||||
Regional Banks–8.11% | ||||||||
Cullen/Frost Bankers, Inc. | 53,085 | 4,683,690 | ||||||
Fifth Third Bancorp | 327,930 | 8,844,272 |
Shares | Value | |||||||
Regional Banks–(continued) | ||||||||
KeyCorp | 458,905 | $ | 8,384,194 | |||||
M&T Bank Corp. | 76,987 | 12,043,076 | ||||||
PNC Financial Services Group, Inc. (The) | 70,314 | 8,223,926 | ||||||
Zions Bancorp. | 255,705 | 11,005,543 | ||||||
53,184,701 | ||||||||
Restaurants–0.81% | ||||||||
Darden Restaurants, Inc. | 72,979 | 5,307,033 | ||||||
Semiconductors–0.99% | ||||||||
Linear Technology Corp. | 104,011 | 6,485,086 | ||||||
Soft Drinks–2.67% | ||||||||
Coca-Cola Co. (The) | 421,705 | 17,483,889 | ||||||
Specialized REIT’s–0.87% | ||||||||
Weyerhaeuser Co. | 188,465 | 5,670,912 | ||||||
Tobacco–2.13% | ||||||||
Altria Group, Inc. | 90,788 | 6,139,085 | ||||||
Philip Morris International Inc. | 85,202 | 7,795,131 | ||||||
13,934,216 | ||||||||
Total Common Stocks & Other Equity Interests |
| 557,612,854 | ||||||
Money Market Funds–15.14% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(b) | 59,544,993 | 59,544,993 | ||||||
Treasury Portfolio–Institutional Class, 0.37%(b) | 39,696,662 | 39,696,662 | ||||||
Total Money Market Funds | 99,241,655 | |||||||
TOTAL INVESTMENTS–100.21% | 656,854,509 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.21)% |
| (1,383,659 | ) | |||||
NET ASSETS–100.00% | $ | 655,470,850 |
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. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $423,208,767) | $ | 557,612,854 | ||
Investments in affiliated money market funds, at value and cost | 99,241,655 | |||
Total investments, at value (Cost $522,450,422) | 656,854,509 | |||
Foreign currencies, at value (Cost $186,559) | 187,440 | |||
Receivable for: | ||||
Investments sold | 1,525 | |||
Fund shares sold | 283,863 | |||
Dividends | 1,090,561 | |||
Investment for trustee deferred compensation and retirement plans | 79,892 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 296,366 | |||
Total assets | 658,794,156 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 2,028,121 | |||
Fund shares reacquired | 546,855 | |||
Accrued fees to affiliates | 566,228 | |||
Accrued trustees’ and officers’ fees and benefits | 552 | |||
Accrued other operating expenses | 50,826 | |||
Trustee deferred compensation and retirement plans | 116,959 | |||
Unrealized depreciation on forward foreign currency contracts outstanding | 13,765 | |||
Total liabilities | 3,323,306 | |||
Net assets applicable to shares outstanding | $ | 655,470,850 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 491,226,591 | ||
Undistributed net investment income | 10,458,704 | |||
Undistributed net realized gain | 19,096,947 | |||
Net unrealized appreciation | 134,688,608 | |||
$ | 655,470,850 | |||
Net Assets: |
| |||
Series I | $ | 439,856,701 | ||
Series II | $ | 215,614,149 | ||
Shares outstanding, no par value, |
| |||
Series I | 16,672,496 | |||
Series II | 8,218,996 | |||
Series I: | ||||
Net asset value per share | $ | 26.38 | ||
Series II: | ||||
Net asset value per share | $ | 26.23 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $195,533) | $ | 14,733,985 | ||
Dividends from affiliated money market funds | 284,504 | |||
Total investment income | 15,018,489 | |||
Expenses: | ||||
Advisory fees | 2,663,731 | |||
Administrative services fees | 984,173 | |||
Custodian fees | 37,324 | |||
Distribution fees — Series II | 432,025 | |||
Transfer agent fees | 30,455 | |||
Trustees’ and officers’ fees and benefits | 30,479 | |||
Reports to shareholders | 8,554 | |||
Professional services fees | 45,124 | |||
Other | 12,229 | |||
Total expenses | 4,244,094 | |||
Less: Fees waived | (100,406 | ) | ||
Net expenses | 4,143,688 | |||
Net investment income | 10,874,801 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 25,651,477 | |||
Foreign currencies | (38,600 | ) | ||
Forward foreign currency contracts | 343,454 | |||
25,956,331 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 39,895,273 | |||
Foreign currencies | 7,690 | |||
Forward foreign currency contracts | 451,813 | |||
40,354,776 | ||||
Net realized and unrealized gain | 66,311,107 | |||
Net increase in net assets resulting from operations | $ | 77,185,908 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income | $ | 10,874,801 | $ | 7,976,386 | ||||
Net realized gain | 25,956,331 | 22,522,521 | ||||||
Change in net unrealized appreciation (depreciation) | 40,354,776 | (22,248,603 | ) | |||||
Net increase in net assets resulting from operations | 77,185,908 | 8,250,304 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (5,214,115 | ) | (5,638,058 | ) | ||||
Series ll | (2,189,930 | ) | (1,865,729 | ) | ||||
Total distributions from net investment income | (7,404,045 | ) | (7,503,787 | ) | ||||
Share transactions–net: | ||||||||
Series l | 57,813,882 | 2,294,083 | ||||||
Series ll | 61,825,573 | 26,825,841 | ||||||
Net increase in net assets resulting from share transactions | 119,639,455 | 29,119,924 | ||||||
Net increase in net assets | 189,421,318 | 29,866,441 | ||||||
Net assets: | ||||||||
Beginning of year | 466,049,532 | 436,183,091 | ||||||
End of year (includes undistributed net investment income of $10,458,704 and $7,240,781, respectively) | $ | 655,470,850 | $ | 466,049,532 |
Notes to Financial Statements
December 31, 2016
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 is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services – Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. Diversified Dividend Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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 the 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 | .545% | ||||||
Next $750 million | 0 | .42% | ||||||
Next $1 billion | 0 | .395% | ||||||
Over $2 billion | 0 | .37% |
For the year ended December 31, 2016, the effective advisory fees incurred by the Fund was 0.48%.
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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend
Invesco V.I. Diversified Dividend Fund
expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $100,406.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $133,758 for accounting and fund administrative services and was reimbursed $850,415 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $16 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, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interests | $ | 508,857,913 | $ | 48,754,941 | $ | — | $ | 557,612,854 | ||||||||
Money Market Funds | 99,241,655 | — | — | 99,241,655 | ||||||||||||
608,099,568 | 48,754,941 | — | 656,854,509 | |||||||||||||
Forward Foreign Currency Contracts* | — | 282,601 | — | 282,601 | ||||||||||||
Total Investments | $ | 608,099,568 | $ | 49,037,542 | $ | — | $ | 657,137,110 |
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
Invesco V.I. Diversified Dividend Fund
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
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, 2016:
Value | ||||
Derivative Assets | Currency Risk | |||
Unrealized appreciation on forward foreign currency contracts outstanding | $ | 296,366 | ||
Derivatives not subject to master netting agreements | — | |||
Total derivative assets subject to master netting agreements | $ | 296,366 | ||
Value | ||||
Derivative Liabilities | Currency Risk | |||
Unrealized depreciation on forward foreign currency contracts outstanding | $ | (13,765 | ) | |
Derivatives not subject to master netting agreements | — | |||
Total derivative liabilities subject to master netting agreements | $ | (13,765 | ) |
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement Date | Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
01/23/17 | Citigroup Global Markets Inc. | CAD | 3,434,696 | USD | 2,554,152 | $ | 2,558,563 | $ | (4,411 | ) | ||||||||||||||||
01/23/17 | Citigroup Global Markets Inc. | EUR | 5,062,853 | USD | 5,435,044 | 5,336,013 | 99,031 | |||||||||||||||||||
01/23/17 | Goldman Sachs International | CAD | 3,434,784 | USD | 2,554,350 | 2,558,628 | (4,278 | ) | ||||||||||||||||||
01/23/17 | Goldman Sachs International | EUR | 4,989,469 | USD | 5,356,969 | 5,258,671 | 98,298 | |||||||||||||||||||
01/23/17 | Merrill Lynch International | CAD | 3,434,784 | USD | 2,553,553 | 2,558,629 | (5,076 | ) | ||||||||||||||||||
01/23/17 | Merrill Lynch International | EUR | 4,880,845 | USD | 5,243,223 | 5,144,186 | 99,037 | |||||||||||||||||||
Total forward foreign currency contracts — currency risk | $ | 282,601 |
Currency Abbreviations:
CAD | – Canadian Dollar |
EUR | – Euro |
USD | – U.S. Dollar |
Offsetting Assets and Liabilities
The table below reflects the Fund’s exposure to Counterparties subject to either an ISDA Master Agreement or other agreement for OTC derivative transactions as of December 31, 2016.
Financial Derivative Assets | Financial Derivative Liabilities | Collateral (Received)/Pledged | ||||||||||||||||||||||
Counterparty | Forward Foreign Currency Contracts | Forward Foreign Currency Contracts | Net Value of Derivatives | Non-Cash | Cash | Net Amount | ||||||||||||||||||
Citigroup Global Markets Inc. | $ | 99,031 | $ | (4,411 | ) | $ | 94,620 | $ | — | $ | — | $ | 94,620 | |||||||||||
Goldman Sachs International | 98,298 | (4,278 | ) | 94,020 | — | — | 94,020 | |||||||||||||||||
Merrill Lynch International | 99,037 | (5,076 | ) | 93,961 | — | — | 93,961 | |||||||||||||||||
Total | $ | 296,366 | $ | (13,765 | ) | $ | 282,601 | $ | — | $ | — | $ | 282,601 |
Effect of Derivative Investments for the year ended December 31, 2016
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 | ||||
Currency Risk | ||||
Realized Gain: | ||||
Forward foreign currency contracts | $ | 343,454 | ||
Change in Net Unrealized Appreciation: | ||||
Forward foreign currency contracts | 451,813 | |||
Total | $ | 795,267 |
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
Forward Foreign Currency Contracts | ||||
Average notional value | $ | 22,808,501 |
Invesco V.I. Diversified Dividend Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 7,404,045 | $ | 7,503,787 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 10,574,061 | ||
Undistributed long-term gain | 23,034,804 | |||
Net unrealized appreciation — investments | 133,834,654 | |||
Net unrealized appreciation — other investments | 1,920 | |||
Temporary book/tax differences | (115,357 | ) | ||
Capital loss carryforward | (3,085,823 | ) | ||
Shares of beneficial interest | 491,226,591 | |||
Total net assets | $ | 655,470,850 |
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 has a capital loss carryforward as of December 31, 2016, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 3,085,823 | $ | — | $ | 3,085,823 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
Invesco V.I. Diversified Dividend 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, 2016 was $139,654,814 and $68,876,383, 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 | $ | 141,432,927 | ||
Aggregate unrealized (depreciation) of investment securities | (7,598,273 | ) | ||
Net unrealized appreciation of investment securities | $ | 133,834,654 |
Cost of investments for tax purposes is $523,019,855
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of real estate investment trust distributions and foreign currency transactions, on December 31, 2016, undistributed net investment income was decreased by $252,833 and undistributed net realized gain was increased by $252,833. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 4,800,783 | $ | 118,506,697 | 3,012,818 | $ | 71,097,855 | ||||||||||
Series II | 3,129,929 | 77,280,863 | 1,837,158 | 43,228,055 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 206,092 | 5,214,115 | 249,693 | 5,638,058 | ||||||||||||
Series II | 86,971 | 2,189,930 | 82,958 | 1,865,729 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,670,659 | ) | (65,906,930 | ) | (3,160,909 | ) | (74,441,830 | ) | ||||||||
Series II | (717,830 | ) | (17,645,220 | ) | (778,296 | ) | (18,267,943 | ) | ||||||||
Net increase in share activity | 4,835,286 | $ | 119,639,455 | 1,243,422 | $ | 29,119,924 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 58% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. 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 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 to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | $ | 23.27 | $ | 0.50 | $ | 2.93 | $ | 3.43 | $ | (0.32 | ) | $ | 26.38 | 14.81 | % | $ | 439,857 | 0.66 | %(d) | 0.68 | %(d) | 2.02 | %(d) | 14 | % | |||||||||||||||||||||||
Year ended 12/31/15 | 23.21 | 0.43 | 0.04 | 0.47 | (0.41 | ) | 23.27 | 2.07 | 333,573 | 0.70 | 0.71 | 1.84 | 15 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 20.93 | 0.40 | 2.26 | 2.66 | (0.38 | ) | 23.21 | 12.83 | 330,370 | 0.72 | 0.73 | 1.80 | 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 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 23.16 | 0.43 | 2.92 | 3.35 | (0.28 | ) | 26.23 | 14.54 | 215,614 | 0.91 | (d) | 0.93 | (d) | 1.77 | (d) | 14 | ||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 23.11 | 0.37 | 0.04 | 0.41 | (0.36 | ) | 23.16 | 1.82 | 132,477 | 0.95 | 0.96 | 1.59 | 15 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 20.85 | 0.34 | 2.25 | 2.59 | (0.33 | ) | 23.11 | 12.54 | 105,813 | 0.97 | 0.98 | 1.55 | 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 |
(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 $387,007 and $172,810 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 the 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 the Invesco V.I. Diversified Dividend Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,053.10 | $ | 3.30 | $ | 1,021.92 | $ | 3.25 | 0.64 | % | ||||||||||||
Series II | 1,000.00 | 1,051.80 | 4.59 | 1,020.66 | 4.52 | 0.89 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Diversified Dividend Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2016:
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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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
| ||||
Annual Report to Shareholders
| December 31, 2016 | |||
| ||||
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, 2016, Series I shares of Invesco V.I. Equally-Weighted S&P 500 Fund (the Fund), outperformed the S&P 500 Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 14.24% | ||||
Series II Shares | 13.94 | ||||
S&P 500 Index▼ (Broad Market Index) | 11.96 | ||||
S&P 500 Equal Weight Index▼ (Style-Specific Index) | 14.80 | ||||
Lipper VUF Multi-Cap Core Funds Index∎ (Peer Group Index) | 9.83 |
Source(s): ▼FactSet Research Systems Inc.; ∎Lipper Inc.
Market conditions and your Fund
During the year ended December 31, 2016, the US economy continued to expand. US gross domestic product (GDP) showed the US economy grew by 3.5% in the third quarter.1 However, annualized GDP is expected to be much lower. Employment data were mixed, with unemployment ending the year at 4.7%.2 Oil prices traded in a range from the high $20s to the low $50s during the reporting period.3 Major US stock market indexes posted gains for the reporting period, with most major market indexes hitting record highs; however, the markets were fairly volatile during the first half of the year.
Stocks began calendar year 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets sharply lower. Markets again recovered, and major US
equity indexes hit record highs during the summer. Following the surprise outcome of the US presidential election, a stock market rally sent major US equity market indexes to new record highs. The rally was led by financials, gaining on the belief that they might benefit from reduced federal regulation. Also in November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 – its only increase during the reporting period.4
Invesco V.I. Equally-Weighted S&P 500 Fund seeks total return through growth of capital and current income. The Fund invests in a diversified portfolio of common stocks represented in the S&P 500 Index. The Fund generally invests in each common stock included in the S&P 500 Index in approximately equal proportions, which differs from the S&P 500 Index because stocks in the S&P 500 Index are represented in proportion to their market value or market capitalization. Due to the equally-weighted nature of the Fund and the
capitalization-weighted nature of the S&P 500 Index, the Fund will lag when large-cap stocks outperform mid-cap stocks.
During the reporting period, sectors that contributed the most to Fund performance were the industrials, energy, materials and information technology (IT) sectors. Relative to the S&P 500 Index, an underweight allocation in the consumer staples sector and an overweight allocation in the industrials and utilities sectors contributed to Fund results. In addition, the Fund’s overweight exposure to mid-capitalization stocks during the year benefited Fund performance.
The consumer discretionary and telecommunication services sectors were the top detractors from the Fund’s performance. An overweight allocation in the consumer discretionary sector and an underweight allocation in the telecommunication services sector detracted from Fund results.
The Fund’s top contributor during the reporting period was NVIDIA, which posted its highest revenue growth in six years, boosting the stock price. Natural resource company Freeport-McMoRan added to the Fund’s absolute performance as the stock benefited from rising oil and copper prices. In addition, the stock price of mining company Newmont Mining rose due to higher gold prices.
Pharmaceutical company Endo International was the largest detractor from the Fund’s absolute return during the reporting period; it suffered from legal claims and increased competition from generic drugs. Vertex Pharmaceuticals was another notable detractor. The stock price dropped in anticipation of sales results from a cystic fibrosis treatment whose launch last year had originally driven up the stock price.
Portfolio Composition | |||||
By sector | % of total net assets |
Consumer Discretionary | 15.7% | ||||
Industrials | 13.5 | ||||
Information Technology | 13.1 | ||||
Financials | 12.5 | ||||
Health Care | 12.1 | ||||
Consumer Staples | 7.4 | ||||
Energy | 7.0 | ||||
Real Estate | 5.9 | ||||
Utilities | 5.7 | ||||
Materials | 4.9 | ||||
Telecommunication Services | 1.0 | ||||
Money Market Funds | |||||
Plus Other Assets Less Liabilities | 1.2 |
Top 10 Holdings* | |||||
% of total net assets |
1. NVIDIA Corp. | 0.2% | ||||
2. Allergan PLC | 0.2 | ||||
3. Eli Lilly and Co. | 0.2 | ||||
4. Xilinx, Inc. | 0.2 | ||||
5. Apartment Investment & | |||||
Management Co.-Class A | 0.2 | ||||
6. Micron Technology, Inc. | 0.2 | ||||
7. UDR, Inc. | 0.2 | ||||
8. Essex Property Trust, Inc. | 0.2 | ||||
9. Mondelez International, Inc.-Class A | 0.2 | ||||
10. AT&T Inc. | 0.2 |
Total Net Assets | $ | 163.1 million | |||
Total Number of Holdings* | 505 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. Equally-Weighted S&P 500 Fund
Please note, the Fund’s strategy is principally implemented through equity investments, but may also use S&P 500 futures contracts, which are derivative instruments used to gain exposure to the equity market. During the reporting period, the Fund invested in S&P 500 futures contracts, which generated a positive return and contributed to Fund performance. Derivatives can be a cost-effective way to gain exposure to asset classes. However, derivatives may amplify traditional investment risks through the creation of leverage and may be less liquid than traditional securities.
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.
1 Source: Bureau of Economic Analysis
2 Source: Bureau of Labor Statistics
3 Source: Thompson-Reuters
4 Source: US Federal Reserve
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 from the University of Massachusetts at 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. | ||
Donna Chapman Wilson Portfolio Manager and Director of Portfolio Management, is manager of Invesco V.I. Equally-Weighted S&P 500 Fund. | ||
She joined Invesco in 1997. Ms. Chapman Wilson earned a BA in economics from Hampton University and an MBA in finance from the Wharton School of the University of Pennsylvania. |
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 12/31/06
1 Source: FactSet Research Systems Inc.
2 Source: Lipper Inc.
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (11/9/94) | 10.61 | % | |||
10 Years | 7.94 | ||||
5 Years | 14.96 | ||||
1 Year | 14.24 | ||||
Series II Shares | |||||
Inception (7/24/00) | 8.38 | % | |||
10 Years | 7.67 | ||||
5 Years | 14.68 | ||||
1 Year | 13.94 |
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, prior to June 1, 2010, 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 0.55% and 0.80%, 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. The Fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer.
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.
Emerging markets securities risk.
Emerging markets (also referred to as developing markets) are generally subject to greater market volatility, political, social
and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Indexing risk. The Fund is operated as a passively managed index fund and, therefore, the adverse performance of a particular security necessarily will not result in the elimination of the security from the Fund’s portfolio. Ordinarily, the Adviser will not sell the Fund’s portfolio securities except to reflect additions or deletions of the securities that comprise the Index, or as may be necessary to raise cash to pay Fund shareholders who sell Fund shares. As such, the Fund will be negatively affected by declines in the securities represented by the Index. Also, there is no guarantee that the Adviser will be able to correlate the Fund’s performance with that of the Index.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and
down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
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, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.79% |
| |||||||
Advertising–0.40% | ||||||||
Interpublic Group of Cos., Inc. (The) | 13,765 | $ | 322,238 | |||||
Omnicom Group Inc. | 3,788 | 322,397 | ||||||
644,635 | ||||||||
Aerospace & Defense–2.15% | ||||||||
Arconic Inc. | 15,097 | 279,899 | ||||||
Boeing Co. (The) | 2,102 | 327,239 | ||||||
General Dynamics Corp. | 1,876 | 323,910 | ||||||
L-3 Communications Holdings, Inc. | 2,076 | 315,780 | ||||||
Lockheed Martin Corp. | 1,265 | 316,174 | ||||||
Northrop Grumman Corp. | 1,380 | 320,961 | ||||||
Raytheon Co. | 2,249 | 319,358 | ||||||
Rockwell Collins, Inc. | 3,486 | 323,361 | ||||||
Textron Inc. | 6,801 | 330,257 | ||||||
TransDigm Group, Inc. | 1,319 | 328,378 | ||||||
United Technologies Corp. | 2,997 | 328,531 | ||||||
3,513,848 | ||||||||
Agricultural & Farm Machinery–0.20% | ||||||||
Deere & Co. | 3,175 | 327,152 | ||||||
Agricultural Products–0.20% | ||||||||
Archer-Daniels-Midland Co. | 7,067 | 322,609 | ||||||
Air Freight & Logistics–0.77% | ||||||||
C.H. Robinson Worldwide, Inc. | 4,270 | 312,820 | ||||||
Expeditors International of Washington, Inc. | 5,954 | 315,324 | ||||||
FedEx Corp. | 1,673 | 311,512 | ||||||
United Parcel Service, Inc.–Class B | 2,751 | 315,375 | ||||||
1,255,031 | ||||||||
Airlines–0.98% | ||||||||
Alaska Air Group, Inc. | 3,665 | 325,195 | ||||||
American Airlines Group Inc. | 6,630 | 309,555 | ||||||
Delta Air Lines, Inc. | 6,356 | 312,652 | ||||||
Southwest Airlines Co. | 6,610 | 329,442 | ||||||
United Continental Holdings Inc.(b) | 4,378 | 319,069 | ||||||
1,595,913 | ||||||||
Alternative Carriers–0.20% | ||||||||
Level 3 Communications, Inc.(b) | 5,852 | 329,819 | ||||||
Apparel Retail–1.09% | ||||||||
Foot Locker, Inc. | 4,213 | 298,660 | ||||||
Gap, Inc. (The) | 12,687 | 284,696 | ||||||
L Brands, Inc. | 4,426 | 291,408 | ||||||
Ross Stores, Inc. | 4,854 | 318,422 | ||||||
TJX Cos., Inc. (The) | 4,217 | 316,823 | ||||||
Urban Outfitters, Inc.(b) | 9,626 | 274,149 | ||||||
1,784,158 |
Shares | Value | |||||||
Apparel, Accessories & Luxury Goods–1.25% | ||||||||
Coach, Inc. | 8,531 | $ | 298,756 | |||||
Hanesbrands, Inc. | 14,372 | 310,004 | ||||||
Michael Kors Holdings Ltd.(b) | 6,667 | 286,548 | ||||||
PVH Corp. | 3,089 | 278,751 | ||||||
Ralph Lauren Corp. | 3,018 | 272,586 | ||||||
Under Armour, Inc.–Class A(b) | 5,312 | 154,313 | ||||||
Under Armour, Inc.–Class C(b) | 5,340 | 134,408 | ||||||
VF Corp. | 5,820 | 310,497 | ||||||
2,045,863 | ||||||||
Application Software–0.98% | ||||||||
Adobe Systems Inc.(b) | 3,154 | 324,704 | ||||||
Autodesk, Inc.(b) | 4,057 | 300,259 | ||||||
Citrix Systems, Inc.(b) | 3,684 | 329,018 | ||||||
Intuit Inc. | 2,813 | 322,398 | ||||||
salesforce.com, inc.(b) | 4,624 | 316,559 | ||||||
1,592,938 | ||||||||
Asset Management & Custody Banks–1.74% | ||||||||
Affiliated Managers Group, Inc.(b) | 2,040 | 296,412 | ||||||
Ameriprise Financial, Inc. | 2,775 | 307,858 | ||||||
Bank of New York Mellon Corp. (The) | 6,769 | 320,715 | ||||||
BlackRock, Inc. | 851 | 323,840 | ||||||
Franklin Resources, Inc. | 8,025 | 317,629 | ||||||
Invesco Ltd.(c) | 10,037 | 304,523 | ||||||
Northern Trust Corp. | 3,682 | 327,882 | ||||||
State Street Corp. | 4,086 | 317,564 | ||||||
T. Rowe Price Group Inc. | 4,296 | 323,317 | ||||||
2,839,740 | ||||||||
Auto Parts & Equipment–0.38% | ||||||||
BorgWarner, Inc. | 7,862 | 310,077 | ||||||
Delphi Automotive PLC | 4,602 | 309,945 | ||||||
620,022 | ||||||||
Automobile Manufacturers–0.37% | ||||||||
Ford Motor Co. | 24,991 | 303,141 | ||||||
General Motors Co. | 8,739 | 304,467 | ||||||
607,608 | ||||||||
Automotive Retail–1.00% | ||||||||
Advance Auto Parts, Inc. | 1,874 | 316,931 | ||||||
AutoNation, Inc.(b) | 6,720 | 326,928 | ||||||
AutoZone, Inc.(b) | 409 | 323,024 | ||||||
CarMax, Inc.(b) | 5,240 | 337,403 | ||||||
O’Reilly Automotive, Inc.(b) | 1,192 | 331,865 | ||||||
1,636,151 | ||||||||
Biotechnology–1.59% | ||||||||
AbbVie Inc. | 5,348 | 334,892 | ||||||
Alexion Pharmaceuticals, Inc.(b) | 2,491 | 304,774 |
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) | ||||||||
Amgen Inc. | 2,293 | $ | 335,260 | |||||
Biogen Inc.(b) | 1,143 | 324,132 | ||||||
Celgene Corp.(b) | 2,900 | 335,675 | ||||||
Gilead Sciences, Inc. | 4,527 | 324,178 | ||||||
Regeneron Pharmaceuticals, Inc.(b) | 882 | 323,773 | ||||||
Vertex Pharmaceuticals Inc.(b) | 4,292 | 316,192 | ||||||
2,598,876 | ||||||||
Brewers–0.20% | ||||||||
Molson Coors Brewing Co.–Class B | 3,322 | 323,264 | ||||||
Broadcasting–0.78% | ||||||||
CBS Corp.–Class B | 5,261 | 334,705 | ||||||
Discovery Communications, Inc.–Class A(b) | 4,631 | 126,935 | ||||||
Discovery Communications, Inc.–Class C(b) | 6,882 | 184,300 | ||||||
Scripps Networks Interactive Inc.–Class A | 4,589 | 327,517 | ||||||
TEGNA Inc. | 14,259 | 305,000 | ||||||
1,278,457 | ||||||||
Building Products–0.77% | ||||||||
Allegion PLC | 5,011 | 320,704 | ||||||
Fortune Brands Home & Security, Inc. | 5,838 | 312,099 | ||||||
Johnson Controls International PLC | 7,525 | 309,955 | ||||||
Masco Corp. | 10,093 | 319,141 | ||||||
1,261,899 | ||||||||
Cable & Satellite–0.41% | ||||||||
Charter Communications, Inc.–Class A(b) | 1,180 | 339,746 | ||||||
Comcast Corp.–Class A | 4,739 | 327,228 | ||||||
666,974 | ||||||||
Casinos & Gaming–0.19% | ||||||||
Wynn Resorts Ltd. | 3,581 | 309,792 | ||||||
Commodity Chemicals–0.20% | ||||||||
LyondellBasell Industries N.V.–Class A | 3,721 | 319,187 | ||||||
Communications Equipment–1.01% | ||||||||
Cisco Systems, Inc. | 10,949 | 330,879 | ||||||
F5 Networks, Inc.(b) | 2,308 | 334,014 | ||||||
Harris Corp. | 3,118 | 319,501 | ||||||
Juniper Networks, Inc. | 11,564 | 326,798 | ||||||
Motorola Solutions, Inc. | 3,974 | 329,405 | ||||||
1,640,597 | ||||||||
Computer & Electronics Retail–0.18% | ||||||||
Best Buy Co., Inc. | 6,716 | 286,572 | ||||||
Construction & Engineering–0.57% | ||||||||
Fluor Corp. | 5,759 | 302,463 | ||||||
Jacobs Engineering Group, Inc.(b) | 5,345 | 304,665 | ||||||
Quanta Services, Inc.(b) | 9,250 | 322,362 | ||||||
929,490 | ||||||||
Construction Machinery & Heavy Trucks–0.58% | ||||||||
Caterpillar Inc. | 3,444 | 319,396 |
Shares | Value | |||||||
Construction Machinery & Heavy Trucks–(continued) | ||||||||
Cummins Inc. | 2,313 | $ | 316,118 | |||||
PACCAR Inc. | 4,863 | 310,746 | ||||||
946,260 | ||||||||
Construction Materials–0.39% | ||||||||
Martin Marietta Materials, Inc. | 1,423 | 315,237 | ||||||
Vulcan Materials Co. | 2,560 | 320,384 | ||||||
635,621 | ||||||||
Consumer Electronics–0.40% | ||||||||
Garmin Ltd. | 6,579 | 319,016 | ||||||
Harman International Industries, Inc. | 2,998 | 333,257 | ||||||
652,273 | ||||||||
Consumer Finance–0.99% | ||||||||
American Express Co. | 4,402 | 326,100 | ||||||
Capital One Financial Corp. | 3,638 | 317,379 | ||||||
Discover Financial Services | 4,519 | 325,775 | ||||||
Navient Corp. | 19,014 | 312,400 | ||||||
Synchrony Financial | 9,010 | 326,793 | ||||||
1,608,447 | ||||||||
Copper–0.17% | ||||||||
Freeport-McMoRan Inc.(b) | 20,897 | 275,631 | ||||||
Data Processing & Outsourced Services–2.40% | ||||||||
Alliance Data Systems Corp. | 1,417 | 323,784 | ||||||
Automatic Data Processing, Inc. | 3,350 | 344,313 | ||||||
Fidelity National Information Services, Inc. | 4,356 | 329,488 | ||||||
Fiserv, Inc.(b) | 3,140 | 333,719 | ||||||
Global Payments Inc. | 4,559 | 316,440 | ||||||
Mastercard Inc.–Class A | 3,167 | 326,993 | ||||||
Paychex, Inc. | 5,470 | 333,014 | ||||||
PayPal Holdings, Inc.(b) | 8,300 | 327,601 | ||||||
Total System Services, Inc. | 6,628 | 324,971 | ||||||
Visa Inc.–Class A | 4,158 | 324,407 | ||||||
Western Union Co. (The) | 14,953 | 324,779 | ||||||
Xerox Corp. | 34,793 | 303,743 | ||||||
3,913,252 | ||||||||
Department Stores–0.50% | ||||||||
Kohl’s Corp. | 5,723 | 282,601 | ||||||
Macy’s, Inc. | 7,754 | 277,671 | ||||||
Nordstrom, Inc. | 5,417 | 259,637 | ||||||
819,909 | ||||||||
Distillers & Vintners–0.40% | ||||||||
Brown-Forman Corp.–Class B | 7,174 | 322,256 | ||||||
Constellation Brands, Inc.–Class A | 2,153 | 330,076 | ||||||
652,332 | ||||||||
Distributors–0.38% | ||||||||
Genuine Parts Co. | 3,336 | 318,721 | ||||||
LKQ Corp.(b) | 9,598 | 294,179 | ||||||
612,900 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Diversified Banks–1.19% | ||||||||
Bank of America Corp. | 14,254 | $ | 315,013 | |||||
Citigroup Inc. | 5,481 | 325,736 | ||||||
Comerica Inc. | 4,699 | 320,049 | ||||||
JPMorgan Chase & Co. | 3,849 | 332,130 | ||||||
U.S. Bancorp | 6,324 | 324,864 | ||||||
Wells Fargo & Co. | 5,759 | 317,379 | ||||||
1,935,171 | ||||||||
Diversified Chemicals–0.59% | ||||||||
Dow Chemical Co. (The) | 5,703 | 326,326 | ||||||
E. I. du Pont de Nemours and Co. | 4,380 | 321,492 | ||||||
Eastman Chemical Co. | 4,263 | 320,620 | ||||||
968,438 | ||||||||
Diversified Support Services–0.19% | ||||||||
Cintas Corp. | 2,726 | 315,017 | ||||||
Drug Retail–0.39% | ||||||||
CVS Health Corp. | 4,106 | 324,004 | ||||||
Walgreens Boots Alliance, Inc. | 3,809 | 315,233 | ||||||
639,237 | ||||||||
Electric Utilities–2.89% | ||||||||
Alliant Energy Corp. | 8,936 | 338,585 | ||||||
American Electric Power Co., Inc. | 5,396 | 339,732 | ||||||
Duke Energy Corp. | 4,341 | 336,948 | ||||||
Edison International | 4,703 | 338,569 | ||||||
Entergy Corp. | 4,651 | 341,709 | ||||||
Eversource Energy | 6,122 | 338,118 | ||||||
Exelon Corp. | 9,430 | 334,671 | ||||||
FirstEnergy Corp. | 10,710 | 331,689 | ||||||
NextEra Energy, Inc. | 2,824 | 337,355 | ||||||
PG&E Corp. | 5,547 | 337,091 | ||||||
Pinnacle West Capital Corp. | 4,320 | 337,090 | ||||||
PPL Corp. | 9,821 | 334,405 | ||||||
Southern Co. (The) | 6,865 | 337,689 | ||||||
Xcel Energy, Inc. | 8,258 | 336,101 | ||||||
4,719,752 | ||||||||
Electrical Components & Equipment–0.96% | ||||||||
Acuity Brands, Inc. | 1,322 | 305,197 | ||||||
AMETEK, Inc. | 6,469 | 314,393 | ||||||
Eaton Corp. PLC | 4,737 | 317,805 | ||||||
Emerson Electric Co. | 5,724 | 319,113 | ||||||
Rockwell Automation, Inc. | 2,357 | 316,781 | ||||||
1,573,289 | ||||||||
Electronic Components–0.40% | ||||||||
Amphenol Corp.–Class A | 4,804 | 322,829 | ||||||
Corning Inc. | 13,356 | 324,150 | ||||||
646,979 | ||||||||
Electronic Equipment & Instruments–0.20% | ||||||||
FLIR Systems, Inc. | 8,951 | 323,937 |
Shares | Value | |||||||
Electronic Manufacturing Services–0.20% | ||||||||
TE Connectivity Ltd. | 4,652 | $ | 322,291 | |||||
Environmental & Facilities Services–0.62% | ||||||||
Republic Services, Inc. | 5,823 | 332,202 | ||||||
Stericycle, Inc.(b) | 4,425 | 340,902 | ||||||
Waste Management, Inc. | 4,699 | 333,206 | ||||||
1,006,310 | ||||||||
Fertilizers & Agricultural Chemicals–0.79% | ||||||||
CF Industries Holdings, Inc. | 10,634 | 334,758 | ||||||
FMC Corp. | 5,596 | 316,510 | ||||||
Monsanto Co. | 3,146 | 330,990 | ||||||
Mosaic Co. (The) | 10,475 | 307,232 | ||||||
1,289,490 | ||||||||
Financial Exchanges & Data–0.96% | ||||||||
CME Group Inc.–Class A | 2,681 | 309,253 | ||||||
Intercontinental Exchange, Inc. | 5,516 | 311,213 | ||||||
Moody’s Corp. | 3,298 | 310,902 | ||||||
Nasdaq, Inc. | 4,796 | 321,908 | ||||||
S&P Global Inc. | 2,861 | 307,672 | ||||||
1,560,948 | ||||||||
Food Distributors–0.20% | ||||||||
Sysco Corp. | 5,966 | 330,337 | ||||||
Food Retail–0.39% | ||||||||
Kroger Co. (The) | 9,457 | 326,361 | ||||||
Whole Foods Market, Inc. | 10,272 | 315,967 | ||||||
642,328 | ||||||||
Footwear–0.20% | ||||||||
NIKE, Inc.–Class B | 6,363 | 323,431 | ||||||
General Merchandise Stores–0.56% | ||||||||
Dollar General Corp. | 4,266 | 315,982 | ||||||
Dollar Tree, Inc.(b) | 3,749 | 289,348 | ||||||
Target Corp. | 4,252 | 307,122 | ||||||
912,452 | ||||||||
Gold–0.21% | ||||||||
Newmont Mining Corp. | 10,037 | 341,961 | ||||||
Health Care Distributors–1.00% | ||||||||
AmerisourceBergen Corp. | 4,170 | 326,052 | ||||||
Cardinal Health, Inc. | 4,506 | 324,297 | ||||||
Henry Schein, Inc.(b) | 2,162 | 327,997 | ||||||
McKesson Corp. | 2,250 | 316,013 | ||||||
Patterson Cos. Inc. | 8,146 | 334,230 | ||||||
1,628,589 | ||||||||
Health Care Equipment–2.84% | ||||||||
Abbott Laboratories | 8,395 | 322,452 | ||||||
Baxter International Inc. | 7,339 | 325,411 | ||||||
Becton, Dickinson and Co. | 1,976 | 327,127 | ||||||
Boston Scientific Corp.(b) | 15,815 | 342,079 |
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) | ||||||||
C.R. Bard, Inc. | 1,518 | $ | 341,034 | |||||
Danaher Corp. | 4,213 | 327,940 | ||||||
Edwards Lifesciences Corp.(b) | 3,641 | 341,162 | ||||||
Hologic, Inc.(b) | 8,434 | 338,372 | ||||||
Intuitive Surgical, Inc.(b) | 526 | 333,573 | ||||||
Medtronic PLC | 4,487 | 319,609 | ||||||
St. Jude Medical, Inc. | 4,097 | 328,538 | ||||||
Stryker Corp. | 2,824 | 338,343 | ||||||
Varian Medical Systems, Inc.(b) | 3,606 | 323,747 | ||||||
Zimmer Biomet Holdings, Inc. | 3,127 | 322,706 | ||||||
4,632,093 | ||||||||
Health Care Facilities–0.40% | ||||||||
HCA Holdings, Inc.(b) | 4,493 | 332,572 | ||||||
Universal Health Services, Inc.–Class B | 2,936 | 312,332 | ||||||
644,904 | ||||||||
Health Care REIT’s–0.61% | ||||||||
HCP, Inc. | 10,956 | 325,612 | ||||||
Ventas, Inc. | 5,269 | 329,418 | ||||||
Welltower Inc. | 5,011 | 335,386 | ||||||
990,416 | ||||||||
Health Care Services–0.97% | ||||||||
DaVita Inc.(b) | 4,950 | 317,790 | ||||||
Envision Healthcare Corp.(b) | 4,567 | 289,045 | ||||||
Express Scripts Holding Co.(b) | 4,541 | 312,375 | ||||||
Laboratory Corp. of America Holdings(b) | 2,575 | 330,579 | ||||||
Quest Diagnostics Inc. | 3,610 | 331,759 | ||||||
1,581,548 | ||||||||
Health Care Supplies–0.40% | ||||||||
Cooper Cos., Inc. (The) | 1,928 | 337,265 | ||||||
DENTSPLY SIRONA Inc. | 5,576 | 321,903 | ||||||
659,168 | ||||||||
Health Care Technology–0.20% | ||||||||
Cerner Corp.(b) | 6,799 | 322,069 | ||||||
Home Entertainment Software–0.40% | ||||||||
Activision Blizzard, Inc. | 8,946 | 323,040 | ||||||
Electronic Arts Inc.(b) | 4,178 | 329,059 | ||||||
652,099 | ||||||||
Home Furnishings–0.40% | ||||||||
Leggett & Platt, Inc. | 6,606 | 322,901 | ||||||
Mohawk Industries, Inc.(b) | 1,646 | 328,674 | ||||||
651,575 | ||||||||
Home Improvement Retail–0.39% | ||||||||
Home Depot, Inc. (The) | 2,466 | 330,641 | ||||||
Lowe’s Cos., Inc. | 4,406 | 313,355 | ||||||
643,996 | ||||||||
Homebuilding–0.57% | ||||||||
D.R. Horton, Inc. | 11,404 | 311,671 | ||||||
Lennar Corp.–Class A | 7,341 | 315,149 |
Shares | Value | |||||||
Homebuilding–(continued) | ||||||||
PulteGroup Inc. | 16,792 | $ | 308,637 | |||||
935,457 | ||||||||
Homefurnishing Retail–0.17% | ||||||||
Bed Bath & Beyond Inc. | 6,825 | 277,368 | ||||||
Hotel and Resort REIT’s–0.20% | ||||||||
Host Hotels & Resorts Inc. | 17,160 | 323,294 | ||||||
Hotels, Resorts & Cruise Lines–0.79% | ||||||||
Carnival Corp. | 6,170 | 321,210 | ||||||
Marriott International Inc.–Class A | 3,938 | 325,594 | ||||||
Royal Caribbean Cruises Ltd. | 3,817 | 313,147 | ||||||
Wyndham Worldwide Corp. | 4,225 | 322,663 | ||||||
1,282,614 | ||||||||
Household Appliances–0.21% | ||||||||
Whirlpool Corp. | 1,894 | 344,272 | ||||||
Household Products–1.01% | ||||||||
Church & Dwight Co., Inc. | 7,425 | 328,111 | ||||||
Clorox Co. (The) | 2,854 | 342,537 | ||||||
Colgate-Palmolive Co. | 4,965 | 324,910 | ||||||
Kimberly-Clark Corp. | 2,871 | 327,638 | ||||||
Procter & Gamble Co. (The) | 3,900 | 327,912 | ||||||
1,651,108 | ||||||||
Housewares & Specialties–0.20% | ||||||||
Newell Brands, Inc. | 7,228 | 322,730 | ||||||
Human Resource & Employment Services–0.20% | ||||||||
Robert Half International, Inc. | 6,790 | 331,216 | ||||||
Hypermarkets & Super Centers–0.40% | ||||||||
Costco Wholesale Corp. | 2,060 | 329,827 | ||||||
Wal-Mart Stores, Inc. | 4,696 | 324,587 | ||||||
654,414 | ||||||||
Independent Power Producers & Energy Traders–0.39% | ||||||||
AES Corp. (The) | 27,612 | 320,852 | ||||||
NRG Energy, Inc. | 25,594 | 313,782 | ||||||
634,634 | ||||||||
Industrial Conglomerates–0.80% | ||||||||
3M Co. | 1,843 | 329,104 | ||||||
General Electric Co. | 10,356 | 327,250 | ||||||
Honeywell International Inc. | 2,831 | 327,971 | ||||||
Roper Technologies, Inc. | 1,771 | 324,235 | ||||||
1,308,560 | ||||||||
Industrial Gases–0.39% | ||||||||
Air Products and Chemicals, Inc. | 2,200 | 316,404 | ||||||
Praxair, Inc. | 2,664 | 312,194 | ||||||
628,598 | ||||||||
Industrial Machinery–1.94% | ||||||||
Dover Corp. | 4,284 | 321,000 | ||||||
Flowserve Corp. | 6,363 | 305,742 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Industrial Machinery–(continued) | ||||||||
Fortive Corp. | 6,094 | $ | 326,821 | |||||
Illinois Tool Works Inc. | 2,600 | 318,396 | ||||||
Ingersoll-Rand PLC | 4,194 | 314,718 | ||||||
Parker-Hannifin Corp. | 2,309 | 323,260 | ||||||
Pentair PLC (United Kingdom) | 5,463 | 306,311 | ||||||
Snap-on Inc. | 1,867 | 319,761 | ||||||
Stanley Black & Decker Inc. | 2,730 | 313,104 | ||||||
Xylem, Inc. | 6,393 | 316,581 | ||||||
3,165,694 | ||||||||
Industrial REIT’s–0.20% | ||||||||
Prologis, Inc. | 6,282 | 331,627 | ||||||
Insurance Brokers–0.80% | ||||||||
Aon PLC | 2,911 | 324,664 | ||||||
Arthur J. Gallagher & Co. | 6,483 | 336,856 | ||||||
Marsh & McLennan Cos., Inc. | 4,737 | 320,174 | ||||||
Willis Towers Watson PLC | 2,679 | 327,588 | ||||||
1,309,282 | ||||||||
Integrated Oil & Gas–0.61% | ||||||||
Chevron Corp. | 2,841 | 334,386 | ||||||
Exxon Mobil Corp. | 3,697 | 333,691 | ||||||
Occidental Petroleum Corp. | 4,663 | 332,145 | ||||||
1,000,222 | ||||||||
Integrated Telecommunication Services–0.81% | ||||||||
AT&T Inc.(d) | 8,150 | 346,619 | ||||||
CenturyLink Inc. | 13,645 | 324,478 | ||||||
Frontier Communications Corp. | 89,685 | 303,135 | ||||||
Verizon Communications Inc. | 6,391 | 341,152 | ||||||
1,315,384 | ||||||||
Internet & Direct Marketing Retail–0.96% | ||||||||
Amazon.com, Inc.(b)(d) | 428 | 320,944 | ||||||
Expedia, Inc. | 2,652 | 300,419 | ||||||
Netflix Inc.(b) | 2,677 | 331,413 | ||||||
Priceline Group Inc. (The)(b) | 212 | 310,805 | ||||||
TripAdvisor Inc.(b) | 6,685 | 309,983 | ||||||
1,573,564 | ||||||||
Internet Software & Services–1.17% | ||||||||
Akamai Technologies, Inc.(b) | 5,068 | 337,934 | ||||||
Alphabet Inc.–Class A(b) | 205 | 162,452 | ||||||
Alphabet Inc.–Class C(b) | 206 | 158,995 | ||||||
eBay Inc.(b) | 10,981 | 326,026 | ||||||
Facebook, Inc.–Class A(b) | 2,749 | 316,272 | ||||||
VeriSign, Inc.(b) | 4,022 | 305,954 | ||||||
Yahoo! Inc.(b) | 7,880 | 304,720 | ||||||
1,912,353 | ||||||||
Investment Banking & Brokerage–0.79% | ||||||||
Charles Schwab Corp. (The) | 8,369 | 330,324 | ||||||
E*TRADE Financial Corp.(b) | 9,235 | 319,993 | ||||||
Goldman Sachs Group, Inc. (The) | 1,360 | 325,652 |
Shares | Value | |||||||
Investment Banking & Brokerage–(continued) | ||||||||
Morgan Stanley | 7,525 | $ | 317,931 | |||||
1,293,900 | ||||||||
IT Consulting & Other Services–0.98% | ||||||||
Accenture PLC–Class A | 2,668 | 312,503 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 5,894 | 330,241 | ||||||
CSRA Inc. | 10,065 | 320,470 | ||||||
International Business Machines Corp. | 1,976 | 327,996 | ||||||
Teradata Corp.(b) | 11,507 | 312,645 | ||||||
1,603,855 | ||||||||
Leisure Products–0.37% | ||||||||
Hasbro, Inc. | 3,825 | 297,547 | ||||||
Mattel, Inc. | 11,160 | 307,458 | ||||||
605,005 | ||||||||
Life & Health Insurance–1.39% | ||||||||
Aflac, Inc. | 4,765 | 331,644 | ||||||
Lincoln National Corp. | 4,830 | 320,084 | ||||||
MetLife, Inc. | 5,734 | 309,006 | ||||||
Principal Financial Group, Inc. | 5,458 | 315,800 | ||||||
Prudential Financial, Inc. | 3,103 | 322,898 | ||||||
Torchmark Corp. | 4,466 | 329,412 | ||||||
Unum Group | 7,555 | 331,891 | ||||||
2,260,735 | ||||||||
Life Sciences Tools & Services–1.19% | ||||||||
Agilent Technologies, Inc. | 7,108 | 323,840 | ||||||
Illumina, Inc.(b) | 2,671 | 341,995 | ||||||
Mettler-Toledo International Inc.(b) | 780 | 326,477 | ||||||
PerkinElmer, Inc. | 6,144 | 320,410 | ||||||
Thermo Fisher Scientific, Inc. | 2,263 | 319,309 | ||||||
Waters Corp.(b) | 2,358 | 316,892 | ||||||
1,948,923 | ||||||||
Managed Health Care–1.20% | ||||||||
Aetna Inc. | 2,552 | 316,473 | ||||||
Anthem, Inc. | 2,255 | 324,201 | ||||||
Centene Corp.(b) | 5,794 | 327,419 | ||||||
Cigna Corp. | 2,443 | 325,872 | ||||||
Humana Inc. | 1,618 | 330,121 | ||||||
UnitedHealth Group Inc. | 2,055 | 328,882 | ||||||
1,952,968 | ||||||||
Metal & Glass Containers–0.20% | ||||||||
Ball Corp. | 4,283 | 321,525 | ||||||
Motorcycle Manufacturers–0.19% | ||||||||
Harley-Davidson, Inc. | 5,412 | 315,736 | ||||||
Movies & Entertainment–0.79% | ||||||||
Time Warner Inc. | 3,455 | 333,511 | ||||||
Twenty-First Century Fox, Inc.–Class A | 8,028 | 225,105 | ||||||
Twenty-First Century Fox, Inc.–Class B | 3,675 | 100,144 | ||||||
Viacom Inc.–Class B | 8,522 | 299,122 | ||||||
Walt Disney Co. (The) | 3,138 | 327,043 | ||||||
1,284,925 |
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-Line Insurance–0.80% | ||||||||
American International Group, Inc. | 4,999 | $ | 326,485 | |||||
Assurant, Inc. | 3,570 | 331,510 | ||||||
Hartford Financial Services Group, Inc. (The) | 6,780 | 323,067 | ||||||
Loews Corp. | 6,947 | 325,328 | ||||||
1,306,390 | ||||||||
Multi-Sector Holdings–0.39% | ||||||||
Berkshire Hathaway Inc.–Class B(b) | 1,996 | 325,308 | ||||||
Leucadia National Corp. | 13,714 | 318,851 | ||||||
644,159 | ||||||||
Multi-Utilities–2.26% | ||||||||
Ameren Corp. | 6,487 | 340,308 | ||||||
CenterPoint Energy, Inc. | 13,472 | 331,950 | ||||||
CMS Energy Corp. | 8,003 | 333,085 | ||||||
Consolidated Edison, Inc. | 4,607 | 339,444 | ||||||
Dominion Resources, Inc. | 4,416 | 338,221 | ||||||
DTE Energy Co. | 3,376 | 332,570 | ||||||
NiSource Inc. | 15,111 | 334,558 | ||||||
Public Service Enterprise Group Inc. | 7,707 | 338,183 | ||||||
SCANA Corp. | 4,523 | 331,445 | ||||||
Sempra Energy | 3,267 | 328,791 | ||||||
WEC Energy Group, Inc. | 5,757 | 337,648 | ||||||
3,686,203 | ||||||||
Office REIT’s–0.60% | ||||||||
Boston Properties, Inc. | 2,556 | 321,494 | ||||||
SL Green Realty Corp. | 2,975 | 319,961 | ||||||
Vornado Realty Trust | 3,188 | 332,731 | ||||||
974,186 | ||||||||
Office Services & Supplies–0.19% | ||||||||
Pitney Bowes Inc. | 20,778 | 315,618 | ||||||
Oil & Gas Drilling–0.38% | ||||||||
Helmerich & Payne, Inc. | 4,025 | 311,535 | ||||||
Transocean Ltd.(b) | 21,345 | 314,625 | ||||||
626,160 | ||||||||
Oil & Gas Equipment & Services–0.99% | ||||||||
Baker Hughes Inc. | 4,962 | 322,381 | ||||||
FMC Technologies, Inc.(b) | 9,308 | 330,713 | ||||||
Halliburton Co. | 6,072 | 328,435 | ||||||
National Oilwell Varco Inc. | 8,273 | 309,741 | ||||||
Schlumberger Ltd. | 3,882 | 325,894 | ||||||
1,617,164 | ||||||||
Oil & Gas Exploration & Production–3.41% | ||||||||
Anadarko Petroleum Corp. | 4,670 | 325,639 | ||||||
Apache Corp. | 4,944 | 313,796 | ||||||
Cabot Oil & Gas Corp. | 13,765 | 321,550 | ||||||
Chesapeake Energy Corp.(b) | 42,635 | 299,298 | ||||||
Cimarex Energy Co. | 2,324 | 315,832 | ||||||
Concho Resources Inc.(b) | 2,307 | 305,908 | ||||||
ConocoPhillips | 6,482 | 325,008 |
Shares | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Devon Energy Corp. | 6,844 | $ | 312,565 | |||||
EOG Resources, Inc. | 3,091 | 312,500 | ||||||
EQT Corp. | 4,406 | 288,152 | ||||||
Hess Corp. | 5,244 | 326,649 | ||||||
Marathon Oil Corp. | 18,035 | 312,186 | ||||||
Murphy Oil Corp. | 9,979 | 310,646 | ||||||
Newfield Exploration Co.(b) | 6,882 | 278,721 | ||||||
Noble Energy, Inc. | 8,346 | 317,649 | ||||||
Pioneer Natural Resources Co. | 1,759 | 316,743 | ||||||
Range Resources Corp. | 8,486 | 291,579 | ||||||
Southwestern Energy Co.(b) | 26,101 | 282,413 | ||||||
5,556,834 | ||||||||
Oil & Gas Refining & Marketing–0.80% | ||||||||
Marathon Petroleum Corp. | 6,656 | 335,130 | ||||||
Phillips 66 | 3,767 | 325,506 | ||||||
Tesoro Corp. | 3,649 | 319,105 | ||||||
Valero Energy Corp. | 4,840 | 330,669 | ||||||
1,310,410 | ||||||||
Oil & Gas Storage & Transportation–0.81% | ||||||||
Kinder Morgan Inc. | 15,606 | 323,200 | ||||||
ONEOK, Inc. | 5,773 | 331,428 | ||||||
Spectra Energy Corp. | 8,050 | 330,774 | ||||||
Williams Cos., Inc. (The) | 10,898 | 339,364 | ||||||
1,324,766 | ||||||||
Packaged Foods & Meats–2.45% | ||||||||
Campbell Soup Co. | 5,581 | 337,483 | ||||||
Conagra Brands, Inc. | 8,562 | 338,627 | ||||||
General Mills, Inc. | 5,207 | 321,636 | ||||||
Hershey Co. (The) | 3,280 | 339,251 | ||||||
Hormel Foods Corp. | 9,570 | 333,132 | ||||||
JM Smucker Co. (The) | 2,521 | 322,839 | ||||||
Kellogg Co. | 4,501 | 331,769 | ||||||
Kraft Heinz Co. (The) | 3,927 | 342,906 | ||||||
McCormick & Co., Inc. | 3,560 | 332,255 | ||||||
Mead Johnson Nutrition Co. | 4,465 | 315,943 | ||||||
Mondelez International, Inc.–Class A | 7,845 | 347,769 | ||||||
Tyson Foods, Inc.–Class A | 5,315 | 327,829 | ||||||
3,991,439 | ||||||||
Paper Packaging–0.78% | ||||||||
Avery Dennison Corp. | 4,532 | 318,237 | ||||||
International Paper Co. | 6,114 | 324,409 | ||||||
Sealed Air Corp. | 6,830 | 309,672 | ||||||
WestRock Co. | 6,274 | 318,531 | ||||||
1,270,849 | ||||||||
Personal Products–0.39% | ||||||||
Coty, Inc.–Class A | 17,178 | 314,529 | ||||||
Estee Lauder Cos. Inc. (The)–Class A | 4,128 | 315,751 | ||||||
630,280 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Pharmaceuticals–2.28% | ||||||||
Allergan PLC(b) | 1,711 | $ | 359,327 | |||||
Bristol-Myers Squibb Co. | 5,770 | 337,199 | ||||||
Eli Lilly and Co. | 4,850 | 356,718 | ||||||
Endo International PLC(b) | 21,044 | 346,595 | ||||||
Johnson & Johnson | 2,931 | 337,681 | ||||||
Mallinckrodt PLC(b) | 6,257 | 311,724 | ||||||
Merck & Co., Inc. | 5,375 | 316,426 | ||||||
Mylan N.V.(b) | 9,015 | 343,922 | ||||||
Perrigo Co. PLC | 3,988 | 331,921 | ||||||
Pfizer Inc. | 10,382 | 337,207 | ||||||
Zoetis Inc. | 6,342 | 339,487 | ||||||
3,718,207 | ||||||||
Property & Casualty Insurance–1.22% | ||||||||
Allstate Corp. (The)(d) | 4,541 | 336,579 | ||||||
Chubb Ltd. | 2,483 | 328,054 | ||||||
Cincinnati Financial Corp. | 4,207 | 318,680 | ||||||
Progressive Corp. (The) | 9,639 | 342,184 | ||||||
Travelers Cos., Inc. (The) | 2,760 | 337,879 | ||||||
XL Group Ltd. (Ireland) | 8,883 | 330,981 | ||||||
1,994,357 | ||||||||
Publishing–0.19% | ||||||||
News Corp.–Class A | 20,631 | 236,431 | ||||||
News Corp.–Class B | 6,493 | 76,618 | ||||||
313,049 | ||||||||
Railroads–0.79% | ||||||||
CSX Corp. | 8,831 | 317,298 | ||||||
Kansas City Southern | 3,825 | 324,551 | ||||||
Norfolk Southern Corp. | 2,975 | 321,508 | ||||||
Union Pacific Corp. | 3,132 | 324,726 | ||||||
1,288,083 | ||||||||
Real Estate Services–0.19% | ||||||||
CBRE Group, Inc.–Class A(b) | 10,037 | 316,065 | ||||||
Regional Banks–2.21% | ||||||||
BB&T Corp. | 6,965 | 327,494 | ||||||
Citizens Financial Group, Inc. | 9,268 | 330,219 | ||||||
Fifth Third Bancorp | 12,239 | 330,086 | ||||||
Huntington Bancshares Inc. | 24,362 | 322,066 | ||||||
KeyCorp | 17,829 | 325,736 | ||||||
M&T Bank Corp. | 2,134 | 333,822 | ||||||
People’s United Financial Inc. | 16,514 | 319,711 | ||||||
PNC Financial Services Group, Inc. (The) | 2,860 | 334,506 | ||||||
Regions Financial Corp. | 22,543 | 323,717 | ||||||
SunTrust Banks, Inc. | 6,001 | 329,155 | ||||||
Zions Bancorp. | 7,613 | 327,663 | ||||||
3,604,175 | ||||||||
Research & Consulting Services–0.80% | ||||||||
Dun & Bradstreet Corp. (The) | 2,667 | 323,560 | ||||||
Equifax Inc. | 2,808 | 331,990 |
Shares | Value | |||||||
Research & Consulting Services–(continued) | ||||||||
Nielsen Holdings PLC | 7,703 | $ | 323,141 | |||||
Verisk Analytics, Inc.–Class A(b) | 3,968 | 322,083 | ||||||
1,300,774 | ||||||||
Residential REIT’s–1.28% | ||||||||
Apartment Investment & Management Co.–Class A | 7,778 | 353,510 | ||||||
AvalonBay Communities, Inc. | 1,946 | 344,734 | ||||||
Equity Residential | 5,235 | 336,924 | ||||||
Essex Property Trust, Inc. | 1,504 | 349,680 | ||||||
Mid-America Apartment Communities, Inc. | 3,529 | 345,560 | ||||||
UDR, Inc. | 9,612 | 350,646 | ||||||
2,081,054 | ||||||||
Restaurants–0.98% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 889 | 335,438 | ||||||
Darden Restaurants, Inc. | 4,186 | 304,406 | ||||||
McDonald’s Corp. | 2,727 | 331,930 | ||||||
Starbucks Corp. | 5,602 | 311,023 | ||||||
Yum! Brands, Inc. | 5,103 | 323,173 | ||||||
1,605,970 | ||||||||
Retail REIT’s–1.19% | ||||||||
Federal Realty Investment Trust | 2,325 | 330,406 | ||||||
General Growth Properties, Inc. | 12,561 | 313,774 | ||||||
Kimco Realty Corp. | 12,668 | 318,727 | ||||||
Macerich Co. (The) | 4,626 | 327,706 | ||||||
Realty Income Corp. | 5,918 | 340,166 | ||||||
Simon Property Group, Inc. | 1,793 | 318,562 | ||||||
1,949,341 | ||||||||
Semiconductor Equipment–0.61% | ||||||||
Applied Materials, Inc. | 10,174 | 328,315 | ||||||
KLA-Tencor Corp. | 4,262 | 335,334 | ||||||
Lam Research Corp. | 3,161 | 334,213 | ||||||
997,862 | ||||||||
Semiconductors–2.65% | ||||||||
Analog Devices, Inc. | 4,500 | 326,790 | ||||||
Broadcom Ltd. (Singapore) | 1,837 | 324,726 | ||||||
First Solar, Inc.(b) | 9,813 | 314,899 | ||||||
Intel Corp. | 9,204 | 333,829 | ||||||
Linear Technology Corp. | 5,270 | 328,585 | ||||||
Microchip Technology Inc. | 5,100 | 327,165 | ||||||
Micron Technology, Inc.(b) | 16,055 | 351,926 | ||||||
NVIDIA Corp. | 3,583 | 382,449 | ||||||
Qorvo, Inc.(b) | 5,839 | 307,890 | ||||||
QUALCOMM, Inc. | 4,803 | 313,156 | ||||||
Skyworks Solutions, Inc. | 4,278 | 319,395 | ||||||
Texas Instruments Inc. | 4,572 | 333,619 | ||||||
Xilinx, Inc. | 5,886 | 355,338 | ||||||
4,319,767 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Soft Drinks–0.81% | ||||||||
Coca-Cola Co. (The) | 7,835 | $ | 324,839 | |||||
Dr Pepper Snapple Group, Inc. | 3,662 | 332,034 | ||||||
Monster Beverage Corp.(b) | 7,473 | 331,353 | ||||||
PepsiCo, Inc. | 3,177 | 332,409 | ||||||
1,320,635 | ||||||||
Specialized Consumer Services–0.20% | ||||||||
H&R Block, Inc. | 14,341 | 329,700 | ||||||
Specialized REIT’s–1.62% | ||||||||
American Tower Corp. | 3,197 | 337,859 | ||||||
Crown Castle International Corp. | 3,845 | 333,631 | ||||||
Digital Realty Trust, Inc. | 3,500 | 343,910 | ||||||
Equinix, Inc. | 950 | 339,539 | ||||||
Extra Space Storage Inc. | 4,387 | 338,852 | ||||||
Iron Mountain Inc. | 9,498 | 308,495 | ||||||
Public Storage | 1,501 | 335,474 | ||||||
Weyerhaeuser Co. | 10,059 | 302,675 | ||||||
2,640,435 | ||||||||
Specialty Chemicals–0.97% | ||||||||
Albemarle Corp. | 3,628 | 312,298 | ||||||
Ecolab Inc. | 2,730 | 320,011 | ||||||
International Flavors & Fragrances Inc. | 2,626 | 309,422 | ||||||
PPG Industries, Inc. | 3,313 | 313,940 | ||||||
Sherwin-Williams Co. (The) | 1,214 | 326,250 | ||||||
1,581,921 | ||||||||
Specialty Stores–0.95% | ||||||||
Signet Jewelers Ltd. | 3,068 | 289,190 | ||||||
Staples, Inc. | 32,880 | 297,564 | ||||||
Tiffany & Co. | 3,870 | 299,654 | ||||||
Tractor Supply Co. | 4,249 | 322,117 | ||||||
Ulta Salon, Cosmetics & Fragrance, Inc.(b) | 1,311 | 334,226 | ||||||
1,542,751 | ||||||||
Steel–0.18% | ||||||||
Nucor Corp. | 5,034 | 299,624 | ||||||
Systems Software–0.97% | ||||||||
CA, Inc. | 10,389 | 330,058 | ||||||
Microsoft Corp. | 5,311 | 330,026 | ||||||
Oracle Corp. | 8,122 | 312,291 | ||||||
Red Hat, Inc.(b) | 4,168 | 290,510 | ||||||
Symantec Corp. | 13,261 | 316,805 | ||||||
1,579,690 |
Shares | Value | |||||||
Technology Hardware, Storage & Peripherals–1.18% | ||||||||
Apple Inc. | 2,887 | $ | 334,372 | |||||
Hewlett Packard Enterprise Co. | 13,428 | 310,724 | ||||||
HP Inc. | 20,857 | 309,518 | ||||||
NetApp, Inc. | 9,039 | 318,806 | ||||||
Seagate Technology PLC | 8,344 | 318,490 | ||||||
Western Digital Corp. | 4,860 | 330,237 | ||||||
1,922,147 | ||||||||
Tires & Rubber–0.19% | ||||||||
Goodyear Tire & Rubber Co. (The) | 10,227 | 315,707 | ||||||
Tobacco–0.62% | ||||||||
Altria Group, Inc. | 4,966 | 335,801 | ||||||
Philip Morris International Inc. | 3,646 | 333,572 | ||||||
Reynolds American Inc. | 5,966 | 334,335 | ||||||
1,003,708 | ||||||||
Trading Companies & Distributors–0.59% | ||||||||
Fastenal Co. | 6,715 | 315,471 | ||||||
United Rentals, Inc.(b) | 3,046 | 321,597 | ||||||
W.W. Grainger, Inc. | 1,373 | 318,879 | ||||||
955,947 | ||||||||
Trucking–0.38% | ||||||||
J.B. Hunt Transport Services, Inc. | 3,314 | 321,690 | ||||||
Ryder System, Inc. | 4,001 | 297,834 | ||||||
619,524 | ||||||||
Water Utilities–0.20% | ||||||||
American Water Works Co., Inc. | 4,507 | 326,127 | ||||||
Total Common Stocks & Other Equity Interests |
| 161,176,086 | ||||||
Money Market Funds–1.16% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(e) | 1,132,568 | 1,132,568 | ||||||
Treasury Portfolio–Institutional Class, 0.37%(e) | 755,046 | 755,046 | ||||||
Total Money Market Funds | 1,887,614 | |||||||
TOTAL INVESTMENTS–99.95% |
| 163,063,700 | ||||||
OTHER ASSETS LESS LIABILITIES–0.05% |
| 74,707 | ||||||
NET ASSETS–100.00% |
| $ | 163,138,407 |
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. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $115,399,163) | $ | 160,871,563 | ||
Investments in affiliates, at value (Cost $2,108,213) | 2,192,137 | |||
Total investments, at value (Cost $117,507,376) | 163,063,700 | |||
Receivable for: | ||||
Investments sold | 6,804 | |||
Fund shares sold | 31,103 | |||
Dividends | 225,555 | |||
Investment for trustee deferred compensation and retirement plans | 29,160 | |||
Total assets | 163,356,322 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 48,846 | |||
Variation margin — futures contracts | 8,479 | |||
Accrued fees to affiliates | 94,584 | |||
Accrued trustees’ and officers’ fees and benefits | 157 | |||
Accrued other operating expenses | 34,682 | |||
Trustee deferred compensation and retirement plans | 31,167 | |||
Total liabilities | 217,915 | |||
Net assets applicable to shares outstanding | $ | 163,138,407 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 112,888,323 | ||
Undistributed net investment income | 1,611,575 | |||
Undistributed net realized gain | 3,108,667 | |||
Net unrealized appreciation | 45,529,842 | |||
$ | 163,138,407 | |||
Net Assets: |
| |||
Series I | $ | 114,201,915 | ||
Series II | $ | 48,936,492 | ||
Shares outstanding, no par value, with an |
| |||
Series I | 6,623,565 | |||
Series II | 2,910,043 | |||
Series I: | ||||
Net asset value per share | $ | 17.24 | ||
Series II: | ||||
Net asset value per share | $ | 16.82 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $270) | $ | 2,152,851 | ||
Dividends from affiliates | 18,186 | |||
Total investment income | 2,171,037 | |||
Expenses: | ||||
Advisory fees | 133,902 | |||
Administrative services fees | 181,311 | |||
Custodian fees | 19,711 | |||
Distribution fees — Series II | 105,397 | |||
Transfer agent fees | 4,529 | |||
Trustees’ and officers’ fees and benefits | 20,625 | |||
Licensing Fees | 15,000 | |||
Reports to shareholders | 8,285 | |||
Professional services fees | 37,348 | |||
Other | 10,832 | |||
Total expenses | 536,940 | |||
Less: Fees waived | (3,548 | ) | ||
Net expenses | 533,392 | |||
Net investment income | 1,637,645 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 4,228,983 | |||
Futures contracts | 137,631 | |||
4,366,614 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 11,031,232 | |||
Futures contracts | (25,888 | ) | ||
11,005,344 | ||||
Net realized and unrealized gain | 15,371,958 | |||
Net increase in net assets resulting from operations | $ | 17,009,603 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,637,645 | $ | 881,507 | ||||
Net realized gain | 4,366,614 | 6,046,611 | ||||||
Change in net unrealized appreciation (depreciation) | 11,005,344 | (8,879,331 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 17,009,603 | (1,951,213 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (658,672 | ) | (415,027 | ) | ||||
Series ll | (175,080 | ) | (486,441 | ) | ||||
Total distributions from net investment income | (833,752 | ) | (901,468 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (4,417,395 | ) | (4,799,257 | ) | ||||
Series ll | (1,836,209 | ) | (6,706,618 | ) | ||||
Total distributions from net realized gains | (6,253,604 | ) | (11,505,875 | ) | ||||
Share transactions–net: | ||||||||
Series l | 79,882,936 | 44,787 | ||||||
Series ll | 6,716,713 | 9,847,549 | ||||||
Net increase in net assets resulting from share transactions | 86,599,649 | 9,892,336 | ||||||
Net increase (decrease) in net assets | 96,521,896 | (4,466,220 | ) | |||||
Net assets: | ||||||||
Beginning of year | 66,616,511 | 71,082,731 | ||||||
End of year (includes undistributed net investment income of $1,611,575 and $806,600, respectively) | $ | 163,138,407 | $ | 66,616,511 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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 asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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 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, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $3,548.
Invesco V.I. Equally-Weighted S&P 500 Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $50,000 for accounting and fund administrative services and was reimbursed $131,311 for fees paid to 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, 2016, 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, 2016, 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, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interests | $ | 161,176,086 | $ | — | $ | — | $ | 161,176,086 | ||||||||
Money Market Funds | 1,887,614 | 1,887,614 | ||||||||||||||
163,063,700 | — | — | 163,063,700 | |||||||||||||
Futures Contracts* | $ | (26,482 | ) | $ | — | $ | — | $ | (26,482 | ) | ||||||
Total Investments | 163,037,218 | 163,037,218 |
* | 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, 2016.
Value 12/31/15 | Purchases at Cost | Proceeds from Sales | Change in Unrealized Appreciation | Realized Gain (Loss) | Value 12/31/16 | Dividend Income | ||||||||||||||||||||||
Invesco Ltd. | $ | 138,708 | $ | 169,160 | $ | (21,438 | ) | $ | 20,775 | $ | (2,682 | ) | $ | 304,523 | $ | 7,992 |
NOTE 5—Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
Invesco V.I. Equally-Weighted S&P 500 Fund
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
Value of Derivative Investments at Period-End
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 | 18 | March-2017 | $ | 2,012,580 | $ | (26,482 | ) |
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of December 31, 2016:
Value | ||||
Derivative Liabilities | Equity Risk | |||
Unrealized depreciation on futures contracts — Exchange-Traded(a) | $ | (26,482 | ) | |
Derivatives not subject to master netting agreements | 26,482 | |||
Total Derivative Liabilities subject to master netting agreements | $ | — |
(a) | Includes cumulative appreciation (depreciation) on 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, 2016
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 | ||||
Equity Risk | ||||
Realized Gain: | ||||
Futures contracts | $ | 137,631 | ||
Change in Net Unrealized Appreciation (Depreciation): | ||||
Futures contracts | (25,888 | ) | ||
Total | $ | 111,743 |
The table below summarizes the average notional value of futures contracts outstanding during the period.
Futures Contracts | ||||
Average notional value | $ | 1,588,705 |
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. Equally-Weighted S&P 500 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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 985,991 | $ | 1,474,899 | ||||
Long-term capital gain | 6,101,365 | 10,932,444 | ||||||
Total distributions | $ | 7,087,356 | $ | 12,407,343 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 3,668,542 | ||
Undistributed long-term gain | 2,157,501 | |||
Net unrealized appreciation — investments | 44,454,216 | |||
Temporary book/tax differences | (30,175 | ) | ||
Shares of beneficial interest | 112,888,323 | |||
Total net assets | $ | 163,138,407 |
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, 2016.
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, 2016 was $104,962,899 and $24,979,907, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 45,889,482 | ||
Aggregate unrealized (depreciation) of investment securities | (1,435,266 | ) | ||
Net unrealized appreciation of investment securities | $ | 44,454,216 |
Cost of investments for tax purposes is $118,609,484.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of fair fund adjustments, on December 31, 2016, undistributed net investment income was increased by $1,082 and undistributed net realized gain was decreased by $1,082. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Equally-Weighted S&P 500 Fund
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 5,223,200 | $ | 86,064,568 | 22,265 | $ | 427,843 | ||||||||||
Series II | 812,311 | 13,189,348 | 555,119 | 10,442,759 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 305,052 | 5,076,067 | 343,497 | 5,214,284 | ||||||||||||
Series II | 123,848 | 2,011,289 | 485,034 | 7,193,059 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (674,054 | ) | (11,257,699 | ) | (291,860 | ) | (5,597,340 | ) | ||||||||
Series II | (529,053 | ) | (8,483,924 | ) | (435,493 | ) | (7,788,269 | ) | ||||||||
Net increase in share activity | 5,261,304 | $ | 86,599,649 | 678,562 | $ | 9,892,336 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 93% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
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 12/31/16 | $ | 15.81 | $ | 0.26 | $ | 1.96 | $ | 2.22 | $ | (0.10 | ) | $ | (0.69 | ) | $ | (0.79 | ) | $ | 17.24 | 14.24 | % | $ | 114,202 | 0.39 | %(d) | 0.39 | %(d) | 1.56 | %(d) | 22 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 19.98 | 0.26 | (0.94 | ) | (0.68 | ) | (0.28 | ) | (3.21 | ) | (3.49 | ) | 15.81 | (2.68 | ) | 27,974 | 0.55 | 0.55 | 1.38 | 25 | ||||||||||||||||||||||||||||||||||||
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 | 0.59 | 1.34 | 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 | |||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 15.44 | 0.21 | 1.93 | 2.14 | (0.07 | ) | (0.69 | ) | (0.76 | ) | 16.82 | 14.01 | 48,936 | 0.64 | (d) | 0.64 | (d) | 1.31 | (d) | 22 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 19.60 | 0.21 | (0.92 | ) | (0.71 | ) | (0.24 | ) | (3.21 | ) | (3.45 | ) | 15.44 | (2.92 | ) | 38,643 | 0.80 | 0.80 | 1.13 | 25 | ||||||||||||||||||||||||||||||||||||
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 | 0.84 | 1.09 | 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 |
(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 $69,426 and $42,159 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 the 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 the Invesco V.I. Equally-Weighted S&P 500 Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,083.50 | $ | 1.62 | $ | 1,023.58 | $ | 1.58 | 0.31 | % | ||||||||||||
Series II | 1,000.00 | 1,081.90 | 2.93 | 1,022.32 | 2.85 | 0.56 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 6,101,365 | ||
Corporate Dividends Received Deduction* | 99.33 | % | ||
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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
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, 2016, Series I shares of Invesco V.I. Equity and Income Fund (the Fund) underperformed the Russell 1000 Value Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 15.12 | % | |||
Series II Shares | 14.84 | ||||
Russell 1000 Value Index▼ (Broad Market Index) | 17.34 | ||||
Bloomberg Barclays U.S. Government/Credit Index▼ (Style-Specific Index) | 3.05 | ||||
Lipper VUF Mixed-Asset Target Allocation Growth Funds Index∎ (Peer Group Index) | 6.87 |
Source(s): ▼FactSet Research Systems Inc.; ∎Lipper Inc.
Market conditions and your Fund
Stocks began calendar year 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets sharply lower. Markets again recovered, and major US equity indexes hit record highs during the summer. Following the surprise outcome of the US presidential election, a stock market rally sent major US equity market indexes to new record highs. This rally was led by financials, which gained on the belief that they might benefit from higher interest rates and lower taxes. Also in November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 – its only increase during the reporting period.1
For the reporting period, most US equity market indexes delivered gains, with value stocks, as a group, outperforming growth stocks by a large margin, regardless of market-cap. All sectors within the Russell 1000 Value Index had positive performance, with materials, energy,
telecommunication services, industrials and financials posting returns of over 20% for the period.
Strong stock selection in and overweight exposure to the financials sector were the largest contributors to the Fund’s relative performance for the reporting period. Specifically, within banks and diversified financials, the portfolio’s top contributors included Bank of America, JP Morgan Chase, Comerica, Morgan Stanley and Citizens Financial Group. These companies benefited from the strong rally in financials stocks following the US presidential election results, as investor optimism on future interest rates and the economy fueled returns.
Stock selection in and an underweight exposure to the consumer staples sector also contributed to the Fund’s relative performance. ADM and Sysco were key contributors. ADM moved higher throughout the year as expectations for improvement in grain shipment volumes increased. We sold our positions in ADM and Sysco by the close of the reporting period.
Having no exposure to the real estate sector also enhanced the Fund’s relative returns. Although real estate posted positive returns for the year, it was a bottom-performing sector within the Russell 1000 Value Index. The Fund has remained materially underweight in this
sector because we believe it to be over-valued, as investors have driven up stock prices in a quest for yield in a low-interest rate environment.
Stock selection within the telecommunication services sector hurt relative performance. UK-based Vodafone Group was a large detractor within the sector. Vodafone underperformed as earnings expectations were lowered. Also, not owning AT&T hurt performance as the stock performed well for the year.
Weak stock selection within the health care sector detracted from the Fund’s relative return. Much of the Fund’s under-performance within the sector was attributable to its pharmaceutical holdings, such as Eli Lilly, Novartis, and Teva Pharmaceuticals. Eli Lilly’s stock declined after it was reported that its Alzheimer’s drug would not be approved by the FDA. Teva’s stock declined after company management announced a delay in the acquisition of a generic drug maker.
An underweight allocation in the materials sector also dampened the Fund’s relative return, mainly from having very little exposure to metals and mining companies that posted outsized performance in 2016, as metal prices recovered from the prior year’s weakness.
During the reporting period, the Fund’s allocation to high grade bonds was a valuable source of income that helped to dampen portfolio volatility. However, these instruments detracted from Fund performance versus the Russell 1000 Value Index, as bonds underperformed equities during the reporting period. Similarly, the Fund’s allocation to convertible securities posted double-digit returns on an absolute basis, but detracted from relative performance as convertibles underperformed the Russell 1000 Index.
We used currency forward contracts for the purpose of hedging currency exposure of non-US-based companies held in the portfolio. Derivatives were used solely
Portfolio Composition | |||||
By security type | % of total net assets |
Common Stocks & Other Equity Interests | 65.4 | % | |||
Bonds and Notes | 18.6 | ||||
U.S. Treasury Securities | 9.9 | ||||
Security Types Each Less than 1% of Portfolio | 1.0 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 5.1 |
Top 10 Equity Holdings* | |||||
% of total net assets |
1. Citigroup Inc. | 3.4 | % | |||
2. JPMorgan Chase & Co. | 3.0 | ||||
3. Bank of America Corp. | 2.7 | ||||
4. Morgan Stanley | 2.0 | ||||
5. Apache Corp. | 1.7 | ||||
6. Citizens Financial Group, Inc. | 1.7 | ||||
7. Devon Energy Corp. | 1.5 | ||||
8. Royal Dutch Shell PLC- Class A | 1.4 | ||||
9. Walgreens Boots Alliance, Inc. | 1.4 | ||||
10. Baker Hughes Inc. | 1.3 |
Total Net Assets | $ | 1.5 billion |
Total Number of Holdings* | 401 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. Equity and Income Fund
for the purpose of hedging and not for speculative purposes or leverage. The use of currency forward contracts had a positive impact on the Fund’s performance relative to the Russell 1000 Value Index benchmark for the reporting period, largely due to the strength of the US dollar compared to the foreign currencies in which the Fund’s non-US holdings were denominated.
During the reporting period, we increased our exposure to the energy and materials sectors, and we reduced exposure to the consumer staples and health care sectors. At the end of the period, the Fund’s largest overweight exposures relative to the Russell 1000 Value Index were in the financials and consumer discretionary sectors, while the largest underweight exposures were in the real estate and utilities sectors.
Equity markets were positive during the reporting period, but had significant volatility at times as macroeconomic events generally overshadowed company fundamentals in investors’ minds. 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 may 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.
1 | Source: US Federal Reserve |
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 the 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. | ||
Brian Jurkash Portfolio Manager, is manager of Invesco V.I. Equity and Income Fund. He joined Invesco in 2000. Mr. Jurkash | ||
earned a BBA degree in finance from Stephen F. Austin State University and an MBA in finance from the University of Houston. | ||
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. | ||
Matthew Titus Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Equity and Income Fund. He joined | ||
Invesco in 2016. Mr. Titus earned a bachelor’s degree in accounting and economics from Luther College in Decorah, Iowa, and an MBA from Ohio State University. |
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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
10 Years | 6.48 | % | |||
5 Years | 11.57 | ||||
1 Year | 15.12 | ||||
Series II Shares | |||||
Inception (4/30/03) | 8.16 | % | |||
10 Years | 6.34 | ||||
5 Years | 11.30 | ||||
1 Year | 14.84 |
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, prior to June 1, 2010, 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.
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 0.57% and 0.82%, 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 0.58% and 0.83%, 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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, 2018. See current prospectus for more information. |
Invesco V.I. Equity and Income Fund
Invesco V.I. Equity and Income Fund’s investment objective are both capital appreciation and current income.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Active trading risk. Active trading of portfolio securities may result in added expenses, a lower return and increased tax liability.
Changing fixed income market conditions risk. The current 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 near, at or below zero. Increases 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 market values of convertible securities are affected by market interest rates, the risk of actual issuer default on interest or principal payments and the value of the underlying common stock into which the convertible security may be converted. Additionally, a convertible security is subject to the same types of market and issuer risks as apply to the underlying common stock. In addition, certain convertible securities are subject to involuntary conversions and may undergo principal write-downs upon the occurrence of certain triggering events, and, as a result, are subject to an increased risk of loss.
Debt securities risk. The prices of debt securities held by the Fund will be affected by changes in interest rates, the creditworthiness of the issuer and other factors. An increase in prevailing interest rates typically causes the value of existing debt securities to fall and often has a greater impact on longer-duration debt securities and higher quality debt securities. Falling interest rates will cause the Fund to reinvest the proceeds of debt securities that have been repaid by the issuer at lower interest rates. Falling interest
rates may also reduce the Fund’s distributable income because interest payments on floating rate debt instruments held by the Fund will decline. The Fund could lose money on investments in debt securities if the issuer or borrower fails to meet its obligations to make interest payments and/or to repay principal in a timely manner. Changes in an issuer’s financial strength, the market’s perception of such strength or in the credit rating of the issuer or the security may affect the value of debt securities. The Adviser’s credit analysis may fail to anticipate such changes, which could result in buying a debt security at an inopportune time or failing to sell a debt security in advance of a price decline or other credit event.
Depositary receipts risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. The Fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer.
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 adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual
Invesco V.I. Equity and Income Fund
stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Preferred securities risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities. Preferred securities also may be subordinated to bonds or other debt instruments, subjecting them to a greater risk of non-payment, may be less liquid than many other securities, such as common stocks, and generally offer no voting rights with respect to the issuer.
REIT risk/real estate risk. or technological factors that affect property values, rents or occupancies of real estate related to the Fund’s holdings. Shares of real estate related companies, which tend to be small- and mid-cap companies, may be more volatile and less liquid.
Small- and mid-capitalization companies risks. Small- and mid-capitalization companies tend to be more vulnerable to changing market conditions, may have little or no operating history or track record of success, and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
Value investing style risk. A value investing style subjects the Fund 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.
About indexes used in this report
The Bloomberg Barclays U.S. Government/Credit Index is a broad-based benchmark that includes investment-grade, US dollar-denominated, fixed-rate Treasuries, government-related and corporate securities.
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 Mixed-Asset Target Allocation Growth Funds Index is an unmanaged index considered representative of mixed-asset target allocation 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. Equity and Income Fund
Schedule of Investments(a)
December 31, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–65.41% |
| |||||||
Aerospace & Defense–0.96% | ||||||||
General Dynamics Corp. | 81,783 | $ | 14,120,653 | |||||
Apparel, Accessories & Luxury Goods–0.51% | ||||||||
Michael Kors Holdings Ltd.(b) | 173,641 | 7,463,090 | ||||||
Application Software–0.53% | ||||||||
Citrix Systems, Inc.(b) | 87,516 | 7,816,054 | ||||||
Asset Management & Custody Banks–1.85% | ||||||||
Northern Trust Corp. | 134,369 | 11,965,560 | ||||||
State Street Corp. | 195,870 | 15,223,016 | ||||||
27,188,576 | ||||||||
Automobile Manufacturers–0.77% | ||||||||
General Motors Co. | 325,414 | 11,337,424 | ||||||
Biotechnology–0.58% | ||||||||
Amgen Inc. | �� | 58,528 | 8,557,379 | |||||
Broadcasting–0.22% | ||||||||
CBS Corp.–Class B | 50,905 | 3,238,576 | ||||||
Building Products–0.61% | ||||||||
Johnson Controls International PLC | 219,506 | 9,041,452 | ||||||
Cable & Satellite–1.59% | ||||||||
Charter Communications, Inc.–Class A(b) | 31,621 | 9,104,318 | ||||||
Comcast Corp.–Class A | 207,957 | 14,359,431 | ||||||
23,463,749 | ||||||||
Communications Equipment–2.02% | ||||||||
Cisco Systems, Inc. | 523,674 | 15,825,428 | ||||||
Juniper Networks, Inc. | 494,689 | 13,979,911 | ||||||
29,805,339 | ||||||||
Construction Machinery & Heavy Trucks–0.89% | ||||||||
Caterpillar Inc. | 141,818 | 13,152,201 | ||||||
Data Processing & Outsourced Services–0.54% | ||||||||
PayPal Holdings, Inc.(b) | 200,735 | 7,923,011 | ||||||
Diversified Banks–9.97% | ||||||||
Bank of America Corp. | 1,817,290 | 40,162,109 | ||||||
Citigroup Inc. | 847,832 | 50,386,656 | ||||||
Comerica Inc. | 188,466 | 12,836,419 | ||||||
JPMorgan Chase & Co. | 502,987 | 43,402,748 | ||||||
146,787,932 | ||||||||
Diversified Metals & Mining–0.50% | ||||||||
BHP Billiton Ltd. (Australia) | 412,508 | 7,363,760 | ||||||
Drug Retail–1.35% | ||||||||
Walgreens Boots Alliance, Inc. | 239,919 | 19,855,696 |
Shares | Value | |||||||
Electric Utilities–0.84% | ||||||||
FirstEnergy Corp. | 145,332 | $ | 4,500,932 | |||||
PG&E Corp. | 128,966 | 7,837,264 | ||||||
12,338,196 | ||||||||
Fertilizers & Agricultural Chemicals–1.41% | ||||||||
Agrium Inc. (Canada) | 68,783 | 6,916,131 | ||||||
Mosaic Co. (The) | 472,556 | 13,860,067 | ||||||
20,776,198 | ||||||||
Financial Exchanges & Data–0.28% | ||||||||
CME Group Inc.–Class A | 36,393 | 4,197,933 | ||||||
Health Care Equipment–1.38% | ||||||||
Baxter International Inc. | 206,081 | 9,137,631 | ||||||
Medtronic PLC | 156,060 | 11,116,154 | ||||||
20,253,785 | ||||||||
Health Care Services–0.42% | ||||||||
Express Scripts Holding Co.(b) | 89,731 | 6,172,596 | ||||||
Home Improvement Retail–0.50% | ||||||||
Kingfisher PLC (United Kingdom) | 1,722,756 | 7,420,637 | ||||||
Hotels, Resorts & Cruise Lines–1.24% | ||||||||
Carnival Corp. | 350,859 | 18,265,720 | ||||||
Industrial Conglomerates–1.18% | ||||||||
General Electric Co. | 548,924 | 17,345,998 | ||||||
Industrial Machinery–0.71% | ||||||||
Ingersoll-Rand PLC | 139,174 | 10,443,617 | ||||||
Insurance Brokers–1.88% | ||||||||
Aon PLC | 107,449 | 11,983,787 | ||||||
Marsh & McLennan Cos., Inc. | 111,561 | 7,540,408 | ||||||
Willis Towers Watson PLC | 66,268 | 8,103,251 | ||||||
27,627,446 | ||||||||
Integrated Oil & Gas–3.38% | ||||||||
Exxon Mobil Corp. | 97,424 | 8,793,490 | ||||||
Occidental Petroleum Corp. | 133,704 | 9,523,736 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 738,843 | 20,363,561 | ||||||
TOTAL S.A. (France) | 215,735 | 11,011,731 | ||||||
49,692,518 | ||||||||
Integrated Telecommunication Services–0.70% | ||||||||
Orange S.A. (France) | 145,602 | 2,209,414 | ||||||
Verizon Communications Inc. | 152,418 | 8,136,073 | ||||||
10,345,487 | ||||||||
Internet Software & Services–0.82% | ||||||||
eBay Inc.(b) | 406,489 | 12,068,658 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Shares | Value | |||||||
Investment Banking & Brokerage–3.74% | ||||||||
Charles Schwab Corp. (The) | 290,871 | $ | 11,480,678 | |||||
Goldman Sachs Group, Inc. (The) | 57,075 | 13,666,609 | ||||||
Morgan Stanley | 709,022 | 29,956,180 | ||||||
55,103,467 | ||||||||
IT Consulting & Other Services–0.35% | ||||||||
Cognizant Technology Solutions Corp.– | 90,857 | 5,090,718 | ||||||
Managed Health Care–0.50% | ||||||||
Anthem, Inc. | 51,658 | 7,426,871 | ||||||
Movies & Entertainment–0.57% | ||||||||
Time Warner Inc. | 86,506 | 8,350,424 | ||||||
Oil & Gas Equipment & Services–1.33% | ||||||||
Baker Hughes Inc. | 300,416 | 19,518,028 | ||||||
Oil & Gas Exploration & Production–4.30% | ||||||||
Apache Corp. | 393,331 | 24,964,718 | ||||||
Canadian Natural Resources Ltd. (Canada) | 501,745 | 15,988,136 | ||||||
Devon Energy Corp. | 488,101 | 22,291,573 | ||||||
63,244,427 | ||||||||
Other Diversified Financial Services–0.50% | ||||||||
Voya Financial, Inc. | 189,014 | 7,413,129 | ||||||
Packaged Foods & Meats–0.74% | ||||||||
Mondelez International, Inc.–Class A | 246,292 | 10,918,124 | ||||||
Pharmaceuticals–4.18% | ||||||||
Eli Lilly and Co. | 88,632 | 6,518,884 | ||||||
Merck & Co., Inc. | 320,838 | 18,887,733 | ||||||
Novartis AG (Switzerland) | 134,937 | 9,818,659 | ||||||
Pfizer Inc. | 518,693 | 16,847,149 | ||||||
Sanofi (France) | 116,586 | 9,436,598 | ||||||
61,509,023 | ||||||||
Railroads–0.86% | ||||||||
CSX Corp. | 352,833 | 12,677,290 | ||||||
Regional Banks–5.29% | ||||||||
BB&T Corp. | 144,480 | 6,793,450 | ||||||
Citizens Financial Group, Inc. | 689,113 | 24,553,096 | ||||||
Fifth Third Bancorp | 661,090 | 17,829,597 | ||||||
First Horizon National Corp. | 472,972 | 9,464,170 | ||||||
PNC Financial Services Group, Inc. (The) | 164,263 | 19,212,200 | ||||||
77,852,513 | ||||||||
Semiconductor Equipment–0.70% | ||||||||
Applied Materials, Inc. | 321,107 | 10,362,123 | ||||||
Semiconductors–1.79% | ||||||||
Intel Corp. | 301,357 | 10,930,218 | ||||||
QUALCOMM, Inc. | 237,034 | 15,454,617 | ||||||
26,384,835 |
Shares | Value | |||||||
Systems Software–1.81% | ||||||||
Microsoft Corp. | 163,088 | $ | 10,134,288 | |||||
Oracle Corp. | 429,028 | 16,496,127 | ||||||
26,630,415 | ||||||||
Tobacco–0.69% | ||||||||
Philip Morris International Inc. | 110,335 | 10,094,549 | ||||||
Wireless Telecommunication Services–0.43% | ||||||||
Vodafone Group PLC–ADR | 258,864 | 6,324,048 | ||||||
Total Common Stocks & Other Equity Interests |
| 962,963,665 | ||||||
Principal Amount | ||||||||
Bonds and Notes–18.56% |
| |||||||
Advertising–0.03% | ||||||||
Interpublic Group of Cos., Inc. (The), Sr. Unsec. Global Notes, 2.25%, 11/15/2017 | $ | 370,000 | 371,481 | |||||
Aerospace & Defense–0.10% | ||||||||
BAE Systems Holdings Inc. (United Kingdom), Sr. Unsec. Gtd. Notes, | 288,000 | 288,579 | ||||||
Northrop Grumman Corp., Sr. Unsec. Global Notes, 3.85%, 04/15/2045 | 190,000 | 180,776 | ||||||
Precision Castparts Corp., Sr. Unsec. Global Notes, | 590,000 | 589,313 | ||||||
2.50%, 01/15/2023 | 365,000 | 358,867 | ||||||
1,417,535 | ||||||||
Agricultural & Farm Machinery–0.09% | ||||||||
Deere & Co., Sr. Unsec. Notes, 2.60%, 06/08/2022 | 1,275,000 | 1,265,460 | ||||||
Agricultural Products–0.02% | ||||||||
Ingredion Inc., Sr. Unsec. Notes, 6.63%, 04/15/2037 | 255,000 | 306,571 | ||||||
Air Freight & Logistics–0.12% | ||||||||
FedEx Corp., | ||||||||
Sr. Unsec. Gtd. Bonds, 4.90%, 01/15/2034 | 440,000 | 468,740 | ||||||
Sr. Unsec. Gtd. Notes, 5.10%, 01/15/2044 | 910,000 | 988,466 | ||||||
United Parcel Service, Inc., | 258,000 | 238,664 | ||||||
1,695,870 | ||||||||
Airlines–0.15% | ||||||||
American Airlines Pass Through Trust, Series 2014-1, Class A, Sr. Sec. First Lien Pass Through Ctfs., 3.70%, 04/01/2028 | 398,427 | 402,162 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Airlines–(continued) | ||||||||
Continental Airlines Pass Through Trust, | $ | 218,264 | $ | 230,678 | ||||
Series 2012-1, Class A, | 422,145 | 436,128 | ||||||
Delta Air Lines Pass Through Trust, Series 2010-1, Class A, Sr. Sec. First Lien Pass Through Ctfs., 6.20%, 01/02/2020 | 120,118 | 126,305 | ||||||
United Airlines Pass Through Trust, Series 2014-2, Class A, Sr. Sec. First Lien Pass Through Ctfs., 3.75%, 09/03/2026 | 513,566 | 517,739 | ||||||
Virgin Australia Pass Through Trust (Australia), Series 2013-1, Class A, Sec. Gtd. Pass Through Ctfs., 5.00%, 04/23/2025(c) | 419,974 | 431,785 | ||||||
2,144,797 | ||||||||
Apparel Retail–0.02% | ||||||||
Ross Stores, Inc., Sr. Unsec. Notes, 3.38%, 09/15/2024 | 358,000 | 359,926 | ||||||
Application Software–0.37% | ||||||||
Citrix Systems, Inc., Sr. Unsec. Conv. Bonds, 0.50%, 04/15/2019 | 3,817,000 | 4,437,263 | ||||||
Nuance Communications, Inc., | 1,171,000 | 1,063,414 | ||||||
5,500,677 | ||||||||
Asset Management & Custody Banks–0.14% | ||||||||
Apollo Management Holdings L.P., | ||||||||
Sr. Unsec. Gtd. Notes, | 425,000 | 423,364 | ||||||
4.40%, 05/27/2026(c) | 838,000 | 839,287 | ||||||
Brookfield Asset Management Inc. (Canada), Sr. Unsec. Notes, 4.00%, 01/15/2025 | 460,000 | 448,124 | ||||||
KKR Group Finance Co. III LLC, | 315,000 | 300,222 | ||||||
2,010,997 | ||||||||
Automobile Manufacturers–0.27% | ||||||||
Daimler Finance North America LLC (Germany), Sr. Unsec. Gtd. Notes, 1.88%, 01/11/2018(c) | 555,000 | 555,726 | ||||||
Ford Motor Credit Co. LLC, Sr. Unsec. Global Notes, | 1,445,000 | 1,443,938 | ||||||
3.10%, 05/04/2023 | 267,000 | 257,597 | ||||||
4.13%, 08/04/2025 | 687,000 | 690,648 | ||||||
General Motors Co., Sr. Unsec. Global Notes, 6.60%, 04/01/2036 | 397,000 | 449,544 | ||||||
General Motors Financial Co., Inc., Sr. Unsec. Gtd. Global Notes, 5.25%, 03/01/2026 | 503,000 | 524,318 | ||||||
3,921,771 |
Principal Amount | Value | |||||||
Automotive Retail–0.08% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, | $ | 660,000 | $ | 685,176 | ||||
5.75%, 05/01/2020 | 399,000 | 427,951 | ||||||
1,113,127 | ||||||||
Biotechnology–0.40% | ||||||||
AbbVie Inc., Sr. Unsec. Global Notes, 4.50%, 05/14/2035 | 720,000 | 709,983 | ||||||
BioMarin Pharmaceutical Inc., Sr. Unsec. Sub. Conv. Notes, 1.50%, 10/15/2020 | 2,388,000 | 2,810,377 | ||||||
Celgene Corp., Sr. Unsec. | 485,000 | 501,947 | ||||||
4.63%, 05/15/2044 | 1,390,000 | 1,364,990 | ||||||
Gilead Sciences, Inc., Sr. Unsec. Global Notes, 4.40%, 12/01/2021 | 492,000 | 529,493 | ||||||
5,916,790 | ||||||||
Brewers–0.29% | ||||||||
Anheuser-Busch InBev Finance, Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, | 625,000 | 627,898 | ||||||
3.30%, 02/01/2023 | 593,000 | 603,963 | ||||||
4.70%, 02/01/2036 | 1,005,000 | 1,059,246 | ||||||
4.90%, 02/01/2046 | 1,122,000 | 1,216,840 | ||||||
Molson Coors Brewing Co., Sr. Unsec. Gtd. Global Notes, | 341,000 | 335,927 | ||||||
4.20%, 07/15/2046 | 395,000 | 369,450 | ||||||
4,213,324 | ||||||||
Broadcasting–0.55% | ||||||||
Liberty Media Corp., | ||||||||
Sr. Unsec. Conv. Deb., | 1,538,000 | 1,628,358 | ||||||
REGS, Sr. Unsec. Conv. Notes, 1.38%, 10/15/2023(c) | 6,063,000 | 6,540,461 | ||||||
8,168,819 | ||||||||
Cable & Satellite–0.46% | ||||||||
Charter Communications Operating, LLC/Charter Communications Operating Capital Corp., Sr. Sec. Gtd. First Lien Global Notes, 4.46%, 07/23/2022 | 1,065,000 | 1,118,052 | ||||||
Comcast Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, | 445,000 | 469,772 | ||||||
Sr. Unsec. Gtd. Notes, | 305,000 | 392,270 | ||||||
Cox Communications, Inc., Sr. Unsec. Notes, 8.38%, 03/01/2039(c) | 80,000 | 99,640 | ||||||
Dish Network Corp., Sr. Unsec. Conv. Notes, 3.38%, 08/15/2026(c) | 3,749,000 | 4,285,576 |
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–(continued) | ||||||||
NBCUniversal Media LLC, Sr. Unsec. Gtd. Global Notes, | $ | 175,000 | $ | 191,615 | ||||
5.95%, 04/01/2041 | 215,000 | 263,513 | ||||||
6,820,438 | ||||||||
Commodity Chemicals–0.07% | ||||||||
Basell Finance Co. B.V. (Netherlands), Sr. Unsec. Gtd. Deb., | 745,000 | 977,459 | ||||||
Communications Equipment–0.47% | ||||||||
Ciena Corp., Sr. Unsec. Conv. Notes, 4.00%, 12/15/2020(c) | 1,610,000 | 2,254,000 | ||||||
Finisar Corp., Sr. Unsec. Conv. Notes, 0.50%, 12/15/2021(c)(d) | 1,114,000 | 1,125,836 | ||||||
Viavi Solutions Inc., Sr. Unsec. Conv. Deb., 0.63%, 08/15/2018(d) | 3,377,000 | 3,507,859 | ||||||
6,887,695 | ||||||||
Construction & Engineering–0.09% | ||||||||
Valmont Industries, Inc., Sr. Unsec. Gtd. Global Notes, | 250,000 | 219,358 | ||||||
5.25%, 10/01/2054 | 1,321,000 | 1,151,915 | ||||||
1,371,273 | ||||||||
Construction Machinery & Heavy Trucks–0.12% | ||||||||
Caterpillar Financial Services Corp., Sr. Unsec. Notes, 1.75%, 03/24/2017 | 1,815,000 | 1,817,850 | ||||||
Consumer Finance–0.02% | ||||||||
American Express Co., Unsec. Sub. Global Notes, 3.63%, 12/05/2024 | 336,000 | 338,650 | ||||||
Data Processing & Outsourced Services–0.28% | ||||||||
Blackhawk Network Holdings, Inc., Sr. Unsec. Conv. Notes, 1.50%, 01/15/2022(c) | 3,275,000 | 3,373,250 | ||||||
Visa Inc., Sr. Unsec. Global Notes, 4.15%, 12/14/2035 | 670,000 | 700,844 | ||||||
4,074,094 | ||||||||
Diversified Banks–1.42% | ||||||||
Australia and New Zealand Banking Group Ltd. (Australia), Sr. Unsec. Medium-Term Global Notes, 2.30%, 06/01/2021 | 713,000 | 701,640 | ||||||
Bank of America Corp., | ||||||||
Sr. Unsec. Global Notes, | 975,000 | 1,010,457 | ||||||
Sr. Unsec. Medium-Term Global Notes, | 615,000 | 607,059 | ||||||
5.65%, 05/01/2018 | 350,000 | 367,639 | ||||||
Sr. Unsec. Medium-Term Notes, | 565,000 | 540,246 |
Principal Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
BBVA Bancomer S.A. (Mexico), Sr. Unsec. Notes, 4.38%, 04/10/2024(c) | $ | 700,000 | $ | 703,865 | ||||
Citigroup Inc., | ||||||||
Unsec. Sub. Global Notes, | 250,000 | 269,250 | ||||||
6.68%, 09/13/2043 | 815,000 | 1,041,859 | ||||||
Unsec. Sub. Notes, | 375,000 | 375,778 | ||||||
HBOS PLC (United Kingdom), Unsec. Sub. Medium-Term Global Notes, 6.75%, 05/21/2018(c) | 325,000 | 342,675 | ||||||
JPMorgan Chase & Co., | ||||||||
Sr. Unsec. Global Notes, | 415,000 | 404,573 | ||||||
4.50%, 01/24/2022 | 80,000 | 86,271 | ||||||
Unsec. Sub. Global Notes, | 345,000 | 353,823 | ||||||
Series V, Jr. Unsec. Sub. Global Notes, 5.00%(e) | 640,000 | 641,600 | ||||||
Series Z, Jr. Unsec. Sub. Global Notes, 5.30%(e) | 695,000 | 712,375 | ||||||
Mizuho Financial Group Cayman 3 Ltd. (Japan), Unsec. Gtd. Sub. Notes, 4.60%, 03/27/2024(c) | 200,000 | 209,442 | ||||||
National Australia Bank Ltd. (Australia), | ||||||||
Sr. Unsec. Medium-Term Global Notes, 2.00%, 01/14/2019 | 930,000 | 930,699 | ||||||
Sr. Unsec. Notes, | 1,730,000 | 1,673,559 | ||||||
Nordea Bank AB (Sweden), Sr. Unsec. Notes, 2.25%, 05/27/2021(c) | 1,250,000 | 1,228,066 | ||||||
SMBC Aviation Capital Finance DAC (Ireland), Sr. Unsec. Gtd. Notes, 2.65%, 07/15/2021(c) | 315,000 | 303,805 | ||||||
Société Générale S.A. (France), | ||||||||
Sr. Unsec. Notes, | 890,000 | 890,276 | ||||||
Unsec. Sub. Notes, | 735,000 | 747,412 | ||||||
Standard Chartered PLC (United Kingdom), Sr. Unsec. Notes, 3.05%, 01/15/2021(c) | 680,000 | 680,365 | ||||||
Sumitomo Mitsui Banking Corp. (Japan), Sr. Unsec. Gtd. Medium-Term Global Notes, 2.65%, 07/23/2020 | 715,000 | 714,379 | ||||||
Svenska Handelsbanken AB (Sweden), Series BKNT, Sr. Unsec. Gtd. Medium-Term Notes, 1.88%, 09/07/2021 | 1,625,000 | 1,575,164 | ||||||
U.S. Bancorp, Series W, Unsec. Sub. Medium-Term Notes, 3.10%, 04/27/2026 | 295,000 | 286,947 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
Wells Fargo & Co., | ||||||||
Sr. Unsec. Medium-Term Global Notes, 1.50%, 01/16/2018 | $ | 180,000 | $ | 179,817 | ||||
Sr. Unsec. Medium-Term Notes, | 655,000 | 652,306 | ||||||
Sr. Unsec. Notes, | 1,060,000 | 1,000,636 | ||||||
Unsec. Sub. Medium-Term Notes, 4.10%, 06/03/2026 | 450,000 | 457,385 | ||||||
4.65%, 11/04/2044 | 1,200,000 | 1,190,424 | ||||||
20,879,792 | ||||||||
Diversified Capital Markets–0.05% | ||||||||
Credit Suisse AG (Switzerland), Unsec. Sub. Notes, 6.50%, 08/08/2023(c) | 686,000 | 730,674 | ||||||
Diversified Chemicals–0.05% | ||||||||
Eastman Chemical Co., Sr. Unsec. Global Notes, 2.70%, 01/15/2020 | 795,000 | 797,777 | ||||||
Diversified Metals & Mining–0.04% | ||||||||
Rio Tinto Finance USA Ltd. (United Kingdom), Sr. Unsec. Gtd. Global Notes, | ||||||||
7.13%, 07/15/2028 | 200,000 | 258,457 | ||||||
9.00%, 05/01/2019 | 295,000 | 340,761 | ||||||
599,218 | ||||||||
Diversified REIT’s–0.03% | ||||||||
Spirit Realty, L.P., Sr. Unsec. Gtd. Notes, 4.45%, 09/15/2026(c) | 504,000 | 473,079 | ||||||
Diversified Support Services–0.04% | ||||||||
Cintas Corp. No. 2, Sr. Unsec. Gtd. Notes, 6.13%, 12/01/2017 | 560,000 | 582,943 | ||||||
Drug Retail–0.18% | ||||||||
CVS Health Corp., Sr. Unsec. Global Bonds, 3.38%, 08/12/2024 | 375,000 | 375,997 | ||||||
CVS Pass Through Trust, Sr. Sec. First Lien Global Pass Through Ctfs., 6.04%, 12/10/2028 | 855,234 | 948,404 | ||||||
Walgreens Boots Alliance Inc., Sr. Unsec. Global Notes, | ||||||||
3.10%, 06/01/2023 | 293,000 | 290,893 | ||||||
3.30%, 11/18/2021 | 602,000 | 613,421 | ||||||
4.50%, 11/18/2034 | 444,000 | 445,457 | ||||||
2,674,172 | ||||||||
Electric Utilities–0.14% | ||||||||
Electricite de France S.A. (France), Jr. Unsec. Sub. Notes, 5.63%(c)(e) | 745,000 | 702,163 | ||||||
Sr. Unsec. Notes, | ||||||||
4.60%, 01/27/2020(c) | 150,000 | 159,063 | ||||||
4.88%, 01/22/2044(c) | 930,000 | 918,402 | ||||||
Ohio Power Co., Series M, Sr. Unsec. Notes, 5.38%, 10/01/2021 | 200,000 | 223,553 | ||||||
PPL Electric Utilities Corp., Sr. Sec. First Mortgage Bonds, 6.25%, 05/15/2039 | 50,000 | 64,883 | ||||||
2,068,064 |
Principal Amount | Value | |||||||
Electrical Components & Equipment–0.17% | ||||||||
Eaton Corp., Sr. Unsec. Gtd. Global Notes, 1.50%, 11/02/2017 | $ | 2,490,000 | $ | 2,492,643 | ||||
Environmental & Facilities Services–0.03% | ||||||||
Waste Management, Inc., Sr. Unsec. Gtd. Global Notes, 3.90%, 03/01/2035 | 469,000 | 465,797 | ||||||
Fertilizers & Agricultural Chemicals–0.02% | ||||||||
Monsanto Co., Sr. Unsec. Global Notes, 2.13%, 07/15/2019 | 305,000 | 304,314 | ||||||
Financial Exchanges & Data–0.07% | ||||||||
Moody’s Corp., Sr. Unsec. Global Notes, 4.50%, 09/01/2022 | 935,000 | 998,931 | ||||||
General Merchandise Stores–0.02% | ||||||||
Dollar General Corp., Sr. Unsec. Global Notes, 3.25%, 04/15/2023 | 365,000 | 361,614 | ||||||
Health Care Distributors–0.07% | ||||||||
McKesson Corp., Sr. Unsec. Global Notes, 2.28%, 03/15/2019 | 1,095,000 | 1,100,529 | ||||||
Health Care Equipment–0.66% | ||||||||
Becton, Dickinson and Co., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
4.88%, 05/15/2044 | 750,000 | 786,351 | ||||||
Sr. Unsec. Notes, | ||||||||
2.68%, 12/15/2019 | 274,000 | 278,184 | ||||||
Edwards Lifesciences Corp., Sr. Unsec. Global Notes, 2.88%, 10/15/2018 | 731,000 | 741,470 | ||||||
Medtronic, Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
3.15%, 03/15/2022 | 1,076,000 | 1,100,387 | ||||||
4.38%, 03/15/2035 | 358,000 | 378,420 | ||||||
4.63%, 03/15/2044 | 525,000 | 565,151 | ||||||
NuVasive, Inc., Sr. Unsec. Conv. Notes, 2.25%, 03/15/2021(c) | 1,880,000 | 2,395,825 | ||||||
Wright Medical Group N.V., Sr. Unsec. Conv. Notes, 2.25%, 11/15/2021(c) | 986,000 | 1,234,349 | ||||||
Wright Medical Group, Inc., Sr. Unsec. Conv. Bonds, 2.00%, 02/15/2020 | 2,203,000 | 2,306,265 | ||||||
9,786,402 | ||||||||
Health Care Facilities–0.46% | ||||||||
Brookdale Senior Living Inc., Sr. Unsec. Conv. Notes, 2.75%, 06/15/2018 | 2,401,000 | 2,345,477 | ||||||
HealthSouth Corp., Sr. Unsec. Sub. Conv. Notes, 2.00%, 12/01/2020(d) | 3,700,000 | 4,398,375 | ||||||
6,743,852 | ||||||||
Health Care REIT’s–0.08% | ||||||||
HCP, Inc., Sr. Unsec. Global Notes, | ||||||||
3.88%, 08/15/2024 | 505,000 | 502,029 | ||||||
4.20%, 03/01/2024 | 480,000 | 485,460 | ||||||
Ventas Realty L.P., Sr. Unsec. Gtd. Notes, 5.70%, 09/30/2043 | 215,000 | 244,563 | ||||||
1,232,052 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Health Care Services–0.10% | ||||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Global Notes, 2.25%, 06/15/2019 | $ | 575,000 | $ | 575,175 | ||||
Laboratory Corp. of America Holdings, | ||||||||
Sr. Unsec. Notes, | ||||||||
3.20%, 02/01/2022 | 602,000 | 605,101 | ||||||
4.70%, 02/01/2045 | 264,000 | 261,038 | ||||||
1,441,314 | ||||||||
Home Improvement Retail–0.04% | ||||||||
Home Depot, Inc. (The), Sr. Unsec. Global Notes, 2.00%, 04/01/2021 | 631,000 | 626,691 | ||||||
Homebuilding–0.06% | ||||||||
MDC Holdings, Inc., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/2043 | 1,050,000 | 884,625 | ||||||
Hotels, Resorts & Cruise Lines–0.02% | ||||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, 2.95%, 03/01/2017 | 335,000 | 335,461 | ||||||
Housewares & Specialties–0.05% | ||||||||
Newell Brands Inc., Sr. Unsec. Global Notes, 5.50%, 04/01/2046 | 222,000 | 255,393 | ||||||
Tupperware Brands Corp., Sr. Unsec. Gtd. Global Notes, 4.75%, 06/01/2021 | 475,000 | 507,855 | ||||||
763,248 | ||||||||
Hypermarkets & Super Centers–0.18% | ||||||||
Wal-Mart Stores, Inc., Sr. Unsec. Notes, 5.52%, 06/01/2017(d)(f) | 2,570,000 | 2,610,156 | ||||||
Integrated Oil & Gas–0.31% | ||||||||
Chevron Corp., Sr. Unsec. Global Notes, | ||||||||
1.37%, 03/02/2018 | 1,428,000 | 1,433,343 | ||||||
1.72%, 06/24/2018 | 520,000 | 524,132 | ||||||
Husky Energy Inc. (Canada), Sr. Unsec. Global Notes, 3.95%, 04/15/2022 | 300,000 | 310,753 | ||||||
Occidental Petroleum Corp., Sr. Unsec. Global Notes, 3.40%, 04/15/2026 | 365,000 | 367,745 | ||||||
Petróleos Mexicanos (Mexico), | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
4.88%, 01/24/2022 | 570,000 | 578,792 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
6.50%, 03/13/2027(c) | 105,000 | 108,766 | ||||||
Shell International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Notes, 4.00%, 05/10/2046 | 897,000 | 857,729 | ||||||
Suncor Energy Inc. (Canada), Sr. Unsec. Notes, 3.60%, 12/01/2024 | 334,000 | 340,103 | ||||||
4,521,363 |
Principal Amount | Value | |||||||
Integrated Telecommunication Services–0.49% | ||||||||
AT&T Inc., Sr. Unsec. Global Notes, | ||||||||
3.00%, 06/30/2022 | $ | 520,000 | $ | 510,456 | ||||
3.40%, 05/15/2025 | 289,000 | 277,869 | ||||||
3.80%, 03/15/2022 | 330,000 | 337,818 | ||||||
4.50%, 05/15/2035 | 463,000 | 448,196 | ||||||
4.80%, 06/15/2044 | 935,000 | 888,126 | ||||||
5.15%, 03/15/2042 | 90,000 | 89,832 | ||||||
5.35%, 09/01/2040 | 101,000 | 103,142 | ||||||
6.15%, 09/15/2034 | 140,000 | 151,310 | ||||||
British Telecommunications PLC (United Kingdom), Sr. Unsec. Global Notes, 1.25%, 02/14/2017 | 550,000 | 549,324 | ||||||
Telefonica Emisiones S.A.U. (Spain), Sr. Unsec. Gtd. Global Notes, 7.05%, 06/20/2036 | 360,000 | 418,155 | ||||||
Verizon Communications Inc., Sr. Unsec. Global Notes, | ||||||||
4.13%, 08/15/2046 | 83,000 | 75,251 | ||||||
4.40%, 11/01/2034 | 325,000 | 320,528 | ||||||
4.52%, 09/15/2048 | 1,988,000 | 1,900,609 | ||||||
5.01%, 08/21/2054 | 694,000 | 691,543 | ||||||
5.15%, 09/15/2023 | 450,000 | 496,920 | ||||||
7,259,079 | ||||||||
Internet & Direct Marketing Retail–0.42% | ||||||||
Ctrip.com International, Ltd. (China), Sr. Unsec. Conv. Notes, 1.25%, 09/15/2019(c)(d) | 2,992,000 | 2,894,760 | ||||||
Liberty Interactive LLC, Sr. Unsec. Conv. Deb., 1.75%, 10/05/2023(c)(d) | 2,357,000 | 2,545,560 | ||||||
QVC, Inc., Sr. Sec. Gtd. First Lien Global Notes, 5.45%, 08/15/2034 | 880,000 | 799,919 | ||||||
6,240,239 | ||||||||
Investment Banking & Brokerage–1.36% | ||||||||
Goldman Sachs Group, Inc. (The), | ||||||||
Sr. Unsec. Global Notes, | ||||||||
5.25%, 07/27/2021 | 400,000 | 438,911 | ||||||
Unsec. Sub. Notes, | ||||||||
4.25%, 10/21/2025 | 552,000 | 560,694 | ||||||
Series 0000, Sr. Unsec. Exchangeable Basket-Linked Conv. Medium-Term Notes, | ||||||||
1.00%, 03/15/2017(c)(g) | 3,328,000 | 5,949,066 | ||||||
1.00%, 09/28/2020(c)(h) | 6,230,000 | 7,997,949 | ||||||
Jefferies Group LLC, Sr. Unsec. Conv. Deb., 3.88%, 11/01/2017(d) | 3,286,000 | 3,331,183 | ||||||
Lazard Group LLC, Sr. Unsec. Global Notes, 3.75%, 02/13/2025 | 1,142,000 | 1,117,745 | ||||||
Morgan Stanley, Sr. Unsec. Medium- | 680,000 | 695,588 | ||||||
20,091,136 | ||||||||
IT Consulting & Other Services–0.03% | ||||||||
Computer Sciences Corp., Sr. Unsec. Global Notes, 4.45%, 09/15/2022 | 490,000 | 506,675 |
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–0.28% | ||||||||
Jackson National Life Global Funding, Sr. Sec. Notes, 2.10%, 10/25/2021(c) | $ | 525,000 | $ | 512,294 | ||||
Nationwide Financial Services Inc., Sr. Unsec. Notes, 5.30%, 11/18/2044(c) | 910,000 | 935,963 | ||||||
Prudential Financial, Inc., | ||||||||
Sr. Unsec. Medium-Term Notes, | ||||||||
5.10%, 08/15/2043 | 410,000 | 445,818 | ||||||
Series D, Sr. Unsec. Medium- Term Notes, | ||||||||
6.00%, 12/01/2017 | 1,565,000 | 1,626,498 | ||||||
6.63%, 12/01/2037 | 110,000 | 139,938 | ||||||
Reliance Standard Life Global Funding II, Sr. Sec. First Lien Notes, 3.05%, 01/20/2021(c) | 465,000 | 468,981 | ||||||
4,129,492 | ||||||||
Managed Health Care–0.07% | ||||||||
Aetna Inc., Sr. Unsec. Global Notes, | ||||||||
3.95%, 09/01/2020 | 605,000 | 634,386 | ||||||
4.38%, 06/15/2046 | 358,000 | 359,084 | ||||||
993,470 | ||||||||
Movies & Entertainment–0.09% | ||||||||
Live Nation Entertainment, Inc., Sr. Unsec. Conv. Bonds, 2.50%, 05/15/2019 | 1,203,000 | 1,287,962 | ||||||
Multi-Line Insurance–0.36% | ||||||||
American International Group, Inc., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
2.30%, 07/16/2019 | 385,000 | 387,248 | ||||||
4.38%, 01/15/2055 | 720,000 | 664,236 | ||||||
CNA Financial Corp., | ||||||||
Sr. Unsec. Global Bonds, | ||||||||
5.88%, 08/15/2020 | 325,000 | 358,097 | ||||||
Sr. Unsec. Notes, | ||||||||
7.35%, 11/15/2019 | 25,000 | 28,403 | ||||||
Farmers Exchange Capital III, Unsec. Sub. Notes, 5.45%, 10/15/2054(c) | 930,000 | 917,165 | ||||||
New York Life Global Funding, Sec. Notes, 1.65%, 05/15/2017(c) | 3,010,000 | 3,017,518 | ||||||
5,372,667 | ||||||||
Multi-Utilities–0.03% | ||||||||
Enable Midstream Partners, LP, Sr. Unsec. Global Notes, 2.40%, 05/15/2019 | 440,000 | 432,471 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/2019 | 15,000 | 16,099 | ||||||
448,570 | ||||||||
Office REIT’s–0.04% | ||||||||
Piedmont Operating Partnership L.P., Sr. Unsec. Gtd. Global Notes, 4.45%, 03/15/2024 | 605,000 | 598,189 |
Principal Amount | Value | |||||||
Office Services & Supplies–0.03% | ||||||||
Pitney Bowes Inc., Sr. Unsec. Global Notes, 4.63%, 03/15/2024 | $ | 500,000 | $ | 491,274 | ||||
Oil & Gas Drilling–0.16% | ||||||||
Ensco Jersey Finance Ltd., Sr. Unsec. Gtd. Sub. Conv. Notes, 3.00%, 01/31/2024(c) | 2,100,000 | 2,170,875 | ||||||
Noble Holding International Ltd. (United Kingdom), Sr. Unsec. Gtd. Global Notes, 2.50%, 03/15/2017 | 150,000 | 150,000 | ||||||
2,320,875 | ||||||||
Oil & Gas Equipment & Services–0.30% | ||||||||
Helix Energy Solutions Group, Inc., Sr. Unsec. Conv. Notes, 4.25%, 05/01/2022 | 1,105,000 | 1,147,128 | ||||||
Weatherford International Ltd., Sr. Unsec. Gtd. Conv. Notes, 5.88%, 07/01/2021 | 2,952,000 | 3,210,300 | ||||||
4,357,428 | ||||||||
Oil & Gas Exploration & Production–0.31% | ||||||||
Anadarko Petroleum Corp., | ||||||||
Sr. Unsec. Notes, | ||||||||
4.85%, 03/15/2021 | 288,000 | 308,263 | ||||||
6.60%, 03/15/2046 | 443,000 | 548,588 | ||||||
Chesapeake Energy Corp., Sr. Unsec. Gtd. Conv. Notes, 5.50%, 09/15/2026(c) | 1,042,000 | 1,133,175 | ||||||
ConocoPhillips Co., Sr. Unsec. Gtd. Global Notes, | ||||||||
2.88%, 11/15/2021 | 859,000 | 868,749 | ||||||
4.15%, 11/15/2034 | 921,000 | 907,586 | ||||||
Noble Energy, Inc., Sr. Unsec. Global Notes, 5.25%, 11/15/2043 | 830,000 | 847,581 | ||||||
4,613,942 | ||||||||
Oil & Gas Storage & Transportation–0.34% | ||||||||
Enbridge Inc. (Canada), Sr. Unsec. Global Notes, 5.50%, 12/01/2046 | 424,000 | 456,865 | ||||||
Energy Transfer Partners, L.P., Sr. Unsec. Notes, 4.90%, 03/15/2035 | 357,000 | 336,752 | ||||||
Enterprise Products Operating LLC, | ||||||||
Sr. Unsec. Gtd. Global Bonds, | ||||||||
6.45%, 09/01/2040 | 25,000 | 29,777 | ||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
5.25%, 01/31/2020 | 155,000 | 168,546 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
2.55%, 10/15/2019 | 370,000 | 375,995 | ||||||
Series N, Sr. Unsec. Gtd. Notes, | ||||||||
6.50%, 01/31/2019 | 245,000 | 268,279 | ||||||
Kinder Morgan Inc., Sr. Unsec. Gtd. Notes, 5.30%, 12/01/2034 | 422,000 | 431,984 | ||||||
Plains All American Pipeline L.P./ PAA Finance Corp., Sr. Unsec. Global Notes, 3.65%, 06/01/2022 | 355,000 | 359,295 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Oil & Gas Storage & Transportation–(continued) | ||||||||
Spectra Energy Partners, L.P., Sr. Unsec. Global Notes, 4.50%, 03/15/2045 | $ | 536,000 | $ | 510,742 | ||||
Sunoco Logistics Partners Operations L.P., Sr. Unsec. Gtd. Notes, | ||||||||
5.30%, 04/01/2044 | 645,000 | 626,725 | ||||||
5.50%, 02/15/2020 | 535,000 | 580,340 | ||||||
Texas Eastern Transmission L.P., Sr. Unsec. Notes, 7.00%, 07/15/2032 | 185,000 | 226,288 | ||||||
Western Gas Partners, LP, Sr. Unsec. Notes, 5.45%, 04/01/2044 | 600,000 | 619,221 | ||||||
4,990,809 | ||||||||
Other Diversified Financial Services–0.23% | ||||||||
Athene Global Funding, Sec. Notes, 2.88%, 10/23/2018(c) | 624,000 | 624,045 | ||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 2.35%, 10/15/2019(c) | 935,000 | 934,563 | ||||||
MassMutual Global Funding II, | ||||||||
Sec. Notes, 2.00%, 04/15/2021(c) | 945,000 | 920,328 | ||||||
Sr. Sec. Notes, | ||||||||
2.10%, 08/02/2018(c) | 975,000 | 983,848 | ||||||
3,462,784 | ||||||||
Packaged Foods & Meats–0.26% | ||||||||
General Mills, Inc., Sr. Unsec. Global Notes, 2.20%, 10/21/2019 | 850,000 | 853,967 | ||||||
Kellogg Co., Sr. Unsec. Global Notes, 1.75%, 05/17/2017 | 750,000 | 751,002 | ||||||
Kraft Heinz Foods Co. (The), Sr. Unsec. Gtd. Global Notes, | ||||||||
1.60%, 06/30/2017 | 1,080,000 | 1,080,130 | ||||||
2.25%, 06/05/2017 | 790,000 | 792,067 | ||||||
Mead Johnson Nutrition Co., Sr. Unsec. Global Notes, 4.13%, 11/15/2025 | 64,000 | 65,430 | ||||||
Tyson Foods, Inc., Sr. Unsec. Gtd. Global Bonds, 4.88%, 08/15/2034 | 214,000 | 219,924 | ||||||
3,762,520 | ||||||||
Paper Packaging–0.10% | ||||||||
International Paper Co., Sr. Unsec. Global Notes, 6.00%, 11/15/2041 | 245,000 | 275,752 | ||||||
Packaging Corp. of America, Sr. Unsec. Global Notes, 4.50%, 11/01/2023 | 1,139,000 | 1,204,369 | ||||||
1,480,121 | ||||||||
Pharmaceuticals–0.91% | ||||||||
Actavis Funding SCS, Sr. Unsec. Gtd. Global Notes, | ||||||||
1.85%, 03/01/2017 | 909,000 | 909,037 | ||||||
4.85%, 06/15/2044 | 950,000 | 947,844 | ||||||
Bayer US Finance LLC (Germany), Sr. Unsec. Gtd. Notes, 3.00%, 10/08/2021(c) | 590,000 | 593,656 |
Principal Amount | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
GlaxoSmithKline Capital Inc. (United Kingdom), Sr. Unsec. Gtd. Global Bonds, | ||||||||
5.65%, 05/15/2018 | $ | 75,000 | $ | 79,062 | ||||
6.38%, 05/15/2038 | 70,000 | 92,198 | ||||||
GlaxoSmithKline Capital PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 1.50%, 05/08/2017 | 2,880,000 | 2,883,913 | ||||||
Jazz Investments I Ltd., Sr. Unsec. Gtd. Conv. Bonds, 1.88%, 08/15/2021 | 1,455,000 | 1,401,347 | ||||||
Medicines Co. (The), Sr. Unsec. Conv. Notes, 2.75%, 07/15/2023(c) | 938,000 | 906,929 | ||||||
Merck Sharp & Dohme Corp., Sr. Unsec. Gtd. Global Notes, 5.00%, 06/30/2019 | 280,000 | 302,101 | ||||||
Mylan N.V., Sr. Unsec. Gtd. Notes, | ||||||||
3.15%, 06/15/2021(c) | 431,000 | 422,823 | ||||||
5.25%, 06/15/2046(c) | 590,000 | 546,961 | ||||||
Perrigo Co. PLC, Sr. Unsec. Global Notes, 2.30%, 11/08/2018 | 405,000 | 405,363 | ||||||
Perrigo Finance Unlimited Co., Sr. Unsec. Gtd. Global Notes, 3.50%, 03/15/2021 | 200,000 | 201,896 | ||||||
Roche Holdings, Inc. (Switzerland), Sr. Unsec. Gtd. Notes, 1.35%, 09/29/2017(c) | 2,775,000 | 2,775,401 | ||||||
Teva Pharmaceutical Finance Netherlands III B.V. (Israel), | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
2.80%, 07/21/2023 | 364,000 | 342,673 | ||||||
4.10%, 10/01/2046 | 321,000 | 275,741 | ||||||
Zoetis Inc., Sr. Unsec. Global Notes, 4.70%, 02/01/2043 | 365,000 | 354,163 | ||||||
13,441,108 | ||||||||
Property & Casualty Insurance–0.28% | ||||||||
Allstate Corp. (The), Sr. Unsec. Bonds, 3.28%, 12/15/2026 | 320,000 | 321,215 | ||||||
Liberty Mutual Group Inc., Sr. Unsec. Gtd. Bonds, 4.85%, 08/01/2044(c) | 975,000 | 963,083 | ||||||
Markel Corp., Sr. Unsec. Notes, 5.00%, 03/30/2043 | 385,000 | 391,690 | ||||||
Old Republic International Corp., Sr. Unsec. Conv. Notes, 3.75%, 03/15/2018 | 970,000 | 1,218,563 | ||||||
Travelers Cos., Inc. (The), Sr. Unsec. Global Notes, 4.60%, 08/01/2043 | 665,000 | 721,743 | ||||||
WR Berkley Corp., Sr. Unsec. Global Notes, 4.63%, 03/15/2022 | 420,000 | 449,992 | ||||||
4,066,286 | ||||||||
Railroads–0.26% | ||||||||
Burlington Northern Santa Fe, LLC, Sr. Unsec. Deb., 5.15%, 09/01/2043 | 1,990,000 | 2,283,416 | ||||||
CSX Corp., Sr. Unsec. Notes, 5.50%, 04/15/2041 | 380,000 | 435,582 |
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 | |||||||
Railroads–(continued) | ||||||||
Union Pacific Corp., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
3.65%, 02/15/2024 | $ | 101,000 | $ | 105,248 | ||||
Sr. Unsec. Notes, | ||||||||
4.15%, 01/15/2045 | 440,000 | 443,441 | ||||||
4.85%, 06/15/2044 | 570,000 | 630,729 | ||||||
3,898,416 | ||||||||
Regional Banks–0.06% | ||||||||
Citizens Financial Group, Inc., Sr. Unsec. Global Notes, 2.38%, 07/28/2021 | 455,000 | 446,206 | ||||||
SunTrust Banks, Inc., Unsec. Sub. Global Notes, 3.30%, 05/15/2026 | 385,000 | 372,162 | ||||||
818,368 | ||||||||
Reinsurance–0.06% | ||||||||
Reinsurance Group of America, Inc., Sr. Unsec. Medium-Term Notes, 4.70%, 09/15/2023 | 780,000 | 828,705 | ||||||
Renewable Electricity–0.04% | ||||||||
Oglethorpe Power Corp., Sr. Sec. First Mortgage Bonds, 4.55%, 06/01/2044 | 581,000 | 579,486 | ||||||
Research & Consulting Services–0.02% | ||||||||
Verisk Analytics, Inc., Sr. Unsec. Global Notes, 5.50%, 06/15/2045 | 220,000 | 233,035 | ||||||
Retail REIT’s–0.00% | ||||||||
Brixmor Operating Partnership LP, Sr. Unsec. Notes, 3.88%, 08/15/2022 | 45,000 | 45,808 | ||||||
Semiconductor Equipment–0.28% | ||||||||
Lam Research Corp., Series B, Sr. Unsec. Conv. Notes, 1.25%, 05/15/2018 | 2,306,000 | 4,057,119 | ||||||
Semiconductors–0.65% | ||||||||
Intel Corp., Sr. Unsec. Global Notes, 1.35%, 12/15/2017 | 740,000 | 741,320 | ||||||
Microchip Technology Inc., Sr. Unsec. Sub. Conv. Bonds, 1.63%, 02/15/2025 | 1,931,000 | 2,510,300 | ||||||
Micron Technology, Inc., Series G, Sr. Unsec. Conv. Global Bonds, 3.00%, 11/15/2028(d) | 3,822,000 | 3,814,833 | ||||||
ON Semiconductor Corp., Sr. Unsec. Gtd. Conv. Bonds, 1.00%, 12/01/2020 | 2,424,000 | 2,495,205 | ||||||
9,561,658 | ||||||||
Specialized Finance–0.40% | ||||||||
AerCap Ireland Capital Ltd./AerCap Global Aviation Trust (Netherlands), Sr. Unsec. Gtd. Global Notes, 3.95%, 02/01/2022 | 385,000 | 389,813 |
Principal Amount | Value | |||||||
Specialized Finance–(continued) | ||||||||
Air Lease Corp., Sr. Unsec. Global Notes, | ||||||||
2.63%, 09/04/2018 | $ | 1,150,000 | $ | 1,155,031 | ||||
3.00%, 09/15/2023 | 649,000 | 617,970 | ||||||
4.25%, 09/15/2024 | 430,000 | 438,062 | ||||||
Aviation Capital Group Corp., | ||||||||
Sr. Unsec. Notes, | ||||||||
2.88%, 09/17/2018(c) | 745,000 | 753,339 | ||||||
4.88%, 10/01/2025(c) | 735,000 | 787,327 | ||||||
National Rural Utilities Cooperative Finance Corp. (The), Sr. Unsec. Medium-Term Notes, 0.95%, 04/24/2017 | 1,715,000 | 1,713,860 | ||||||
5,855,402 | ||||||||
Specialized REIT’s–0.27% | ||||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. First Lien Notes, | ||||||||
4.88%, 08/15/2020(c) | 538,000 | 573,567 | ||||||
6.11%, 01/15/2020(c) | 770,000 | 836,527 | ||||||
EPR Properties, Sr. Unsec. Gtd. Global Notes, 4.75%, 12/15/2026 | 2,145,000 | 2,125,701 | ||||||
Life Storage LP, Sr. Unsec. Gtd. Global Notes, 3.50%, 07/01/2026 | 444,000 | 421,056 | ||||||
3,956,851 | ||||||||
Systems Software–0.30% | ||||||||
FireEye, Inc., | ||||||||
Series A, Sr. Unsec. Conv. Bonds, | ||||||||
1.00%, 06/01/2020(d) | 1,163,000 | 1,080,136 | ||||||
Series B, Sr. Unsec. Conv. Bonds, | ||||||||
1.63%, 06/01/2022(d) | 1,163,000 | 1,053,242 | ||||||
Microsoft Corp., Sr. Unsec. Global Notes, 3.50%, 02/12/2035 | 403,000 | 385,596 | ||||||
Oracle Corp., Sr. Unsec. Global Notes, | ||||||||
1.90%, 09/15/2021 | 1,285,000 | 1,256,082 | ||||||
4.30%, 07/08/2034 | 600,000 | 619,611 | ||||||
4,394,667 | ||||||||
Technology Distributors–0.05% | ||||||||
Avnet, Inc., Sr. Unsec. Global Notes, 4.63%, 04/15/2026 | 705,000 | 685,271 | ||||||
Technology Hardware, Storage & Peripherals–0.36% | ||||||||
Apple Inc., Sr. Unsec. Global Notes, 2.15%, 02/09/2022 | 716,000 | 701,410 | ||||||
Diamond 1 Finance Corp./Diamond 2 Finance Corp., Sr. Sec. Gtd. First Lien Notes, | ||||||||
5.45%, 06/15/2023(c) | 645,000 | 686,531 | ||||||
8.35%, 07/15/2046(c) | 14,000 | 17,389 | ||||||
NetApp, Inc., Sr. Unsec. Global Notes, 3.38%, 06/15/2021 | 710,000 | 718,948 | ||||||
SanDisk Corp., Sr. Unsec. Gtd. Conv. Bonds, 0.50%, 10/15/2020 | 2,520,000 | 2,302,892 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Technology Hardware, Storage & Peripherals–(continued) | ||||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. Global Bonds, | ||||||||
4.75%, 01/01/2025 | $ | 325,000 | $ | 308,140 | ||||
5.75%, 12/01/2034 | 702,000 | 600,210 | ||||||
5,335,520 | ||||||||
Thrifts & Mortgage Finance–0.85% | ||||||||
MGIC Investment Corp., Sr. Unsec. Conv. Notes, | ||||||||
2.00%, 04/01/2020 | 710,000 | 1,056,125 | ||||||
5.00%, 05/01/2017 | 6,828,000 | 6,985,897 | ||||||
Radian Group Inc., Sr. Unsec. Conv. Notes, | ||||||||
2.25%, 03/01/2019 | 412,000 | 679,543 | ||||||
3.00%, 11/15/2017 | 2,469,000 | 3,786,829 | ||||||
12,508,394 | ||||||||
Tobacco–0.23% | ||||||||
Philip Morris International Inc., | ||||||||
Sr. Unsec. Global Bonds, | ||||||||
1.25%, 08/11/2017 | 214,000 | 214,153 | ||||||
Sr. Unsec. Global Notes, | ||||||||
1.63%, 03/20/2017 | 1,380,000 | 1,381,354 | ||||||
3.60%, 11/15/2023 | 405,000 | 420,344 | ||||||
4.88%, 11/15/2043 | 1,210,000 | 1,317,547 | ||||||
3,333,398 | ||||||||
Wireless Telecommunication Services–0.21% | ||||||||
América Móvil, S.A.B. de C.V. (Mexico), Sr. Unsec. Global Notes, 4.38%, 07/16/2042 | 600,000 | 555,671 | ||||||
Rogers Communications Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 4.50%, 03/15/2043 | 585,000 | 572,836 | ||||||
Vodafone Group PLC (United Kingdom), Sr. Unsec. Global Notes, 1.63%, 03/20/2017 | 1,970,000 | 1,970,808 | ||||||
3,099,315 | ||||||||
Total Bonds and Notes | 273,275,354 | |||||||
U.S. Treasury Securities–9.87% |
| |||||||
U.S. Treasury Bills–0.01% | ||||||||
0.59%, 05/11/2017(i)(j) | 75,000 | 74,844 | ||||||
U.S. Treasury Notes–9.28% | ||||||||
0.50%, 04/30/2017 | 20,000,000 | 19,999,640 | ||||||
1.00%, 11/30/2018 | 54,710,000 | 54,529,895 | ||||||
1.25%, 01/31/2019 | 8,000,000 | 8,003,808 | ||||||
3.63%, 08/15/2019 | 1,525,000 | 1,613,991 | ||||||
3.38%, 11/15/2019 | 300,000 | 316,426 | ||||||
1.38%, 12/15/2019 | 24,675,000 | 24,604,528 | ||||||
3.63%, 02/15/2020 | 46,000 | 48,930 | ||||||
2.63%, 11/15/2020 | 600,000 | 619,783 | ||||||
1.75%, 11/30/2021 | 2,785,600 | 2,762,430 | ||||||
2.13%, 11/30/2023 | 7,385,000 | 7,327,966 | ||||||
2.00%, 11/15/2026 | 17,570,800 | 16,880,742 | ||||||
136,708,139 |
Principal Amount | Value | |||||||
U.S. Treasury Bonds–0.58% | ||||||||
4.50%, 08/15/2039 | $ | 40,000 | $ | 50,156 | ||||
4.38%, 05/15/2040 | 80,000 | 98,689 | ||||||
2.25%, 08/15/2046 | 9,975,700 | 8,366,729 | ||||||
8,515,574 | ||||||||
Total U.S. Treasury Securities |
| 145,298,557 | ||||||
Shares | ||||||||
Preferred Stocks–0.81% |
| |||||||
Asset Management & Custody Banks–0.18% | ||||||||
AMG Capital Trust II, $2.58 Jr. Unsec. Gtd. Sub. Conv. Pfd. | 47,000 | 2,577,659 | ||||||
Diversified Banks–0.02% | ||||||||
Wells Fargo & Co., 5.85% Pfd. | 12,000 | 302,880 | ||||||
Oil & Gas Storage & Transportation–0.32% | ||||||||
El Paso Energy Capital Trust I, $2.38 Jr. Unsec. Gtd. Sub. Conv. Pfd. | 95,499 | 4,741,525 | ||||||
Regional Banks–0.29% | ||||||||
KeyCorp., Series A, $7.75 Conv. Pfd. | 31,262 | 4,220,370 | ||||||
Total Preferred Stocks |
| 11,842,434 | ||||||
Principal Amount | ||||||||
U.S. Government Sponsored Agency |
| |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.26% | ||||||||
Unsec. Global Notes, | $ | 1,500,000 | 1,519,306 | |||||
5.50%, 08/23/2017 | 140,000 | 144,191 | ||||||
4.88%, 06/13/2018 | 1,000,000 | 1,053,270 | ||||||
6.75%, 03/15/2031 | 750,000 | 1,058,491 | ||||||
Total U.S. Government Sponsored Agency Securities (Cost $3,699,586) |
| 3,775,258 | ||||||
U.S. Government Sponsored Agency |
| |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.00% | ||||||||
Pass Through Ctfs., | 23 | 25 | ||||||
5.50%, 02/01/2037 | 36 | 40 | ||||||
65 | ||||||||
Federal National Mortgage Association (FNMA)–0.00% | ||||||||
Pass Through Ctfs., | 5 | 5 | ||||||
5.50%, 03/01/2021 | 92 | 97 | ||||||
8.00%, 08/01/2021 | 517 | 521 | ||||||
9.50%, 04/01/2030 | 2,920 | 3,421 | ||||||
4,044 | ||||||||
Total U.S. Government Sponsored Agency Mortgage- |
| 4,109 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Shares | Value | |||||||
Money Market Funds–5.13% |
| |||||||
Government & Agency Portfolio– Institutional Class, 0.43%(k) | 45,325,875 | $ | 45,325,875 | |||||
Treasury Portfolio–Institutional Class, 0.37%(k) | 30,217,250 | 30,217,250 | ||||||
Total Money Market Funds |
| 75,543,125 | ||||||
TOTAL INVESTMENTS–100.04% |
| 1,472,702,502 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.04)% |
| (605,092 | ) | |||||
NET ASSETS–100.00% |
| $ | 1,472,097,410 |
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Conv. | – Convertible | |
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
REGS | – Regulation S | |
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, 2016 was $76,821,393, which represented 5.22% 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) | Step coupon bond. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. |
(g) | Exchangeable for a basket of four common stocks and one ordinary share. |
(h) | Exchangeable for a basket of five common stocks. |
(i) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(j) | 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. |
(k) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: | ||||
Investments, at value (Cost $1,119,500,200) | $ | 1,397,159,377 | ||
Investments in affiliated money market funds, at value and cost | 75,543,125 | |||
Total investments, at value (Cost $1,195,043,325) | 1,472,702,502 | |||
Cash | 55,670 | |||
Foreign currencies, at value (Cost $365,512) | 369,710 | |||
Receivable for: | ||||
Investments sold | 642,289 | |||
Fund shares sold | 154,773 | |||
Dividends and interest | 4,232,495 | |||
Investment for trustee deferred compensation and retirement plans | 143,687 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 1,521,231 | |||
Total assets | 1,479,822,357 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 5,334,134 | |||
Fund shares reacquired | 315,843 | |||
Variation margin — futures | 11,648 | |||
Accrued fees to affiliates | 1,829,870 | |||
Accrued trustees’ and officers’ fees and benefits | 270 | |||
Accrued other operating expenses | 71,330 | |||
Trustee deferred compensation and retirement plans | 161,852 | |||
Total liabilities | 7,724,947 | |||
Net assets applicable to shares outstanding | $ | 1,472,097,410 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,154,569,224 | ||
Undistributed net investment income | 17,107,128 | |||
Undistributed net realized gain | 21,214,572 | |||
Net unrealized appreciation | 279,206,486 | |||
$ | 1,472,097,410 | |||
Net Assets: | ||||
Series I | $ | 157,774,445 | ||
Series II | $ | 1,314,322,965 | ||
Shares outstanding, no par value, |
| |||
Series I | 8,885,070 | |||
Series II | 74,330,659 | |||
Series I: | ||||
Net asset value per share | $ | 17.76 | ||
Series II: | ||||
Net asset value per share | $ | 17.68 |
Investment income: | ||||
Dividends (net of foreign withholding taxes of $485,734) | $ | 21,643,123 | ||
Dividends from affiliated money market funds | 287,056 | |||
Interest | 9,130,181 | |||
Total investment income | 31,060,360 | |||
Expenses: | ||||
Advisory fees | 4,939,264 | |||
Administrative services fees | 2,707,475 | |||
Custodian fees | 52,424 | |||
Distribution fees — Series II | 2,958,446 | |||
Transfer agent fees | 56,297 | |||
Trustees’ and officers’ fees and benefits | 38,638 | |||
Reports to shareholders | 11,537 | |||
Professional services fees | 84,452 | |||
Other | 47,486 | |||
Total expenses | 10,896,019 | |||
Less: Fees waived | (105,179 | ) | ||
Net expenses | 10,790,840 | |||
Net investment income | 20,269,520 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 26,970,662 | |||
Foreign currencies | 45,215 | |||
Forward foreign currency contracts | 3,993,035 | |||
Futures contracts | (204,715 | ) | ||
30,804,197 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 135,876,284 | |||
Foreign currencies | 16,051 | |||
Forward foreign currency contracts | 897,280 | |||
Futures contracts | 4,440 | |||
136,794,055 | ||||
Net realized and unrealized gain | 167,598,252 | |||
Net increase in net assets resulting from operations | $ | 187,867,772 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: | ||||||||
Net investment income | $ | 20,269,520 | $ | 17,502,935 | ||||
Net realized gain | 30,804,197 | 47,445,405 | ||||||
Change in net unrealized appreciation (depreciation) | 136,794,055 | (100,913,849 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 187,867,772 | (35,965,509 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (2,492,252 | ) | (2,355,976 | ) | ||||
Series ll | (20,095,211 | ) | (27,649,010 | ) | ||||
Total distributions from net investment income | (22,587,463 | ) | (30,004,986 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (4,168,661 | ) | (8,165,729 | ) | ||||
Series ll | (38,839,725 | ) | (106,824,586 | ) | ||||
Total distributions from net realized gains | (43,008,386 | ) | (114,990,315 | ) | ||||
Share transactions–net: | ||||||||
Series l | 48,906,569 | 36,709,676 | ||||||
Series ll | 75,370,163 | 6,488,787 | ||||||
Net increase in net assets resulting from share transactions | 124,276,732 | 43,198,463 | ||||||
Net increase (decrease) in net assets | 246,548,655 | (137,762,347 | ) | |||||
Net assets: | ||||||||
Beginning of year | 1,225,548,755 | 1,363,311,102 | ||||||
End of year (includes undistributed net investment income of $17,107,128 and $18,089,251, respectively) | $ | 1,472,097,410 | $ | 1,225,548,755 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
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 asked prices from the exchange on which they are principally traded. Options not
Invesco V.I. Equity and Income Fund
listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) 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 asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. Equity and Income Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. 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 the 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. |
Invesco V.I. Equity and Income Fund
L. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $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, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $105,179.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $304,937 for accounting and fund administrative services and was reimbursed $2,402,538 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $2,362 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. |
Invesco V.I. Equity and Income Fund
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interests | $ | 914,594,562 | $ | 48,369,103 | $ | — | $ | 962,963,665 | ||||||||
Bonds and Notes | — | 273,275,354 | — | 273,275,354 | ||||||||||||
U.S. Treasury Securities | — | 145,298,557 | — | 145,298,557 | ||||||||||||
Preferred Stocks | 9,264,775 | 2,577,659 | — | 11,842,434 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 3,775,258 | — | 3,775,258 | ||||||||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities | — | 4,109 | — | 4,109 | ||||||||||||
Money Market Funds | 75,543,125 | — | — | 75,543,125 | ||||||||||||
999,402,462 | 473,300,040 | — | 1,472,702,502 | |||||||||||||
Forward Foreign Currency Contracts* | — | 1,521,231 | — | 1,521,231 | ||||||||||||
Futures Contracts* | 22,690 | — | — | 22,690 | ||||||||||||
Total Investments | $ | 999,425,152 | $ | 474,821,271 | $ | — | $ | 1,474,246,423 |
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
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, 2016:
Derivative Assets | Value | |||||||||||
Currency Risk | Interest Rate Risk | Total | ||||||||||
Unrealized appreciation on futures contracts — Exchange-Traded(a) | $ | — | $ | 22,690 | $ | 22,690 | ||||||
Unrealized appreciation on forward foreign currency contracts outstanding | 1,521,231 | — | 1,521,231 | |||||||||
Total derivative assets | $ | 1,521,231 | $ | 22,690 | $ | 1,543,921 | ||||||
Derivatives not subject to master netting agreements | — | (22,690 | ) | (22,690 | ) | |||||||
Total derivative assets subject to master netting agreements | $ | 1,521,231 | $ | — | $ | 1,521,231 |
(a) | Includes cumulative appreciation on futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement Date
| Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | AUD | 4,073,365 | USD | 3,052,947 | $ | 2,937,923 | $ | 115,024 | |||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | CAD | 8,326,915 | USD | 6,349,734 | 6,202,618 | 147,116 | |||||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | CHF | 3,553,268 | USD | 3,523,460 | 3,494,932 | 28,528 | |||||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | EUR | 8,318,934 | USD | 8,871,062 | 8,766,314 | 104,748 | |||||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | GBP | 9,996,708 | USD | 12,696,618 | 12,330,436 | 366,182 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | AUD | 4,069,543 | USD | 3,050,896 | 2,935,166 | 115,730 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | CAD | 8,328,511 | USD | 6,349,741 | 6,203,807 | 145,934 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | CHF | 3,551,165 | USD | 3,520,344 | 3,492,863 | 27,481 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | EUR | 8,329,968 | USD | 8,883,244 | 8,777,941 | 105,303 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | GBP | 9,998,133 | USD | 12,697,379 | 12,332,194 | 365,185 | |||||||||||||||||||
Total open forward foreign currency contracts — currency risk | $ | 1,521,231 |
Invesco V.I. Equity and Income Fund
Currency Abbreviations:
AUD | – Australian Dollar | |
CAD | – Canadian Dollar | |
CHF | – Swiss Franc | |
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Open Futures Contracts | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation | |||||||||||||||
U.S. Treasury 5 Year Notes | Short | 27 | March-2017 | $ | (3,176,930 | ) | $ | 13,225 | ||||||||||||
U.S. Treasury 10 Year Notes | Short | 21 | March-2017 | (2,609,906 | ) | 9,465 | ||||||||||||||
Total futures contracts — interest rate risk | $ | 22,690 |
Offsetting Assets and Liabilities
The table below reflects the Fund’s exposure to Counterparties subject to either an ISDA Master Agreement or other agreement for OTC derivative transactions as of December 31, 2016.
Financial Derivative Assets | Financial Derivative Liabilities | Net Value of Derivatives | Collateral (Received)/Pledged | Net Amount | ||||||||||||||||||||
Counterparty | Forward Foreign Currency Contracts | Forward Foreign Currency Contracts | Non-Cash | Cash | ||||||||||||||||||||
Fund | ||||||||||||||||||||||||
Bank of New York Mellon (The) | $ | 761,598 | $ | — | $ | 761,598 | $ | — | $ | — | $ | 761,598 | ||||||||||||
State Street Bank and Trust Co. | 759,633 | — | 759,633 | — | — | 759,633 | ||||||||||||||||||
Total | $ | 1,521,231 | $ | — | $ | 1,521,231 | $ | — | $ | — | $ | 1,521,231 |
Effect of Derivative Investments for the year ended December 31, 2016
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 | ||||||||||||
Currency Risk | Interest Rate Risk | Total | ||||||||||
Realized Gain (Loss): | ||||||||||||
Forward foreign currency contracts | $ | 3,993,035 | $ | — | $ | 3,993,035 | ||||||
Futures contracts | — | (204,715 | ) | (204,715 | ) | |||||||
Change in Net Unrealized Appreciation: | ||||||||||||
Forward foreign currency contracts | 897,280 | — | 897,280 | |||||||||
Futures contracts | — | 4,440 | 4,440 | |||||||||
Total | $ | 4,890,315 | $ | (200,275 | ) | $ | 4,690,040 |
The table below summarizes the average notional value of forward foreign currency contracts and futures contracts outstanding during the period.
Forward Foreign Currency Contracts | Futures Contracts | |||||||
Average notional value | $ | 71,617,863 | $ | 6,676,912 |
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, 2016, the Fund engaged in securities purchases of $5,330,916.
Invesco V.I. Equity and Income Fund
NOTE 6—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees 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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 22,587,463 | $ | 38,507,602 | ||||
Long-term capital gain | 43,008,386 | 106,487,699 | ||||||
Total distributions | $ | 65,595,849 | $ | 144,995,301 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 22,481,692 | ||
Undistributed long-term gain | 27,105,848 | |||
Net unrealized appreciation — investments | 268,712,934 | |||
Net unrealized appreciation — other investments | 3,387 | |||
Temporary book/tax differences | (251,653 | ) | ||
Capital loss carryforward | (524,022 | ) | ||
Shares of beneficial interest | 1,154,569,224 | |||
Total net assets | $ | 1,472,097,410 |
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.
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. Equity and Income Fund
The Fund has a capital loss carryforward as of December 31, 2016, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 524,022 | $ | — | $ | 524,022 |
* | 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, 2016 was $342,581,565 and $315,796,834, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $978,162,464 and $929,634,218, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 290,882,149 | ||
Aggregate unrealized (depreciation) of investment securities | (22,169,215 | ) | ||
Net unrealized appreciation of investment securities | $ | 268,712,934 |
Cost of investments for tax purposes is $1,203,989,568.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of bond premiums, contingent payment debt instruments and sale of securities with deemed dividends, on December 31, 2016, undistributed net investment income was increased by $1,335,820 and undistributed net realized gain was decreased by $1,335,820. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,385,579 | $ | 56,340,459 | 2,393,497 | $ | 43,442,791 | ||||||||||
Series II | 11,160,205 | 184,995,192 | 4,982,232 | 91,088,229 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 401,502 | 6,660,913 | 666,352 | 10,521,705 | ||||||||||||
Series II | 3,565,332 | 58,934,936 | 8,548,862 | 134,473,596 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (835,357 | ) | (14,094,803 | ) | (949,803 | ) | (17,254,820 | ) | ||||||||
Series II | (10,264,860 | ) | (168,559,965 | ) | (12,109,186 | ) | (219,073,038 | ) | ||||||||
Net increase in share activity | 7,412,401 | $ | 124,276,732 | 3,531,954 | $ | 43,198,463 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 78% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Equity and Income Fund
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | $ | 16.23 | $ | 0.29 | $ | 2.10 | $ | 2.39 | $ | (0.32 | ) | $ | (0.54 | ) | $ | (0.86 | ) | $ | 17.76 | 15.12 | % | $ | 157,774 | 0.60 | %(d) | 0.61 | %(d) | 1.78 | %(d) | 101 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 18.93 | 0.28 | (0.78 | ) | (0.50 | ) | (0.49 | ) | (1.71 | ) | (2.20 | ) | 16.23 | (2.29 | ) | 96,287 | 0.64 | 0.65 | 1.55 | 87 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 18.58 | 0.37 | (e) | 1.28 | 1.65 | (0.35 | ) | (0.95 | ) | (1.30 | ) | 18.93 | 9.03 | 72,391 | 0.66 | 0.67 | 1.92 | (e) | 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 | ||||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 16.16 | 0.25 | 2.09 | 2.34 | (0.28 | ) | (0.54 | ) | (0.82 | ) | 17.68 | 14.84 | 1,314,323 | 0.85 | (d) | 0.86 | (d) | 1.53 | (d) | 101 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 18.86 | 0.23 | (0.78 | ) | (0.55 | ) | (0.44 | ) | (1.71 | ) | (2.15 | ) | 16.16 | (2.58 | ) | 1,129,261 | 0.89 | 0.90 | 1.30 | 87 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 18.52 | 0.32 | (e) | 1.28 | 1.60 | (0.31 | ) | (0.95 | ) | (1.26 | ) | 18.86 | 8.77 | 1,290,920 | 0.91 | 0.92 | 1.67 | (e) | 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 |
(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 $120,697 and $1,183,378 for Series I and Series II shares, respectively. |
(e) | Net investment income per share and the ratio of net investment income (loss) to average net assets includes 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% and $0.22 and 1.16% for Series I and Series II shares, 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 the 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 the Invesco V.I. Equity and Income Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,129.70 | $ | 2.94 | $ | 1,022.37 | $ | 2.80 | 0.55 | % | ||||||||||||
Series II | 1,000.00 | 1,128.10 | 4.28 | 1,021.11 | 4.06 | 0.80 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. 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, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 43,008,386 | ||
Corporate Dividends Received Deduction* | 56.48 | % | ||
U.S. Treasury Obligations* | 5.07 | % |
* | 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
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, 2016, Series I shares of Invesco V.I. Global Core Equity Fund (the Fund) underperformed the MSCI World Index, the Fund’s broad market/style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.81 | % | |||
Series II Shares | 6.50 | ||||
MSCI World Index▼ (Broad Market/Style Specific Index) | 7.51 | ||||
Lipper VUF Global Multi-Cap Value Funds Classification Average◾ (Peer Group) | 9.75 |
Source(s): ▼FactSet Research Systems Inc.; ◾Lipper Inc.
Market conditions and your Fund
Global equities began calendar year 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Equity markets rebounded strongly in February. Central banks, including the Fed, the European Central Bank and the Bank of Japan, soothed investors’ nerves throughout the reporting period with accommodative policies and dovish rhetoric. Other factors contributing to investor sentiment included rebounding oil prices and, in the US, an improving housing market and employment picture. But the year was volatile and full of surprises – several of them involving elections.
In June, the Brexit – the decision by UK voters to leave the European Union – caused global markets to decline sharply, but only briefly. Stocks in economically sensitive sectors, including energy and financials, were hardest hit, and investors flocked to the perceived safety of US
Treasuries and more defensive, dividend-paying equities. Following the surprise outcome of the US presidential election in November, US stocks surged, led by the health care and financials sectors, which might benefit from reduced regulation. Non-US equities, particularly emerging market equities, traded lower on the news due to currency weakness and the prospect of a less favorable trade environment. Also in November, OPEC agreed to cut production for the first time in eight years; the agreement helped support higher oil prices and energy stocks. As expected, the Fed raised interest rates in December 2016, its only rate hike during the reporting period. For the reporting period as a whole, US equities outperformed non-US equities. Emerging markets, supported by the Fed’s delayed interest rate increases and a rally in commodities, outperformed their developed-market counterparts (excluding the US) – a reversal from previous years.
During the year, stock selection in the energy and industrials sectors benefited
Fund performance relative to the broad market/style-specific benchmark. In addition, overweight exposure to the financials sector benefited Fund performance. The largest detractor from Fund performance relative to the broad market/style-specific benchmark included stock selection in the health care and telecommunication service sectors.
From a geographic perspective, stock selection in the Netherlands and Sweden was beneficial to the Fund’s relative performance. Conversely, stock selection in Hong Kong and Israel detracted from the Fund’s relative performance.
The largest individual contributor during the reporting period was Royal Dutch Shell. The company reported higher-than-expected earnings from its upstream and integrated gas units.
In addition, First Republic Bank experienced solid gains for the year, reporting strong operational execution and growth, as well as increases in its loans and deposit balances.
Also contributing to the Fund’s performance versus the broad market/style-specific benchmark was Taiwan Semiconductor Manufacturing Company, a parts supplier to the iPhone 7. The company benefited from a broader rally in technology companies and record profits as demand for new iPhones fueled orders for its processor chips.
Detracting from the Fund’s performance for the reporting period was Hertz Global Holdings. The company’s performance was hurt after the company reported disappointing earnings following the separation of its car rental and equipment rental businesses. We sold our position in Hertz Global Holdings during the reporting period.
Portfolio Composition | |||||
By country | % of total net assets |
United States | 50.4 | % | |||
United Kingdom | 11.2 | ||||
Netherlands | 7.6 | ||||
Japan | 7.0 | ||||
France | 4.0 | ||||
Switzerland | 3.1 | ||||
Australia | 2.7 | ||||
Hong Kong | 2.0 | ||||
Countries each less than | |||||
2.0% of portfolio | 9.5 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 2.5 |
Top 10 Equity Holdings* % of total net assets |
1. | Royal Dutch Shell PLC-Class A-ADR | 3.1 | % | ||||
2. | General Electric Co. | 3.0 | |||||
3. | Alphabet Inc.-Class C | 2.9 | |||||
4. | American Express Co. | 2.7 | |||||
5. | First Republic Bank | 2.6 | |||||
6. | Sherwin-Williams Co. (The) | 2.5 | |||||
7. | Vodafone Group PLC-ADR | 2.1 | |||||
8. | Cognizant Technology Solutions Corp.-Class A | 2.0 | |||||
9. | AIA Group Ltd. | 2.0 | |||||
10. | Biogen Inc. | 2.0 |
Total Net Assets
| $
| 74.4 million
|
| ||||
Total Number of Holdings* | 67 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. Global Core Equity Fund
Another stock experiencing a setback was Teva Pharmaceutical Industries, which fell after admitting to paying bribes in Russia, Ukraine and Mexico to boost sales and the surprise departure of its chief executive officer.
During the reporting period, our largest overweight positions relative to the MSCI World Index were in the financials, consumer discretionary, energy and health care sectors. The Fund also had a slight overweight position in the telecommunication services sector. The largest underweight positions were in the consumer staples, materials, real estate and utilities sectors.
As always, the Fund focuses on companies that provide an attractive return on invested capital, trade at attractive valuations and have management teams with a long-term perspective. In short, we seek to take advantage of the market’s volatile behavior and short-term focus. We believe our conservative approach should position the Fund to navigate the evolving economic backdrop.
We thank you for your continued investment in Invesco V.I. Global Core Equity Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Erik Esselink 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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (1/2/97) | 4.65 | % | |||
10 Years | 0.79 | ||||
5 Years | 8.12 | ||||
1 Year | 6.81 | ||||
Series II Shares | |||||
10 Years | 0.54 | % | |||
5 Years | 7.85 | ||||
1 Year | 6.50 |
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, prior to June 1, 2010, 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.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.06% and 1.31%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. The Fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer.
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.
Emerging markets securities risk.
Emerging markets (also referred to as developing markets) are generally subject to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Geographic focus risk. The Fund may from time to time invest a substantial amount of its assets in securities of issuers located in a single country or a limited number of countries. Adverse economic, political or social conditions in those countries may therefore have a significant negative impact on the Fund’s investment performance.
Investing in the European Union risk. Investments in certain countries in the Eu-ropean Union are susceptible to high
economic risks associated with high levels of debt, such as investments in sovereign debt of Greece, Italy and Spain. 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. Separately, the Euro-pean Union faces issues involving its membership, structure, procedures and policies. The exit of one or more member states from the European Union, such as the United Kingdom (UK) which has announced its intention to exit, would place its currency and banking system in jeopardy. The exit by the UK or other member states will likely result in increased volatility, illiquidity and potentially lower economic growth in the affected markets, which will adversely affect the Fund’s investments.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Preferred securities risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities. Preferred securities also may be subordinated to bonds or other debt instruments, subjecting them to a
Invesco V.I. Global Core Equity Fund
greater risk of non-payment, may be less liquid than many other securities, such as common stocks, and generally offer no voting rights with respect to the issuer.
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 Lipper VUF Global Multi-Cap Value Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper Global Multi Cap Value 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. Global Core Equity Fund
Schedule of Investments
December 31, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.54% |
| |||||||
Australia–2.76% | ||||||||
Australia and New Zealand Banking Group Ltd. | 60,263 | $ | 1,319,355 | |||||
Qantas Airways Ltd. | 306,461 | 734,375 | ||||||
2,053,730 | ||||||||
Canada–1.99% | ||||||||
Suncor Energy, Inc. | 45,311 | 1,481,292 | ||||||
China–1.24% | ||||||||
Baidu, Inc.–ADR(a) | 5,598 | 920,367 | ||||||
France–3.97% | ||||||||
Danone | 15,288 | 967,567 | ||||||
LVMH Moet Hennessy Louis Vuitton S.E. | 4,784 | 912,113 | ||||||
Publicis Groupe S.A. | 15,601 | 1,076,386 | ||||||
2,956,066 | ||||||||
Germany–1.95% | ||||||||
Porsche Automobil Holding S.E.–Preference Shares | 26,695 | 1,451,041 | ||||||
Hong Kong–2.01% | ||||||||
AIA Group Ltd. | 267,400 | 1,496,451 | ||||||
Israel–0.88% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 18,133 | 657,321 | ||||||
Japan–7.00% | ||||||||
Hitachi, Ltd. | 244,000 | 1,314,736 | ||||||
KDDI Corp. | 49,700 | 1,254,875 | ||||||
Komatsu Ltd. | 52,400 | 1,182,780 | ||||||
Mitsui O.S.K. Lines, Ltd. | 201,000 | 555,211 | ||||||
Toyota Motor Corp. | 15,500 | 904,920 | ||||||
5,212,522 | ||||||||
Netherlands–7.56% | ||||||||
GrandVision N.V.–REGS(b) | 35,065 | 771,555 | ||||||
ING Groep N.V. | 77,876 | 1,095,917 | ||||||
Koninklijke DSM N.V. | 11,392 | 681,932 | ||||||
Koninklijke Philips N.V. | 36,064 | 1,099,162 | ||||||
Philips Lighting N.V.–REGS(a)(b) | 25,701 | 633,007 | ||||||
Randstad Holding N.V. | 24,861 | 1,346,408 | ||||||
5,627,981 | ||||||||
Singapore–1.34% | ||||||||
DBS Group Holdings Ltd. | 83,500 | 996,252 | ||||||
Sweden–0.51% | ||||||||
Sandvik AB | 30,601 | 377,879 | ||||||
Switzerland–3.09% | ||||||||
ABB Ltd. | 32,306 | 680,052 | ||||||
Roche Holding AG | 4,991 | 1,137,159 | ||||||
UBS Group AG | 30,747 | 481,578 | ||||||
2,298,789 |
Shares | Value | |||||||
Taiwan–1.59% | ||||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 212,000 | $ | 1,183,664 | |||||
United Kingdom–11.20% | ||||||||
British American Tobacco PLC | 10,713 | 608,421 | ||||||
Diageo PLC | 27,222 | 704,435 | ||||||
Liberty Global PLC–Series A(a) | 31,375 | 959,761 | ||||||
Rio Tinto PLC | 24,469 | 932,022 | ||||||
Royal Dutch Shell PLC–Class A–ADR | 41,926 | 2,279,936 | ||||||
St. James’s Place PLC | 102,264 | 1,272,304 | ||||||
Vodafone Group PLC–ADR | 64,587 | 1,577,860 | ||||||
8,334,739 | ||||||||
United States–50.45% | ||||||||
AbbVie Inc. | 18,603 | 1,164,920 | ||||||
Allergan PLC(a) | 6,194 | 1,300,802 | ||||||
Alphabet Inc.–Class C(a) | 2,756 | 2,127,136 | ||||||
American Express Co. | 26,589 | 1,969,713 | ||||||
Berkshire Hathaway Inc.–Class A(a) | 6 | 1,464,726 | ||||||
Biogen Inc.(a) | 5,249 | 1,488,511 | ||||||
BioMarin Pharmaceutical Inc.(a) | 2,378 | 196,993 | ||||||
Celgene Corp.(a) | 12,675 | 1,467,131 | ||||||
Chevron Corp. | 11,421 | 1,344,252 | ||||||
Cognizant Technology Solutions Corp.–Class A(a) | 27,013 | 1,513,538 | ||||||
Comcast Corp.–Class A | 21,015 | 1,451,086 | ||||||
Concho Resources Inc.(a) | 5,329 | 706,625 | ||||||
Delphi Automotive PLC | 19,229 | 1,295,073 | ||||||
Eaton Corp. PLC | 10,900 | 731,281 | ||||||
First Republic Bank | 21,351 | 1,967,281 | ||||||
General Electric Co. | 71,634 | 2,263,634 | ||||||
General Growth Properties, Inc. | 44,385 | 1,108,737 | ||||||
Halliburton Co. | 13,834 | 748,281 | ||||||
HCA Holdings, Inc.(a) | 15,006 | 1,110,744 | ||||||
Incyte Corp.(a) | 1,270 | 127,343 | ||||||
International Business Machines Corp. | 6,799 | 1,128,566 | ||||||
Marsh & McLennan Cos., Inc. | 15,898 | 1,074,546 | ||||||
McKesson Corp. | 4,557 | 640,031 | ||||||
Moody’s Corp. | 13,167 | 1,241,253 | ||||||
Nielsen Holdings PLC | 13,505 | 566,535 | ||||||
Priceline Group Inc. (The)(a) | 425 | 623,075 | ||||||
Progressive Corp. (The) | 34,212 | 1,214,526 | ||||||
QUALCOMM, Inc. | 18,998 | 1,238,670 | ||||||
Sherwin-Williams Co. (The) | 6,923 | 1,860,487 | ||||||
Shire PLC–ADR | 5,839 | 994,849 | ||||||
Thermo Fisher Scientific, Inc. | 3,996 | 563,836 | ||||||
Vertex Pharmaceuticals Inc.(a) | 1,910 | 140,710 | ||||||
Walgreens Boots Alliance, Inc. | 8,660 | 716,702 | ||||||
37,551,593 | ||||||||
Total Common Stocks & Other Equity Interests |
| 72,599,687 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
Shares | Value | |||||||
Money Market Funds–1.92% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(c) | 859,853 | $ | 859,853 | |||||
Treasury Portfolio–Institutional Class, 0.37%(c) | 573,235 | 573,235 | ||||||
Total Money Market Funds | 1,433,088 | |||||||
TOTAL INVESTMENTS–99.46% |
| 74,032,775 | ||||||
OTHER ASSETS LESS LIABILITIES–0.54% |
| 399,634 | ||||||
NET ASSETS–100.00% |
| $ | 74,432,409 |
Investment Abbreviations:
ADR | – American Depositary Receipt | |
REGS | – Regulation S |
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, 2016 was $1,404,562, which represented 1.89% of the Fund’s Net Assets. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $67,930,206) | $ | 72,599,687 | ||
Investments in affiliated money market funds, at value and cost | 1,433,088 | |||
Total investments, at value (Cost $69,363,294) | 74,032,775 | |||
Foreign currencies, at value (Cost $163,560) | 160,232 | |||
Receivable for: | ||||
Fund shares sold | 8,606 | |||
Dividends | 123,378 | |||
Investment for trustee deferred compensation and retirement plans | 34,717 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 221,309 | |||
Total assets | 74,581,017 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 12,944 | |||
Accrued fees to affiliates | 64,961 | |||
Accrued trustees’ and officers’ fees and benefits | 407 | |||
Accrued other operating expenses | 33,231 | |||
Trustee deferred compensation and retirement plans | 37,065 | |||
Total liabilities | 148,608 | |||
Net assets applicable to shares outstanding | $ | 74,432,409 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 76,005,183 | ||
Undistributed net investment income | 833,613 | |||
Undistributed net realized gain (loss) | (7,289,438 | ) | ||
Net unrealized appreciation | 4,883,051 | |||
$ | 74,432,409 | |||
Net Assets: |
| |||
Series I | $ | 62,130,030 | ||
Series II | $ | 12,302,379 | ||
Shares outstanding, no par value, with an unlimited number of shares authorized: |
| |||
Series I | 7,039,200 | |||
Series II | 1,393,860 | |||
Series I: | ||||
Net asset value per share | $ | 8.83 | ||
Series II: | ||||
Net asset value per share | $ | 8.83 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $97,995) | $ | 1,627,689 | ||
Dividends from affiliated money market funds | 2,080 | |||
Total investment income | 1,629,769 | |||
Expenses: | ||||
Advisory fees | 498,709 | |||
Administrative services fees | 181,002 | |||
Custodian fees | 7,613 | |||
Distribution fees — Series II | 31,570 | |||
Transfer agent fees | 12,226 | |||
Trustees’ and officers’ fees and benefits | 20,497 | |||
Reports to shareholders | 8,580 | |||
Professional services fees | 48,730 | |||
Other | 7,046 | |||
Total expenses | 815,973 | |||
Less: Fees waived | (745 | ) | ||
Net expenses | 815,228 | |||
Net investment income | 814,541 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (1,577,127 | ) | ||
Foreign currencies | 87,465 | |||
(1,489,662 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 5,153,645 | |||
Foreign currencies | (1,905 | ) | ||
Forward foreign currency contracts | 221,309 | |||
5,373,049 | ||||
Net realized and unrealized gain | 3,883,387 | |||
Net increase in net assets resulting from operations | $ | 4,697,928 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income | $ | 814,541 | $ | 808,264 | ||||
Net realized gain (loss) | (1,489,662 | ) | 1,079,723 | |||||
Change in net unrealized appreciation (depreciation) | 5,373,049 | (2,801,302 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 4,697,928 | (913,315 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (635,642 | ) | (951,512 | ) | ||||
Series ll | (91,204 | ) | (150,626 | ) | ||||
Total distributions from net investment income | (726,846 | ) | (1,102,138 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | — | (2,459,784 | ) | |||||
Series ll | — | (507,950 | ) | |||||
Total distributions from net realized gains | — | (2,967,734 | ) | |||||
Share transactions–net: | ||||||||
Series l | (6,324,862 | ) | (4,453,265 | ) | ||||
Series ll | (1,667,057 | ) | (1,936,288 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (7,991,919 | ) | (6,389,553 | ) | ||||
Net increase (decrease) in net assets | (4,020,837 | ) | (11,372,740 | ) | ||||
Net assets: | ||||||||
Beginning of year | 78,453,246 | 89,825,986 | ||||||
End of year (includes undistributed net investment income of $833,613 and $654,359, respectively) | $ | 74,432,409 | $ | 78,453,246 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Global Core Equity Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. Global Core Equity Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. 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 the 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 $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, 2016, the effective advisory fees incurred by the Fund was 0.67%.
Invesco V.I. Global Core Equity Fund
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
The Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $745.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $50,000 for accounting and fund administrative services and was reimbursed $131,002 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $12 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. Global Core Equity Fund
The following is a summary of the tiered valuation input levels, as of December 31, 2016. 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, 2016, there were transfers from Level 1 to Level 2 of $932,022 and from Level 2 to Level 1 of $1,847,940, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 2,053,730 | $ | — | $ | 2,053,730 | ||||||||
Canada | 1,481,292 | — | — | 1,481,292 | ||||||||||||
China | 920,367 | — | — | 920,367 | ||||||||||||
France | 1,076,386 | 1,879,680 | — | 2,956,066 | ||||||||||||
Germany | — | 1,451,041 | — | 1,451,041 | ||||||||||||
Hong Kong | — | 1,496,451 | — | 1,496,451 | ||||||||||||
Israel | 657,321 | — | — | 657,321 | ||||||||||||
Japan | — | 5,212,522 | — | 5,212,522 | ||||||||||||
Netherlands | 2,500,479 | 3,127,502 | — | 5,627,981 | ||||||||||||
Singapore | — | 996,252 | — | 996,252 | ||||||||||||
Sweden | — | 377,879 | — | 377,879 | ||||||||||||
Switzerland | 481,578 | 1,817,211 | — | 2,298,789 | ||||||||||||
Taiwan | — | 1,183,664 | — | 1,183,664 | ||||||||||||
United Kingdom | 4,817,558 | 3,517,181 | — | 8,334,739 | ||||||||||||
United States | 37,551,593 | — | — | 37,551,593 | ||||||||||||
Money Market Funds | 1,433,088 | — | — | 1,433,088 | ||||||||||||
50,919,662 | 23,113,113 | — | 74,032,775 | |||||||||||||
Forward Foreign Currency Contracts* | — | 221,309 | — | 221,309 | ||||||||||||
Total Investments | $ | 50,919,662 | $ | 23,334,422 | $ | — | $ | 74,254,084 |
* | Unrealized appreciation. |
NOTE 4—Derivative Instruments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
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, 2016:
Value | ||||
Derivative Assets | Currency Risk | |||
Unrealized appreciation on forward foreign currency contracts outstanding | $ | 221,309 | ||
Derivatives not subject to master netting agreements | — | |||
Total Derivative Assets subject to master netting agreements | $ | 221,309 |
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement Date | Contract to | Notional Value | Unrealized Appreciation | |||||||||||||||||||||||
Counterparty | Deliver | Receive | ||||||||||||||||||||||||
02/17/17 | Barclays Bank PLC | GBP | 1,500,000 | USD | 1,855,937 | $ | 1,851,351 | $ | 4,586 | |||||||||||||||||
02/17/17 | Goldman Sachs International | JPY | 204,000,000 | USD | 1,845,651 | 1,749,890 | 95,761 | |||||||||||||||||||
02/17/17 | JPMorgan Chase Bank, N.A. | JPY | 200,000,000 | USD | 1,836,540 | 1,715,578 | 120,962 | |||||||||||||||||||
Total Forward Foreign Currency Contracts — Currency Risk | $ | 221,309 |
Currency Abbreviations:
GBP | – British Pound Sterling | |
JPY | – Japanese Yen | |
USD | – U.S. Dollar |
Invesco V.I. Global Core Equity Fund
Offsetting Assets and Liabilities
The table below reflects the Fund’s exposure to Counterparties subject to either an ISDA Master Agreement or other agreement for OTC derivative transactions as of December 31, 2016.
Financial Derivative Assets | Financial Derivative Liabilities | Net value of derivatives | Collateral (Received)/Pledged | Net amount | ||||||||||||||||||||
Counterparty | Forward foreign currency | Forward foreign currency | Non-Cash | Cash | ||||||||||||||||||||
Barclays Bank PLC | $ | 4,586 | $ | — | $ | 4,586 | $ | — | $ | — | $ | 4,586 | ||||||||||||
Goldman Sachs International | 95,761 | — | 95,761 | — | — | 95,761 | ||||||||||||||||||
JPMorgan Chase Bank, N.A. | 120,962 | — | 120,962 | — | — | 120,962 | ||||||||||||||||||
Total | $ | 221,309 | $ | — | $ | 221,309 | $ | — | $ | — | $ | 221,309 |
Effect of Derivative Investments for the year ended December 31, 2016
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 | ||||
Currency Risk | ||||
Realized Gain: | ||||
Forward foreign currency contracts | $ | — | ||
Change in Net Unrealized Appreciation: | ||||
Forward foreign currency contracts | 221,309 | |||
Total | $ | 221,309 |
The table below summarizes the two month average notional value of forward foreign currency contracts.
Forward Foreign Currency Contracts | ||||
Average notional value | $ | 5,316,819 |
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. Global Core 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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 726,846 | $ | 1,102,138 | ||||
Long-term capital gain | — | 2,967,734 | ||||||
Total distributions | $ | 726,846 | $ | 4,069,872 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 869,525 | ||
Net unrealized appreciation — investments | 4,661,133 | |||
Net unrealized appreciation (depreciation) — other investments | (7,740 | ) | ||
Temporary book/tax differences | (35,912 | ) | ||
Capital loss carryforward | (7,059,780 | ) | ||
Shares of beneficial interest | 76,005,183 | |||
Total net assets | $ | 74,432,409 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. 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 has a capital loss carryforward as of December 31, 2016, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 5,657,588 | $ | — | $ | 5,657,588 | ||||||
Not subject to expiration | 787,052 | 615,140 | 1,402,192 | |||||||||
$ | 6,444,640 | $ | 615,140 | $ | 7,059,780 |
* | 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, 2016 was $34,874,507 and $44,227,144, 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 | $ | 7,192,896 | ||
Aggregate unrealized (depreciation) of investment securities | (2,531,763 | ) | ||
Net unrealized appreciation of investment securities | $ | 4,661,133 |
Cost of investments for tax purposes is $69,371,642.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and passive foreign investment companies, on December 31, 2016, undistributed net investment income was increased by $91,559, undistributed net realized gain (loss) was decreased by $94,827 and shares of beneficial interest was increased by $3,268. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Global Core Equity Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 392,398 | $ | 3,370,814 | 579,461 | $ | 5,386,251 | ||||||||||
Series II | 24,893 | 212,975 | 16,698 | 149,459 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 71,260 | 635,642 | 421,668 | 3,411,296 | ||||||||||||
Series II | 10,214 | 91,204 | 81,327 | 657,932 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,224,711 | ) | (10,331,318 | ) | (1,455,728 | ) | (13,250,812 | ) | ||||||||
Series II | (232,258 | ) | (1,971,236 | ) | (299,886 | ) | (2,743,679 | ) | ||||||||
Net increase (decrease) in share activity | (958,204 | ) | $ | (7,991,919 | ) | (656,460 | ) | $ | (6,389,553 | ) |
(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 | 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 12/31/16 | $ | 8.35 | $ | 0.10 | $ | 0.47 | $ | 0.57 | $ | (0.09 | ) | $ | — | $ | (0.09 | ) | $ | 8.83 | 6.81 | % | $ | 62,130 | 1.05 | %(d) | 1.05 | %(d) | 1.14 | %(d) | 47 | % | ||||||||||||||||||||||||||
Year ended 12/31/15 | 8.94 | 0.09 | (0.23 | ) | (0.14 | ) | (0.13 | ) | (0.32 | ) | (0.45 | ) | 8.35 | (1.42 | ) | 65,167 | 1.06 | 1.06 | 0.98 | 75 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 9.06 | 0.12 | (0.05 | ) | 0.07 | (0.19 | ) | — | (0.19 | ) | 8.94 | 0.69 | 73,816 | 1.06 | 1.06 | 1.26 | 123 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 7.54 | 0.15 | 1.54 | 1.69 | (0.17 | ) | — | (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 | ) | — | (0.19 | ) | 7.54 | 13.75 | 74,517 | 1.00 | 1.08 | 1.98 | 23 | ||||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 8.35 | 0.07 | 0.47 | 0.54 | (0.06 | ) | — | (0.06 | ) | 8.83 | 6.50 | 12,302 | 1.30 | (d) | 1.30 | (d) | 0.89 | (d) | 47 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 8.93 | 0.07 | (0.23 | ) | (0.16 | ) | (0.10 | ) | (0.32 | ) | (0.42 | ) | 8.35 | (1.65 | ) | 13,286 | 1.31 | 1.31 | 0.73 | 75 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 9.04 | 0.10 | (0.05 | ) | 0.05 | (0.16 | ) | — | (0.16 | ) | 8.93 | 0.48 | 16,010 | 1.31 | 1.31 | 1.01 | 123 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 7.52 | 0.13 | 1.53 | 1.66 | (0.14 | ) | — | (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 | ) | — | (0.17 | ) | 7.52 | 13.41 | 21,001 | 1.25 | 1.33 | 1.73 | 23 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $61,806 and $12,628 for Series I and Series II, respectively. |
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 the 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 the Invesco V.I. Global Core Equity Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,064.30 | $ | 5.29 | $ | 1,020.01 | $ | 5.18 | 1.02 | % | ||||||||||||
Series II | 1,000.00 | 1,062.50 | 6.58 | 1,018.75 | 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, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Global Core Equity Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2016:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 78.12 | % | ||
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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
Invesco V.I. Global Health Care Fund
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. | ||
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. | ||
Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. | ||
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing. | ||
Invesco Distributors, Inc. I-VIGHC-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the fiscal year ended December 31, 2016, Series I shares of Invesco V.I. Global Health Care Fund (the Fund) underperformed the MSCI World Health Care Index, the Fund’s style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | –11.46 | % | |||
Series II Shares | –11.69 | ||||
MSCI World Index▼ (Broad Market Index) | 7.51 | ||||
MSCI World Health Care Index▼ (Style-Specific Index) | –6.81 | ||||
Lipper VUF Health/Biotechnology Funds Classification Average∎ (Peer Group) | –9.72 | ||||
Source(s): ▼FactSet Research Systems Inc.; ∎ Lipper Inc.
|
Market conditions and your Fund
Global equities began calendar year 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Equity markets rebounded strongly in February. Central banks, including the Fed, the European Central Bank and the Bank of Japan, soothed investors’ nerves throughout the reporting period with accommodative policies and dovish rhetoric. Other factors contributing to investor sentiment included rebounding oil prices and, in the US, an improving housing market and employment picture. But the year was volatile and full of surprises – several of them involving elections.
In June, the Brexit – the decision by UK voters to leave the European Union – caused global markets to decline sharply, but only briefly. Stocks in economically sensitive sectors, including energy and financials, were hardest hit, and investors flocked to the perceived safety of US Treasuries and more defensive, dividend-
paying equities. Following the surprise outcome of the US presidential election in November, US stocks surged, led by the health care and financials sectors, which might benefit from reduced regulation. Non-US equities, particularly emerging market equities, traded lower on the news due to currency weakness and the prospect of a less favorable trade environment.
Also in November, OPEC agreed to cut production for the first time in eight years; the agreement helped support higher oil prices and energy stocks. As expected, the Fed raised interest rates in December 2016, its only rate hike during the reporting period. For the reporting period, US equities outperformed non-US equities. Emerging markets, supported by the Fed’s delayed interest rate increases and a rally in commodities, outperformed their developed-market counterparts (excluding the US) – a reversal from previous years.
During the year, the health care sector experienced significant pressure as US presidential candidates and a series of
press reports focused attention on drug pricing. This caused a sell-off during the year, particularly in the biotechnology and specialty pharmaceutical industries. These stocks rebounded somewhat following the election, but still ended the year with losses.
Overweight allocation to the life science tools and services industry was the largest contributor to the Fund’s relative and absolute performance versus the style-specific benchmark during the reporting period. Specifically, Thermo Fisher Scientific, a company that markets scientific instruments and lab equipment, was a strong contributor to Fund performance. Following a number of acquisitions, the company reported increased operating margins and strong earnings growth during the reporting period.
The Fund’s exposure to the retail drugstore industry also contributed to Fund performance. Raia Drogasil, a leading Brazilian drugstore chain, was a key contributor to Fund performance during the year. The company benefited from the rebounding local market as investors welcomed an evolving political backdrop and the potential for leadership change in the government. Raia Drogasil also reported strong revenues and same-store sales growth, which boosted its shares.
Stock selection in the managed health care industry also contributed to Fund performance. The industry included the Fund’s top individual contributor, UnitedHealth Group. During the year, the company increased its dividend and reported better-than-expected earnings and an improved outlook for 2017.
Stock selection in and an underweight allocation to the pharmaceuticals industry detracted from the Fund’s performance versus its style-specific bench-
Portfolio Composition | |||
By country | % of total net assets |
United States | 79.7% | |
Switzerland | 4.9 | |
France | 3.5 | |
Japan | 2.8 | |
Countries each less than 2% of portfolio | 6.1 | |
Money Market Funds Plus Other Assets Less Liabilities | 3.0 |
Top 10 Equity Holdings* | |||
% of total net assets |
1. Celgene Corp. | 6.7% | |
2. Merck & Co., Inc. | 4.6 | |
3. Shire PLC-ADR | 4.4 | |
4. Thermo Fisher Scientific, Inc. | 4.3 | |
5. Biogen Inc. | 4.3 | |
6. UnitedHealth Group Inc. | 2.9 | |
7. Eli Lilly and Co. | 2.8 | |
8. Bristol-Myers Squibb Co. | 2.7 | |
9. Roche Holding AG | 2.7 | |
10. BioMarin Pharmaceutical Inc. | 2.7 |
Total Net Assets | $214.6 million | |
Total Number of Holdings* | 67 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. Global Health Care Fund
mark for the year. Within the industry, Endo International, Allergan and Teva Pharmaceutical Industries were the largest detractors from Fund performance.
During the reporting period, specialty pharmaceutical company Endo International reported weaker-than-anticipated financial results and revised its full-year earnings estimates down significantly from its initial forecast. We reduced our exposure to the company during the reporting period.
Shares of Allergan dropped significantly after Pfizer (also a Fund holding) terminated its proposed merger with the company following a US Treasury Department tax inversion rule that effectively killed the deal. We maintained our position in Allergan, as we based our thesis on the standalone company and not the merger.
Stock selection in and an overweight allocation to the biotechnology industry also detracted from the Fund’s relative return for the year, and a number of holdings within the industry were key detractors, including Vertex Pharmaceuticals. The company’s shares declined amid a particularly sharp sell-off in biotechnology stocks in the first quarter of 2016.
During the year, we used currency forward contracts to hedge currency exposure of non-US-based companies held in the Fund. Derivatives were used solely for hedging and not for speculative purposes or leverage. The use of currency forward contracts had a marginally positive impact on the Fund’s performance relative to the style-specific benchmark.
During the reporting period, we trimmed positions in industries that we believed performed relatively well and reached full valuations, such as large-cap pharmaceuticals, medical devices and health care services. Geographically, we increased our exposure to the US, as US companies appeared more mispriced than their European counterparts, in our view. As such, at the close of the reporting period, our largest underweight industry exposure was in Europe. We also maintained a substantial overweight position in small-cap stocks, and an underweight position in large-cap stocks relative to the style-specific benchmark.
Over the course of the year, we maintained an underweight position in large-cap pharmaceuticals relative to the style-specific benchmark; however, the pharmaceuticals industry was the Fund’s largest absolute industry exposure for the year. The Fund’s largest overweight position was in the biotechnology industry where we believed valuations were attractive, growth was robust, pipelines were strong and there was pipeline-and-takeout optionality not priced into the stocks.
We continue to emphasize specialty pharmaceuticals and biotechnology stocks based on their generally robust product portfolios, strong pipelines, and our view that many could be targets for acquisition.
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 12/31/06
1 | Source: Lipper Inc. |
2 | Source: FactSet Research Systems Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (5/21/97) | 8.12 | % | |||
10 Years | 7.56 | ||||
5 Years | 13.18 | ||||
1 Year | –11.46 | ||||
Series II Shares | |||||
Inception (4/30/04) | 7.06 | % | |||
10 Years | 7.29 | ||||
5 Years | 12.89 | ||||
1 Year | –11.69 |
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 0.97% and 1.22%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.98% and 1.23%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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, 2018. 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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Convertible securities risk. The market values of convertible securities are affected by market interest rates, the risk of actual issuer default on interest or principal payments and the value of the underlying common stock into which the convertible security may be converted. Additionally, a convertible security is subject to the same types of market and issuer risks as apply to the underlying common stock. In addition, certain convertible securities are subject to involuntary conversions and may undergo principal write-downs upon the occurrence of certain triggering events, and, as a result, are subject to an increased risk of loss.
Depositary receipts risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. The Fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer.
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.
Emerging markets securities risk. Emerging markets (also referred to as developing markets) are generally subject to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has
exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Geographic focus risk. The Fund may from time to time invest a substantial amount of its assets in securities of issuers located in a single country or a limited number of countries. Adverse economic, political or social conditions in those countries may therefore have a significant negative impact on the Fund’s investment performance.
Health care sector risk. The Fund will concentrate its investments in the securities of domestic and foreign issuers in the health care sector. The health care sector is subject to significant government regulations, increases or decreases in the cost of medical products and services, and competitive forces that could negatively impact a health care company’s profitability. The health care sector may also be affected by government health care programs.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Invesco V.I. Global Health Care Fund
Preferred securities risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities. Preferred securities also may be subordinated to bonds or other debt instruments, subjecting them to a greater risk of non-payment, may be less liquid than many other securities, such as common stocks, and generally offer no voting rights with respect to the issuer.
Small- and mid-capitalization companies risks. Small- and mid-capitalization companies tend to be more vulnerable to changing market conditions, may have little or no operating history or track record of success, and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
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).
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, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.02% |
| |||||||
Biotechnology–37.93% | ||||||||
AbbVie Inc. | 63,311 | $ | 3,964,535 | |||||
ACADIA Pharmaceuticals Inc.(b) | 37,920 | 1,093,613 | ||||||
Alder Biopharmaceuticals, Inc.(b) | 41,842 | 870,314 | ||||||
Alexion Pharmaceuticals, Inc.(b) | 25,334 | 3,099,615 | ||||||
Amgen Inc. | 22,980 | 3,359,906 | ||||||
Array BioPharma Inc.(b) | 207,290 | 1,822,079 | ||||||
BioCryst Pharmaceuticals, Inc.(b) | 105,438 | 667,423 | ||||||
Biogen Inc.(b) | 32,159 | 9,119,649 | ||||||
BioMarin Pharmaceutical Inc.(b) | 69,019 | 5,717,534 | ||||||
bluebird bio, Inc.(b) | 24,590 | 1,517,203 | ||||||
Celgene Corp.(b) | 124,538 | 14,415,273 | ||||||
DBV Technologies S.A.–ADR (France)(b) | 58,288 | 2,047,657 | ||||||
Exact Sciences Corp.(b) | 63,354 | 846,409 | ||||||
Gilead Sciences, Inc. | 46,577 | 3,335,379 | ||||||
Heron Therapeutics, Inc.(b) | 63,813 | 835,950 | ||||||
Incyte Corp.(b) | 54,277 | 5,442,355 | ||||||
Neurocrine Biosciences, Inc.(b) | 30,844 | 1,193,663 | ||||||
Prothena Corp. PLC (Ireland)(b) | 28,129 | 1,383,665 | ||||||
REGENXBIO Inc.(b) | 34,956 | 648,434 | ||||||
Sarepta Therapeutics, Inc.(b) | 40,665 | 1,115,441 | ||||||
Shire PLC–ADR | 55,474 | 9,451,660 | ||||||
Spark Therapeutics, Inc.(b) | 26,983 | 1,346,452 | ||||||
TESARO, Inc.(b) | 10,372 | 1,394,827 | ||||||
Ultragenyx Pharmaceutical Inc.(b) | 17,113 | 1,203,215 | ||||||
United Therapeutics Corp.(b) | 9,074 | 1,301,484 | ||||||
Vertex Pharmaceuticals Inc.(b) | 56,896 | 4,191,528 | ||||||
81,385,263 | ||||||||
Drug Retail–0.61% | ||||||||
Raia Drogasil S.A. (Brazil) | 69,660 | 1,309,422 | ||||||
Health Care Distributors–3.11% | ||||||||
Cardinal Health, Inc. | 23,745 | 1,708,927 | ||||||
McKesson Corp. | 35,395 | 4,971,228 | ||||||
6,680,155 | ||||||||
Health Care Equipment–4.69% | ||||||||
Olympus Corp. (Japan) | 98,500 | 3,396,539 | ||||||
ResMed Inc. | 37,796 | 2,345,242 | ||||||
Wright Medical Group N.V.(b) | 188,175 | 4,324,261 | ||||||
10,066,042 | ||||||||
Health Care Facilities–3.76% | ||||||||
Brookdale Senior Living Inc.(b) | 78,525 | 975,281 | ||||||
HCA Holdings, Inc.(b) | 49,668 | 3,676,425 | ||||||
Tenet Healthcare Corp.(b) | 107,381 | 1,593,534 | ||||||
Universal Health Services, Inc.–Class B | 17,189 | 1,828,566 | ||||||
8,073,806 |
Shares | Value | |||||||
Health Care Services–0.72% | ||||||||
Envision Healthcare Corp.(b) | 24,528 | $ | 1,552,377 | |||||
Life Sciences Tools & Services–5.49% | ||||||||
Agilent Technologies, Inc. | 46,191 | 2,104,462 | ||||||
Medpace Holdings, Inc.(b) | 11,014 | 397,275 | ||||||
Thermo Fisher Scientific, Inc. | 65,833 | 9,289,036 | ||||||
11,790,773 | ||||||||
Managed Health Care–8.07% | ||||||||
Aetna Inc. | 45,149 | 5,598,928 | ||||||
HealthEquity, Inc.(b) | 19,863 | 804,849 | ||||||
Humana Inc. | 20,079 | 4,096,718 | ||||||
Qualicorp S.A. (Brazil) | 109,000 | 644,574 | ||||||
UnitedHealth Group Inc. | 38,511 | 6,163,300 | ||||||
17,308,369 | ||||||||
Pharmaceuticals–32.64% | ||||||||
Aclaris Therapeutics, Inc.(b) | 62,738 | 1,702,709 | ||||||
Agile Therapeutics, Inc.(b) | 137,569 | 784,143 | ||||||
Allergan PLC(b) | 21,706 | 4,558,477 | ||||||
AstraZeneca PLC–ADR (United Kingdom) | 78,595 | 2,147,215 | ||||||
Bayer AG (Germany) | 23,586 | 2,460,946 | ||||||
Bristol-Myers Squibb Co. | 99,467 | 5,812,852 | ||||||
Dermira, Inc.(b) | 61,818 | 1,874,940 | ||||||
Eli Lilly and Co. | 82,200 | 6,045,810 | ||||||
Endo International PLC(b) | 113,780 | 1,873,957 | ||||||
Hikma Pharmaceuticals PLC (Jordan) | 58,937 | 1,367,430 | ||||||
Jazz Pharmaceuticals PLC(b) | 29,212 | 3,184,984 | ||||||
Johnson & Johnson | 20,315 | 2,340,491 | ||||||
Lipocine Inc.(b) | 121,754 | 448,055 | ||||||
Medicines Co. (The)(b) | 21,080 | 715,455 | ||||||
Merck & Co., Inc. | 167,170 | 9,841,298 | ||||||
Nippon Shinyaku Co., Ltd. (Japan) | 51,600 | 2,543,134 | ||||||
Novartis AG–ADR (Switzerland) | 64,654 | 4,709,397 | ||||||
Roche Holding AG (Switzerland) | 25,175 | 5,735,923 | ||||||
Sanofi–ADR (France) | 137,067 | 5,542,990 | ||||||
Supernus Pharmaceuticals Inc.(b) | 57,431 | 1,450,133 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 103,060 | 3,735,925 | ||||||
Zogenix, Inc.(b) | 95,229 | 1,157,032 | ||||||
70,033,296 | ||||||||
Total Common Stocks & Other Equity Interests |
| 208,199,503 |
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–2.93% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(c) | 3,772,249 | $ | 3,772,249 | |||||
Treasury Portfolio–Institutional Class, 0.37%(c) | 2,514,832 | 2,514,832 | ||||||
Total Money Market Funds |
| 6,287,081 | ||||||
TOTAL INVESTMENTS–99.95% |
| 214,486,584 | ||||||
OTHER ASSETS LESS LIABILITIES–0.05% | 111,149 | |||||||
NET ASSETS–100.00% | $ | 214,597,733 |
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. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $187,853,544) | $ | 208,199,503 | ||
Investments in affiliated money market funds, at value and cost | 6,287,081 | |||
Total investments, at value (Cost $194,140,625) | 214,486,584 | |||
Foreign currencies, at value (Cost $160,358) | 163,374 | |||
Receivable for: | ||||
Fund shares sold | 42,929 | |||
Dividends | 347,299 | |||
Investment for trustee deferred compensation and retirement plans | 70,701 | |||
Other assets | 14,345 | |||
Total assets | 215,125,232 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 170,278 | |||
Accrued fees to affiliates | 231,756 | |||
Accrued trustees’ and officers’ fees and benefits | 596 | |||
Accrued other operating expenses | 43,735 | |||
Trustee deferred compensation and retirement plans | 81,134 | |||
Total liabilities | 527,499 | |||
Net assets applicable to shares outstanding | $ | 214,597,733 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 182,607,407 | ||
Undistributed net investment income | 519,244 | |||
Undistributed net realized gain | 11,135,428 | |||
Net unrealized appreciation | 20,335,654 | |||
$ | 214,597,733 | |||
Net Assets: |
| |||
Series I | $ | 145,407,613 | ||
Series II | $ | 69,190,120 | ||
Shares outstanding, no par value, |
| |||
Series I | 6,030,373 | |||
Series II | 2,998,820 | |||
Series I: | ||||
Net asset value per share | $ | 24.11 | ||
Series II: | ||||
Net asset value per share | $ | 23.07 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $193,609) | $ | 3,383,586 | ||
Dividends from affiliated money market funds | 20,381 | |||
Total investment income | 3,403,967 | |||
Expenses: | ||||
Advisory fees | 1,891,047 | |||
Administrative services fees | 571,259 | |||
Custodian fees | 12,666 | |||
Distribution fees — Series II | 206,874 | |||
Transfer agent fees | 48,639 | |||
Trustees’ and officers’ fees and benefits | 24,367 | |||
Reports to shareholders | 10,188 | |||
Professional services fees | 52,342 | |||
Other | 8,415 | |||
Total expenses | 2,825,797 | |||
Less: Fees waived | (8,302 | ) | ||
Net expenses | 2,817,495 | |||
Net investment income | 586,472 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 11,165,551 | |||
Foreign currencies | 14,026 | |||
11,179,577 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (46,644,014 | ) | ||
Foreign currencies | 9,699 | |||
(46,634,315 | ) | |||
Net realized and unrealized gain (loss) | (35,454,738 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (34,868,266 | ) |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | 586,472 | $ | (216,046 | ) | |||
Net realized gain | 11,179,577 | 37,074,438 | ||||||
Change in net unrealized appreciation (depreciation) | (46,634,315 | ) | (30,599,373 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (34,868,266 | ) | 6,259,019 | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (24,359,518 | ) | (20,284,975 | ) | ||||
Series ll | (12,160,811 | ) | (9,450,446 | ) | ||||
Total distributions from net realized gains | (36,520,329 | ) | (29,735,421 | ) | ||||
Share transactions–net: | ||||||||
Series l | (16,391,139 | ) | 3,788,123 | |||||
Series ll | (10,597,292 | ) | 34,032,284 | |||||
Net increase (decrease) in net assets resulting from share transactions | (26,988,431 | ) | 37,820,407 | |||||
Net increase (decrease) in net assets | (98,377,026 | ) | 14,344,005 | |||||
Net assets: | ||||||||
Beginning of year | 312,974,759 | 298,630,754 | ||||||
End of year (includes undistributed net investment income (loss) of $519,244 and $(79,216), respectively) | $ | 214,597,733 | $ | 312,974,759 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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 Health Care Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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 Health Care 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 the 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.
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, 2016, the effective advisory fees incurred by the Fund was 0.75%.
Invesco V.I. Global Health Care Fund
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $8,302.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $62,999 for accounting and fund administrative services and was reimbursed $508,260 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $8 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, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interests | $ | 197,699,611 | $ | 10,499,892 | $ | — | $ | 208,199,503 | ||||||||
Money Market Funds | 6,287,081 | — | — | 6,287,081 | ||||||||||||
Total Investment | $ | 203,986,692 | $ | 10,499,892 | $ | — | $ | 214,486,584 |
Invesco V.I. Global Health Care Fund
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2016, the Fund engaged in securities purchases of $157,559, which did not result in any net realized gains (losses).
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees 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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 5,118,845 | $ | 487,576 | ||||
Long-term capital gain | 31,401,484 | 29,247,845 | ||||||
Total distributions | $ | 36,520,329 | $ | 29,735,421 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 598,958 | ||
Undistributed long-term gain | 11,195,435 | |||
Net unrealized appreciation — investments | 20,285,951 | |||
Net unrealized appreciation (depreciation) — other investments | (10,304 | ) | ||
Temporary book/tax differences | (79,714 | ) | ||
Shares of beneficial interest | 182,607,407 | |||
Total net assets | $ | 214,597,733 |
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, 2016.
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, 2016 was $54,932,364 and $112,283,338, 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.
Invesco V.I. Global Health Care Fund
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 41,751,814 | ||
Aggregate unrealized (depreciation) of investment securities | (21,465,863 | ) | ||
Net unrealized appreciation of investment securities | $ | 20,285,951 |
Cost of investments for tax purposes is $194,200,633.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and distributions, on December 31, 2016, undistributed net investment income was increased by $11,988 and undistributed net realized gain was decreased by $11,988. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 712,448 | $ | 19,800,449 | 1,916,081 | $ | 69,260,617 | ||||||||||
Series II | 173,821 | 4,619,231 | 907,124 | 31,689,711 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 924,811 | 24,359,518 | 636,492 | 20,284,975 | ||||||||||||
Series II | 482,189 | 12,160,811 | 307,032 | 9,450,446 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,206,286 | ) | (60,551,106 | ) | (2,481,998 | ) | (85,757,469 | ) | ||||||||
Series II | (1,033,250 | ) | (27,377,334 | ) | (218,560 | ) | (7,107,873 | ) | ||||||||
Net increase (decrease) in share activity | (946,267 | ) | $ | (26,988,431 | ) | 1,066,171 | $ | 37,820,407 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 50% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (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 12/31/16 | $ | 31.75 | $ | 0.09 | $ | (3.36 | ) | $ | (3.27 | ) | $ | — | $ | (4.37 | ) | $ | (4.37 | ) | $ | 24.11 | (11.46 | )% | $ | 145,408 | 1.04 | %(d) | 1.04 | %(d) | 0.31 | %(d) | 23 | % | ||||||||||||||||||||||||
Year ended 12/31/15 | 33.78 | 0.00 | 1.08 | 1.08 | — | (3.11 | ) | (3.11 | ) | 31.75 | 3.16 | 209,511 | 1.06 | 1.07 | 0.01 | 42 | ||||||||||||||||||||||||||||||||||||||||
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 | 1.09 | (0.01 | ) | 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 | ||||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 30.65 | 0.02 | (3.23 | ) | (3.21 | ) | — | (4.37 | ) | (4.37 | ) | 23.07 | (11.69 | ) | 69,190 | 1.29 | (d) | 1.29 | (d) | 0.06 | (d) | 23 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 32.80 | (0.08 | ) | 1.04 | 0.96 | — | (3.11 | ) | (3.11 | ) | 30.65 | 2.89 | 103,464 | 1.31 | 1.32 | (0.24 | ) | 42 | ||||||||||||||||||||||||||||||||||||||
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 | 1.34 | (0.26 | ) | 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 |
(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 $169,419 and $82,750 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 the 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 the Invesco V.I. Global Health Care Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 978.50 | $ | 4.92 | $ | 1,020.16 | $ | 5.03 | 0.99 | % | ||||||||||||
Series II | 1,000.00 | 977.20 | 6.16 | 1,018.90 | 6.29 | 1.24 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Global Health Care Fund
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, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 31,401,484 | ||
Corporate Dividends Received Deduction* | 36.48 | % | ||
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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
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, 2016, Series I shares of Invesco V.I. Global Real Estate Fund (the Fund) underperformed the Fund’s style-specific benchmark, the Custom Invesco Global Real Estate Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 2.04 | % | |||
Series II Shares | 1.82 | ||||
MSCI World Index▼ (Broad Market Index) | 7.51 | ||||
Custom Invesco Global Real Estate Index◾ (Style-Specific Index) | 3.75 | ||||
Lipper VUF Real Estate Funds Classification Average◆ (Peer Group) | 6.30 |
Source(s): ▼FactSet Research Systems Inc.; ◾Invesco, FactSet Research Systems Inc.;
◆Lipper Inc.
Market conditions and your Fund
Global equities began 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Equity markets rebounded strongly in February. Central banks, including the Fed, the European Central Bank and the Bank of Japan, soothed investors’ nerves throughout the reporting period with accommodative policies and dovish rhetoric. Other factors contributing to investor sentiment included the rebound in energy prices and an improving US housing market and employment picture. However, the year was defined by political events, which could potentially generate future uncertainties and market volatility.
In June, the Brexit – the decision by UK voters to leave the European Union – caused global markets to decline sharply, but only briefly. Stocks in economically sensitive sectors, including energy and financials, were hardest hit, and investors flocked to the perceived safety of US Treasuries and more defensive, dividend-
paying equities. Following the surprise outcome of the US presidential election in November, US stocks surged, led by the health care and financials sectors, which might benefit from reduced regulation. Non-US equities, particularly emerging market equities, traded lower on the news due to currency weakness and the prospect of a less favorable trade environment.
Also in November, OPEC agreed to cut production for the first time in eight years; the agreement helped support higher oil prices and energy stocks. As expected, the Fed raised interest rates in December 2016, its only rate hike during the reporting period. For the reporting period as a whole, US equities outperformed non-US equities. Emerging markets, supported by the Fed’s delayed interest rate increases and a rally in commodities, outperformed their developed-market counterparts (excluding the US) – a reversal from previous years.
Real estate supply and demand fundamentals and capital flows provided a supportive environment for listed real estate companies in 2016. Prime commercial
property valuations in most markets rose throughout the year as global capital circulated in search of quality real assets. Real estate market health is typically defined by issues of new supply. The supply response to the economic improvement during the year did not undermine the pricing power of landlords in a large number of key global markets. Rising interest rates in the US led to volatile returns for real estate securities, which ended the year with positive returns but underperformed broad market equities. The Fund also underperformed its style-specific benchmark for the year.
Key contributors to the Fund’s performance versus its style-specific benchmark included security selection and overweight exposure in Japan, Indonesia and Australia. Security selection in Brazil, Malaysia, India and Thailand also contributed to relative returns.
Primary detractors from relative Fund performance included security selection in the US, the UK and Hong Kong. A combination of security selection and underweight exposure in China, Singapore and Switzerland also detracted from relative returns. The Fund’s Netherlands holdings detracted on the basis of security selection and overweight exposure versus the Fund’s style-specific benchmark.
Top contributors to Fund performance included Vornado Realty Trust and Hudson Pacific Properties. Vornado Realty offers exposure to high-quality office and retail properties primarily in Washington, DC, and New York. The Fund had overweight exposure to Vornado due to its favorable relative value and strong balance sheet. Vornado also implemented a conservative capital allocation strategy during the reporting period. Hudson Pacific owns high-quality office properties across
Portfolio Composition | |||||
By country | % of total net assets |
United States | 50.6 | % | |||
Japan | 10.2 | ||||
Hong Kong | 6.3 | ||||
Australia | 5.4 | ||||
United Kingdom | 4.2 | ||||
China | 3.3 | ||||
France | 3.3 | ||||
Germany | 2.7 | ||||
Canada | 2.4 | ||||
Singapore | 2.3 | ||||
Countries each less than 2.0% of portfolio | 7.8 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 1.5 |
Top 10 Equity Holdings* | ||||||||
% of total net assets |
1. | Simon Property Group, Inc. | 4.6 | % | ||||
2. | Vornado Realty Trust | 2.7 | |||||
3. | Public Storage | 2.4 | |||||
4. | AvalonBay Communities, Inc. | 2.3 | |||||
5. | Boston Properties, Inc. | 2.1 | |||||
6. | Unibail-Rodamco S.E. | 2.0 | |||||
7. | Mitsubishi Estate Co., Ltd. | 2.0 | |||||
8. | Mitsui Fudosan Co., Ltd. | 1.9 | |||||
9. | Essex Property Trust, Inc. | 1.8 | |||||
10. | Prologis, Inc. | 1.8 |
Total Net Assets | $ | 364.3 million | |||||
Total Number of Holdings* | 167 |
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.
Data presented here are as of
December 31, 2016.
Invesco V.I. Global Real Estate Fund
the west coast. The company benefited from above-average internal growth through lease-up opportunities and a strong mark-to-market across its portfolio. The company’s relative valuation was favorable compared to peers given its above-average growth opportunity, strong balance sheet and discounted valuation to its underlying real estate value.
Top detractors from Fund performance included HCP and Land Securities. HCP owns a diversified portfolio of health care assets. The health care sector, including HCP, faced challenging operating conditions and pockets of oversupply during the reporting period. HCP significantly improved its management team during the year by hiring industry veterans as the chief executive officer and chief financial officer. Capital allocation and portfolio management subsequently improved and relative valuation for HCP was favorable compared to peers. Land Securities, the largest property company in the UK, was operationally leveraged to the Central London office market through a combination of existing offices and a development pipeline. The holding under-performed following Brexit, trading at a material discount to net asset value in spite of its conservatively-leveraged balance sheet. Relative to the Fund’s style-specific benchmark, the Fund held overweight allocations in HCP and Land Securities at year end.
At the close of the reporting period, the Fund held underweight positons in Hong Kong, Canada, Switzerland, Brazil and the UK relative to its style-specific benchmark. Additionally, the Fund lacked exposure to countries held by the style-specific benchmark, including Belgium, Austria, Finland, Turkey and Israel. The Fund’s largest overweight positions were in Spain, France, the Netherlands and Ireland.
At the end of the reporting period, trends in underlying real estate markets reflected greater maturity in the global real estate cycle. Capital value growth moderated, although investment demand appeared to remain high. Trends in tenant demand were still positive, but prospects for further rental growth moderated in some markets where new supply rose. However, real estate investment trust (REIT) earnings growth has been maintained and passed through as dividend increases, reflecting confidence in earnings sustainability. After several years of economic recovery, the ability for landlords to capture releasing gains was increasingly positive. A large portion of the global REIT universe was priced at a discount to net asset value, despite the
sector’s attractive yield and near-term earnings growth visibility.
Overall, we maintained a bias toward companies with higher-quality assets, supply-constrained real estate markets and generally lower-leveraged balance sheets. In an environment where risk-free rates may continue to modestly rise over the mid-term, we maintained a bias toward companies with above-average earnings growth prospects.
We thank you for your continued investment in Invesco V.I. Global Real Estate Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Joe Rodriguez Jr. Portfolio Manager, 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. He is also a Certified Public Accountant. |
James Cowen Portfolio Manager, is manager of Invesco V.I. Global Real Estate Fund. He joined Invesco in 2000. Mr. Cowen earned a Master of Town and Country Planning degree from the | ||
University of Manchester and a Master of Philosophy degree in land economy from Cambridge University. |
Paul Curbo Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Global Real Estate Fund. He joined Invesco in 1998. | ||
Mr. Curbo earned a BBA in finance from The University of Texas at Austin. |
Darin Turner Portfolio Manager, is manager of Invesco V.I. Global Real Estate Fund. He joined Invesco in 2005. | ||
Mr. Turner earned a BBA in finance from Baylor University, an MS in real estate from The University of Texas at Arlington and an MBA specializing in investments from Southern Methodist University. |
Ping Ying Wang Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Global Real Estate Fund. She joined Invesco in 1998. | ||
Ms. Wang earned a BS in international finance from the People’s University of China and a PhD in finance from The University of Texas at Dallas. |
Invesco V.I. Global Real Estate Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/06
1 | Source: Lipper Inc. |
2 | Source: FactSet Research Systems Inc. |
3 | Source(s): Invesco, FactSet Research Systems Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (3/31/98) | 7.75 | % | |||
10 Years | 1.37 | ||||
5 Years | 8.68 | ||||
1 Year | 2.04 | ||||
Series II Shares | |||||
Inception (4/30/04) | 7.64 | % | |||
10 Years | 1.13 | ||||
5 Years | 8.42 | ||||
1 Year | 1.82 |
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 1.01% and 1.26%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Global 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Convertible securities risk. The market values of convertible securities are affected by market interest rates, the risk of actual issuer default on interest or principal payments and the value of the underlying common stock into which the convertible security may be converted. Additionally, a convertible security is subject to the same types of market and issuer risks as apply to the underlying common stock. In addition, certain convertible securities are subject to involuntary conversions and may undergo principal write-downs upon the occurrence of certain triggering events, and, as a result, are subject to an increased risk of loss.
Debt securities risk. The prices of debt securities held by the Fund will be affected by changes in interest rates, the creditworthiness of the issuer and other factors. An increase in prevailing interest rates typically causes the value of existing debt securities to fall and often has a greater impact on longer-duration debt securities and higher quality debt securities. Falling interest rates will cause the Fund to reinvest the proceeds of debt securities that have been repaid by the issuer at lower interest rates. Falling interest rates may also reduce the Fund’s distributable income because interest payments on floating rate debt instruments held by the Fund will decline. The Fund could lose money on investments in debt securities if the issuer or borrower fails to meet its obligations to make interest payments and/or to repay principal in a timely manner. Changes in an issuer’s financial strength, the market’s perception of such strength or in the credit rating of the issuer or the security may affect the value of debt securities. The Adviser’s credit analysis may fail to anticipate such changes, which could result in buying a debt security at an inopportune time or failing to sell a debt security in advance of a price decline or other credit event.
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.
Emerging markets securities risk. Emerging markets (also referred to as developing markets) are generally subject to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility.
Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Geographic focus risk. The Fund may from time to time invest a substantial amount of its assets in securities of issuers located in a single country or a limited number of countries. Adverse economic, political or social conditions in those countries may therefore have a significant negative impact on the Fund’s investment performance.
High yield debt securities (junk bond) risk. Investments in high yield debt securities (“junk bonds”) and other lower-rated securities will subject the Fund to substantial risk of loss. These securities are considered to be speculative with respect to the issuer’s ability to pay interest and principal when due, are more susceptible to default or decline in market value and are less liquid than investment grade debt securities. Prices of high yield debt securities tend to be very volatile.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or
Invesco V.I. Global Real Estate Fund
it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Mortgage- and asset-backed securities risk. Mortgage- and asset-backed securities, including collateralized debt obligations and collateralized mortgage obligations, are subject to prepayment or call risk, which is the risk that a borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. This could result in the Fund reinvesting these early payments at lower interest rates, thereby reducing the Fund’s income. Mortgage- and asset-backed securities also are subject to extension risk, which is the risk that an unexpected rise in interest rates could reduce the rate of prepayments, causing the price of the mortgage- and asset-backed securities and the Fund’s share price to fall. 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 Fund may invest in mortgage pools that include subprime mortgages, which are loans made to borrowers with weakened credit histories or with lower capacity to make timely payments on their mortgages. Privately issued mortgage-related securities are not subject to the same underwriting requirements as those with government or government-sponsored entity guarantees and, therefore, mortgage loans underlying privately issued mortgage-related securities may have less favorable collateral, credit risk or other underwriting characteristics, and wider variances in interest rate, term, size, purpose and borrower characteristics.
Preferred securities risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities. Preferred securities also may be subordinated to bonds or other debt instruments, subjecting them to a greater risk of non-payment, may
be less liquid than many other securities, such as common stocks, and generally offer no voting rights with respect to the issuer.
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. Shares of real estate related companies, which tend to be small- and mid-cap companies, may be more volatile and less liquid than larger companies. If a real estate related company defaults on certain types of debt obligations, the Fund may own real estate directly, which involves additional risks such as environmental liabilities; difficulty in valuing and selling the real estate; and economic or regulatory changes.
Short position risk. Because the Fund’s potential loss on a short position arises from increases in the value of the asset sold short, the Fund will incur a loss on a short position, which is theoretically unlimited, if the price of the asset sold short increases from the short sale price. The counterparty to a short position or other market factors may prevent the Fund from closing out a short position at a desirable time or price and may reduce or eliminate any gain or result in a loss. In a rising market, the Fund’s short positions will cause the Fund to underperform the overall market and its peers that do not engage in shorting. If the Fund holds both long and short positions, and both positions decline simultaneously, the short positions will not provide any buffer (hedge) from declines in value of the Fund’s long positions. Certain types of short positions involve leverage, which may exaggerate any losses, potentially more than the actual cost of the investment, and will increase the volatility of the Fund’s returns.
Small- and mid-capitalization companies risks. Small- and mid-capitalization companies tend to be more vulnerable to changing market conditions, may have little or no operating history or track record of success, and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
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 Custom Invesco Global Real Estate Index is composed of the FTSE EPRA/NAREIT
Developed Index (gross) from fund inception through February, 17, 2005; the FTSE EPRA/NAREIT Developed Index (net) from February 18, 2005, through June 30, 2014; and the FTSE EPRA/NAREIT Global Index (net) from July 1, 2014.
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 Developed Index is an unmanaged index considered representative of listed real estate companies and REITs worldwide.
The FTSE EPRA/NAREIT Global Index is a free float, market capitalization-weighted real estate index designed to represent publicly traded equity REITs and listed property companies in 38 countries worldwide, covering both the developed and emerging markets.
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.
Invesco V.I. Global Real Estate Fund
Schedule of Investments
December 31, 2016
Shares | Value | |||||||
Real Estate Investment Trusts, Common Stocks & Other Equity Interests–98.48% |
| |||||||
Australia–5.40% | ||||||||
DEXUS Property Group | 300,604 | $ | 2,092,569 | |||||
Goodman Group | 653,306 | 3,370,726 | ||||||
GPT Group (The) | 615,561 | 2,234,579 | ||||||
Mirvac Group | 1,205,986 | 1,851,229 | ||||||
Scentre Group | 1,176,358 | 3,948,679 | ||||||
Vicinity Centres | 545,336 | 1,179,701 | ||||||
Westfield Corp. | 737,997 | 5,009,119 | ||||||
19,686,602 | ||||||||
Brazil–0.36% | ||||||||
BR Malls Participacoes S.A.(a) | 74,760 | 273,058 | ||||||
EZ Tec Empreendimentos e Participacoes S.A. | 38,000 | 181,847 | ||||||
Iguatemi Empresa de Shopping Centers S.A. | 53,100 | 433,402 | ||||||
Multiplan Empreendimentos Imobiliarios S.A. | 22,600 | 410,861 | ||||||
1,299,168 | ||||||||
Canada–2.40% | ||||||||
Allied Properties REIT | 60,500 | 1,619,671 | ||||||
Canadian Apartment Properties REIT | 61,103 | 1,427,413 | ||||||
Chartwell Retirement Residences | 74,990 | 818,113 | ||||||
First Capital Realty, Inc. | 62,029 | 954,790 | ||||||
H&R REIT | 117,500 | 1,957,385 | ||||||
RioCan REIT | 49,700 | 985,599 | ||||||
Smart REIT | 40,700 | 978,667 | ||||||
8,741,638 | ||||||||
China–3.31% | ||||||||
Agile Group Holdings Ltd. | 348,000 | 177,266 | ||||||
China Jinmao Holdings Group Ltd. | 1,252,000 | 336,309 | ||||||
China Overseas Land & Investment Ltd. | 888,000 | 2,342,171 | ||||||
China Resources Land Ltd. | 696,444 | 1,570,249 | ||||||
China Vanke Co., Ltd.–Class H | 338,400 | 764,998 | ||||||
CIFI Holdings (Group) Co. Ltd. | 2,126,000 | 570,636 | ||||||
Country Garden Holdings Co. Ltd. | 1,761,000 | 980,578 | ||||||
Global Logistic Properties Ltd. | 744,100 | 1,127,294 | ||||||
Guangzhou R&F Properties Co. Ltd.–Class H | 223,200 | 269,989 | ||||||
KWG Property Holding Ltd. | 706,500 | 399,760 | ||||||
Longfor Properties Co. Ltd. | 863,000 | 1,091,869 | ||||||
Shenzhen Investment Ltd. | 2,133,700 | 849,424 | ||||||
Shimao Property Holdings Ltd. | 754,000 | 982,739 | ||||||
Sino-Ocean Group Holdings Ltd. | 864,000 | 385,264 | ||||||
Yuzhou Properties Co. Ltd. | 549,000 | 190,802 | ||||||
12,039,348 | ||||||||
France–3.34% | ||||||||
ICADE | 28,201 | 2,012,208 | ||||||
Klepierre | 72,074 | 2,833,047 | ||||||
Unibail-Rodamco S.E. | 30,798 | 7,340,886 | ||||||
12,186,141 |
Shares | Value | |||||||
Germany–2.69% | ||||||||
Deutsche Euroshop AG | 16,302 | $ | 663,526 | |||||
Grand City Properties S.A. | 133,544 | 2,430,312 | ||||||
LEG Immobilien AG | 27,926 | 2,166,195 | ||||||
Vonovia SE | 139,425 | 4,535,364 | ||||||
9,795,397 | ||||||||
Hong Kong–6.31% | ||||||||
Cheung Kong Property Holdings Ltd. | 796,800 | 4,831,958 | ||||||
Hang Lung Properties Ltd. | 831,000 | 1,739,987 | ||||||
Henderson Land Development Co. Ltd. | 336,600 | 1,776,898 | ||||||
Hongkong Land Holdings Ltd. | 132,300 | 834,918 | ||||||
Link REIT | 645,500 | 4,168,333 | ||||||
Sino Land Co. Ltd. | 66,100 | 97,842 | ||||||
Sun Hung Kai Properties Ltd. | 432,000 | 5,408,730 | ||||||
Swire Properties Ltd. | 666,400 | 1,826,042 | ||||||
Wharf (Holdings) Ltd. (The) | 351,000 | 2,306,636 | ||||||
22,991,344 | ||||||||
Indonesia–0.35% | ||||||||
PT Bumi Serpong Damai Tbk | 4,469,400 | 579,729 | ||||||
PT Ciputra Development Tbk | 5,461,538 | 541,188 | ||||||
PT Summarecon Agung Tbk | 1,556,900 | 152,455 | ||||||
1,273,372 | ||||||||
Ireland–0.38% | ||||||||
Green REIT PLC | 955,816 | 1,380,293 | ||||||
Japan–10.15% | ||||||||
Activia Properties, Inc. | 239 | 1,126,799 | ||||||
Advance Residence Investment Corp. | 504 | 1,332,558 | ||||||
Daiwa House REIT Investment Corp. | 545 | 1,378,472 | ||||||
GLP J-REIT(b) | 317 | 365,091 | ||||||
GLP J-REIT | 744 | 856,870 | ||||||
Hulic Reit, Inc. | 487 | 817,153 | ||||||
Japan Excellent, Inc. | 457 | 579,902 | ||||||
Japan Hotel REIT Investment Corp. | 1,465 | 983,834 | ||||||
Japan Logistics Fund Inc. | 397 | 836,025 | ||||||
Japan Real Estate Investment Corp. | 592 | 3,226,696 | ||||||
Japan Retail Fund Investment Corp. | 573 | 1,160,022 | ||||||
Kenedix Office Investment Corp. | 244 | 1,402,995 | ||||||
LaSalle LOGIPORT REIT | 645 | 610,948 | ||||||
Mitsubishi Estate Co., Ltd. | 369,000 | 7,314,857 | ||||||
Mitsui Fudosan Co., Ltd. | 307,000 | 7,084,441 | ||||||
Nippon Prologis REIT Inc. | 322 | 658,217 | ||||||
Nomura Real Estate Master Fund, Inc. | 902 | 1,364,538 | ||||||
ORIX JREIT Inc. | 510 | 805,125 | ||||||
Sumitomo Realty & Development Co., Ltd. | 141,000 | 3,736,447 | ||||||
United Urban Investment Corp. | 877 | 1,334,973 | ||||||
36,975,963 |
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–0.29% | ||||||||
IGB REIT | 203,200 | $ | 72,923 | |||||
KLCCP Stapled Group | 283,100 | 523,763 | ||||||
Mah Sing Group Bhd. | 558,400 | 177,991 | ||||||
Pavilion REIT | 645,600 | 273,422 | ||||||
1,048,099 | ||||||||
Malta–0.05% | ||||||||
BGP Holdings PLC | 3,053,090 | 179,958 | ||||||
Mexico–0.53% | ||||||||
Fibra Uno Administracion S.A. de C.V. | 724,200 | 1,106,833 | ||||||
Macquarie Mexico Real Estate Management S.A. de C.V. | 803,400 | 830,601 | ||||||
1,937,434 | ||||||||
Netherlands–0.65% | ||||||||
Wereldhave N.V. | 52,569 | 2,363,592 | ||||||
Philippines–0.81% | ||||||||
Ayala Land, Inc. | 1,176,600 | 758,208 | ||||||
Megaworld Corp. | 4,964,100 | 356,514 | ||||||
Robinsons Land Corp. | 1,401,100 | 734,448 | ||||||
SM Prime Holdings Inc. | 1,917,700 | 1,093,996 | ||||||
2,943,166 | ||||||||
Singapore–2.28% | ||||||||
Ascendas India Trust | 776,700 | 543,113 | ||||||
Ascendas REIT | 952,400 | 1,488,194 | ||||||
CapitaLand Ltd. | 767,600 | 1,594,519 | ||||||
CapitaLand Mall Trust | 683,200 | 885,796 | ||||||
CapitaLand Retail China Trust | 586,800 | 555,798 | ||||||
City Developments Ltd. | 214,200 | 1,220,148 | ||||||
Mapletree Greater China Commercial Trust–REGS(b) | 762,900 | 499,185 | ||||||
Mapletree Industrial Trust | 1,037,400 | 1,177,379 | ||||||
Yanlord Land Group Ltd. | 368,900 | 336,267 | ||||||
8,300,399 | ||||||||
South Africa–1.14% | ||||||||
Growthpoint Properties Ltd. | 806,623 | 1,526,574 | ||||||
Hyprop Investments Ltd. | 109,259 | 929,631 | ||||||
Resilient REIT Ltd. | 73,349 | 610,961 | ||||||
SA Corporate Real Estate Fund Nominees Proprietary Ltd. | 2,683,651 | 1,095,124 | ||||||
4,162,290 | ||||||||
Spain–0.94% | ||||||||
Inmobiliaria Colonial S.A. | 196,281 | 1,360,019 | ||||||
Merlin Properties Socimi, S.A. | 189,991 | 2,069,667 | ||||||
3,429,686 | ||||||||
Sweden–0.98% | ||||||||
Castellum AB | 105,087 | 1,441,081 | ||||||
Wihlborgs Fastigheter AB | 115,510 | 2,145,955 | ||||||
3,587,036 |
Shares | Value | |||||||
Switzerland–0.61% | ||||||||
Swiss Prime Site AG | 27,146 | $ | 2,221,848 | |||||
Thailand–0.48% | ||||||||
Central Pattana PCL | 643,900 | 1,023,903 | ||||||
Central Pattana PCL–NVDR | 279,400 | 440,676 | ||||||
Land and Houses PCL | 436,000 | 118,592 | ||||||
Land and Houses PCL–NVDR | 553,000 | 151,188 | ||||||
1,734,359 | ||||||||
United Arab Emirates–0.28% | ||||||||
Emaar Malls PJSC | 929,277 | 661,609 | ||||||
Emaar Properties PJSC | 188,292 | 364,573 | ||||||
1,026,182 | ||||||||
United Kingdom–4.20% | ||||||||
Derwent London PLC | 50,950 | 1,740,984 | ||||||
Great Portland Estates PLC | 224,667 | 1,848,095 | ||||||
Hammerson PLC | 184,237 | 1,298,384 | ||||||
Hansteen Holdings PLC | 777,239 | 1,087,446 | ||||||
Kennedy Wilson Europe Real Estate PLC | 135,284 | 1,599,272 | ||||||
Land Securities Group PLC | 246,891 | 3,262,242 | ||||||
Segro PLC | 346,420 | 1,960,930 | ||||||
UNITE Group PLC (The) | 336,139 | 2,511,013 | ||||||
15,308,366 | ||||||||
United States–50.55% | ||||||||
Acadia Realty Trust | 54,900 | 1,794,132 | ||||||
American Campus Communities, Inc. | 49,500 | 2,463,615 | ||||||
American Homes 4 Rent–Class A | 120,112 | 2,519,950 | ||||||
Apartment Investment & Management Co.–Class A | 9,094 | 413,322 | ||||||
Apple Hospitality REIT, Inc. | 108,147 | 2,160,777 | ||||||
AvalonBay Communities, Inc. | 46,790 | 8,288,849 | ||||||
Boston Properties, Inc. | 59,455 | 7,478,250 | ||||||
Brandywine Realty Trust | 138,759 | 2,290,911 | ||||||
Brixmor Property Group, Inc. | 146,448 | 3,576,260 | ||||||
Brookdale Senior Living Inc.(a) | 144,514 | 1,794,864 | ||||||
Care Capital Properties, Inc. | 53,890 | 1,347,250 | ||||||
Cousins Properties, Inc. | 356,680 | 3,035,347 | ||||||
CyrusOne Inc. | 32,405 | 1,449,476 | ||||||
DiamondRock Hospitality Co. | 215,735 | 2,487,425 | ||||||
Digital Realty Trust, Inc. | 24,505 | 2,407,861 | ||||||
EPR Properties | 25,604 | 1,837,599 | ||||||
Equity Lifestyle Properties, Inc. | 27,127 | 1,955,857 | ||||||
Equity Residential | 94,360 | 6,073,010 | ||||||
Essex Property Trust, Inc. | 28,328 | 6,586,260 | ||||||
Extra Space Storage Inc. | 50,229 | 3,879,688 | ||||||
Federal Realty Investment Trust | 37,135 | 5,277,255 | ||||||
First Industrial Realty Trust, Inc. | 58,885 | 1,651,724 | ||||||
General Growth Properties, Inc. | 211,890 | 5,293,012 | ||||||
HCP, Inc. | 210,691 | 6,261,736 | ||||||
Healthcare Realty Trust, Inc. | 95,811 | 2,904,990 | ||||||
Host Hotels & Resorts Inc. | 266,437 | 5,019,673 |
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) | ||||||||
Hudson Pacific Properties Inc. | 125,963 | $ | 4,380,993 | |||||
InfraREIT, Inc. | 48,911 | 875,996 | ||||||
Liberty Property Trust | 85,754 | 3,387,283 | ||||||
Macerich Co. (The) | 8,542 | 605,115 | ||||||
Mid-America Apartment Communities, Inc. | 38,183 | 3,738,879 | ||||||
National Health Investors, Inc. | 29,977 | 2,223,394 | ||||||
National Retail Properties, Inc. | 119,929 | 5,300,862 | ||||||
Paramount Group, Inc. | 114,135 | 1,825,019 | ||||||
Physicians Realty Trust | 49,535 | 939,184 | ||||||
Prologis, Inc. | 124,130 | 6,552,823 | ||||||
Public Storage | 38,701 | 8,649,674 | ||||||
QTS Realty Trust, Inc.–Class A | 27,651 | 1,372,872 | ||||||
Realty Income Corp. | 60,807 | 3,495,186 | ||||||
Retail Opportunity Investments Corp. | 147,229 | 3,110,949 | ||||||
Rexford Industrial Realty, Inc. | 51,162 | 1,186,447 | ||||||
RLJ Lodging Trust | 81,887 | 2,005,413 | ||||||
Simon Property Group, Inc. | 93,599 | 16,629,734 | ||||||
SL Green Realty Corp. | 16,309 | 1,754,033 | ||||||
Sun Communities, Inc. | 24,754 | 1,896,404 | ||||||
Terreno Realty Corp. | 45,598 | 1,299,087 |
Shares | Value | |||||||
United States–(continued) | ||||||||
Ventas, Inc. | 56,208 | $ | 3,514,124 | |||||
Vornado Realty Trust | 94,735 | 9,887,492 | ||||||
Washington REIT | 86,268 | 2,820,101 | ||||||
Weingarten Realty Investors | 77,416 | 2,770,719 | ||||||
Welltower Inc. | 54,661 | 3,658,461 | ||||||
184,129,337 | ||||||||
Total Real Estate Investment Trusts, Common Stocks & Other Equity Interests |
| 358,741,018 | ||||||
Money Market Funds–0.94% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(c) | 2,061,634 | 2,061,634 | ||||||
Treasury Portfolio–Institutional Class, 0.37%(c) | 1,374,423 | 1,374,423 | ||||||
Total Money Market Funds | 3,436,057 | |||||||
TOTAL INVESTMENTS–99.42% | 362,177,075 | |||||||
OTHER ASSETS LESS LIABILITIES–0.58% |
| 2,097,776 | ||||||
NET ASSETS–100.00% | $ | 364,274,851 |
Investment Abbreviations:
NVDR | – Non-Voting Depositary Receipt | |
REGS | – Regulation S | |
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, 2016 was $1,044,234, 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. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: | ||||
Investments, at value (Cost $327,626,383) | $ | 358,741,018 | ||
Investments in affiliated money market funds, at value and cost | 3,436,057 | |||
Total investments, at value (Cost $331,062,440) | 362,177,075 | |||
Foreign currencies, at value (Cost $1,373,837) | 1,359,919 | |||
Receivable for: | ||||
Investments sold | 375,144 | |||
Fund shares sold | 203,528 | |||
Dividends | 1,188,655 | |||
Investment for trustee deferred compensation and retirement plans | 63,199 | |||
Other assets | 902 | |||
Total assets | 365,368,422 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 204,633 | |||
Fund shares reacquired | 268,694 | |||
Accrued foreign taxes | 23,195 | |||
Accrued fees to affiliates | 437,784 | |||
Accrued trustees’ and officers’ fees and benefits | 175 | |||
Accrued other operating expenses | 86,621 | |||
Trustee deferred compensation and retirement plans | 72,469 | |||
Total liabilities | 1,093,571 | |||
Net assets applicable to shares outstanding | $ | 364,274,851 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 327,279,728 | ||
Undistributed net investment income | 3,664,608 | |||
Undistributed net realized gain | 2,237,242 | |||
Net unrealized appreciation | 31,093,273 | |||
$ | 364,274,851 | |||
Net Assets: | ||||
Series I | $ | 147,381,878 | ||
Series II | $ | 216,892,973 | ||
Shares outstanding, No par value, |
| |||
Series I | 9,123,602 | |||
Series II | 13,822,604 | |||
Series I: | ||||
Net asset value per share | $ | 16.15 | ||
Series II: | ||||
Net asset value per share | $ | 15.69 |
Investment income: | ||||
Dividends (net of foreign withholding taxes of $594,290) | $ | 11,531,007 | ||
Dividends from affiliated money market funds | 16,271 | |||
Total investment income | 11,547,278 | |||
Expenses: | ||||
Advisory fees | 3,015,686 | |||
Administrative services fees | 903,928 | |||
Custodian fees | 186,658 | |||
Distribution fees — Series II | 562,512 | |||
Transfer agent fees | 41,059 | |||
Trustees’ and officers’ fees and benefits | 25,082 | |||
Reports to shareholders | 10,150 | |||
Professional services fees | 50,489 | |||
Other | 15,381 | |||
Total expenses | 4,810,945 | |||
Less: Fees waived | (5,949 | ) | ||
Net expenses | 4,804,996 | |||
Net investment income | 6,742,282 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (net of foreign taxes $2,279) | 10,074,636 | |||
Foreign currencies | (4,795 | ) | ||
10,069,841 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities (net of foreign taxes $23,195) | (7,706,523 | ) | ||
Foreign currencies | (11,562 | ) | ||
(7,718,085 | ) | |||
Net realized and unrealized gain | 2,351,756 | |||
Net increase in net assets resulting from operations | $ | 9,094,038 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: | ||||||||
Net investment income | $ | 6,742,282 | $ | 7,103,762 | ||||
Net realized gain | 10,069,841 | 21,831,384 | ||||||
Change in net unrealized appreciation (depreciation) | (7,718,085 | ) | (36,941,614 | ) | ||||
Net increase (decrease) in net assets resulting from operations | 9,094,038 | (8,006,468 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (2,467,652 | ) | (7,476,164 | ) | ||||
Series ll | (3,330,972 | ) | (7,026,530 | ) | ||||
Total distributions from net investment income | (5,798,624 | ) | (14,502,694 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (2,886,843 | ) | — | |||||
Series ll | (4,517,031 | ) | — | |||||
Total distributions from net realized gains | (7,403,874 | ) | — | |||||
Share transactions–net: | ||||||||
Series l | (62,147,357 | ) | 9,891,161 | |||||
Series ll | 13,734,445 | 19,285,906 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (48,412,912 | ) | 29,177,067 | |||||
Net increase (decrease) in net assets | (52,521,372 | ) | 6,667,905 | |||||
Net assets: | ||||||||
Beginning of year | 416,796,223 | 410,128,318 | ||||||
End of year (includes undistributed net investment income of $3,664,608 and $(1,060,884), respectively) | $ | 364,274,851 | $ | 416,796,223 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Invesco V.I. Global Real Estate Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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 of the cost of the related investment. 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, |
Invesco V.I. Global Real Estate Fund
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. |
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 the 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, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $5,949.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $97,954 for accounting and fund administrative services and was reimbursed $805,974 for fees paid to 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, 2016, 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, 2016, 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, 2016. 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, 2016, there were transfers from Level 1 to Level 2 of $8,201,886 and from Level 2 to Level 1 of $29,979,964, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | 2,234,579 | $ | 17,452,023 | $ | — | $ | 19,686,602 | ||||||||
Brazil | — | 1,299,168 | — | 1,299,168 | ||||||||||||
Canada | 8,741,638 | — | — | 8,741,638 | ||||||||||||
China | 447,255 | 11,592,093 | — | 12,039,348 | ||||||||||||
France | 4,845,255 | 7,340,886 | — | 12,186,141 | ||||||||||||
Germany | 7,629,202 | 2,166,195 | — | 9,795,397 | ||||||||||||
Hong Kong | — | 22,991,344 | — | 22,991,344 | ||||||||||||
Indonesia | 541,188 | 732,184 | — | 1,273,372 | ||||||||||||
Ireland | 1,380,293 | — | — | 1,380,293 | ||||||||||||
Japan | 17,020,359 | 19,955,604 | — | 36,975,963 | ||||||||||||
Malaysia | 1,048,099 | — | — | 1,048,099 | ||||||||||||
Malta | — | — | 179,958 | 179,958 | ||||||||||||
Mexico | 1,937,434 | — | — | 1,937,434 | ||||||||||||
Netherlands | — | 2,363,592 | — | 2,363,592 | ||||||||||||
Philippines | 734,448 | 2,208,718 | — | 2,943,166 | ||||||||||||
Singapore | 336,267 | 7,964,132 | — | 8,300,399 | ||||||||||||
South Africa | 610,961 | 3,551,329 | — | 4,162,290 | ||||||||||||
Spain | 1,360,019 | 2,069,667 | — | 3,429,686 | ||||||||||||
Sweden | 1,441,081 | 2,145,955 | — | 3,587,036 | ||||||||||||
Switzerland | 2,221,848 | — | — | 2,221,848 | ||||||||||||
Thailand | 1,293,683 | 440,676 | — | 1,734,359 | ||||||||||||
United Arab Emirates | — | 1,026,182 | — | 1,026,182 | ||||||||||||
United Kingdom | 6,938,715 | 8,369,651 | — | 15,308,366 | ||||||||||||
United States | 187,565,394 | — | — | 187,565,394 | ||||||||||||
Total Investments | $ | 248,327,718 | $ | 113,669,399 | $ | 179,958 | $ | 362,177,075 |
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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 5,798,624 | $ | 14,502,694 | ||||
Long-Term Capital Gain | 7,403,874 | — | ||||||
Total Distributions | $ | 13,202,498 | $ | 14,502,694 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 10,755,239 | ||
Undistributed long-term gain | 6,444,941 | |||
Net unrealized appreciation — investments | 19,887,438 | |||
Net unrealized appreciation (depreciation) — other investments | (21,362 | ) | ||
Temporary book/tax differences | (71,133 | ) | ||
Shares of beneficial interest | 327,279,728 | |||
Total net assets | $ | 364,274,851 |
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 does not have a capital loss carryforward as of December 31, 2016.
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, 2016 was $264,740,052 and $315,900,832, 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.
PENDING
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 35,700,821 | ||
Aggregate unrealized (depreciation) of investment securities | (15,813,383 | ) | ||
Net unrealized appreciation of investment securities | $ | 19,887,438 |
Cost of investments for tax purposes is $342,289,637.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of passive foreign investment companies, on December 31, 2016, undistributed net investment income was increased by $3,781,834, undistributed net realized gain was decreased by $3,855,675 and shares of beneficial interest was increased by $73,841. 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, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,866,923 | $ | 31,090,102 | 3,027,072 | $ | 52,252,851 | ||||||||||
Series II | 2,573,469 | 42,010,957 | 2,517,858 | 42,781,073 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 307,377 | 5,354,495 | 478,321 | 7,476,164 | ||||||||||||
Series II | 463,556 | 7,848,003 | 461,968 | 7,026,530 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (5,815,971 | ) | (98,591,954 | ) | (2,911,646 | ) | (49,837,854 | ) | ||||||||
Series II | (2,288,818 | ) | (36,124,515 | ) | (1,836,058 | ) | (30,521,697 | ) | ||||||||
Net increase (decrease) in share activity | (2,893,464 | ) | $ | (48,412,912 | ) | 1,737,515 | $ | 29,177,067 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 66% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 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 12/31/16 | $ | 16.36 | $ | 0.30 | $ | 0.08 | $ | 0.38 | $ | (0.27 | ) | $ | (0.32 | ) | $ | (0.59 | ) | $ | 16.15 | 2.04 | % | $ | 147,382 | 1.05 | %(d) | 1.05 | %(d) | 1.81 | %(d) | 66 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 17.24 | 0.31 | (0.59 | ) | (0.28 | ) | (0.60 | ) | — | (0.60 | ) | 16.36 | (1.48 | ) | 208,796 | 1.11 | 1.11 | 1.79 | 72 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 15.29 | 0.33 | 1.89 | 2.22 | (0.27 | ) | — | (0.27 | ) | 17.24 | 14.62 | 209,829 | 1.10 | 1.10 | 1.99 | 44 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 15.47 | 0.22 | 0.21 | 0.43 | (0.61 | ) | — | (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 | ) | — | (0.08 | ) | 15.47 | 28.12 | 176,933 | 1.14 | 1.14 | 1.94 | 51 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 15.91 | 0.25 | 0.08 | 0.33 | (0.23 | ) | (0.32 | ) | (0.55 | ) | 15.69 | 1.82 | 216,893 | 1.30 | (d) | 1.30 | (d) | 1.56 | (d) | 66 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 16.79 | 0.26 | (0.58 | ) | (0.32 | ) | (0.56 | ) | — | (0.56 | ) | 15.91 | (1.74 | ) | 208,000 | 1.36 | 1.36 | 1.54 | 72 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 14.90 | 0.28 | 1.84 | 2.12 | (0.23 | ) | — | (0.23 | ) | 16.79 | 14.34 | 200,299 | 1.35 | 1.35 | 1.74 | 44 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 15.11 | 0.18 | 0.20 | 0.38 | (0.59 | ) | — | (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 | ) | — | (0.06 | ) | 15.11 | 27.85 | 124,219 | 1.39 | 1.39 | 1.69 | 51 |
(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 $179,142 and $225,005 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 the 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 the Invesco V.I. Global Real Estate Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 956.10 | $ | 4.92 | $ | 1,020.11 | $ | 5.08 | 1.00 | % | ||||||||||||
Series II | 1,000.00 | 955.10 | 6.14 | 1,018.85 | 6.34 | 1.25 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Global Real Estate Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 7,403,874 | ||
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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
Invesco V.I. Government 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. VIGMKT-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion
Fund information
This annual report for Invesco V.I. Government Money Market Fund (the Fund) covers the year ended December 31, 2016.
As of December 31, 2016, the Fund’s net assets totaled $733.9 million. As of the same date, the Fund’s weighted average maturity was 43 days and the Fund’s weighted average life was 105 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 two biggest developments affecting money market funds and the money market fund industry in 2016 were the US Federal Reserve’s (the Fed) interest rate hike in December and the impact of money market fund reform implemented in October.
Money market investors cheered when the Fed unanimously raised its federal funds target rate in December 2016 – just the second increase since 2006. The Fed raised this key rate from a range of 0.25% to 0.50% to a range of 0.50% to 0.75%.1
A strengthening labor market closing in on full employment and inflation converging toward targeted levels were the primary reasons for the Fed’s action. More rate hikes are expected, but at a more gradual pace than prior Fed regimes. Economic projections released by the Fed in December 2016 for 2017 suggested a higher federal funds target rate in the future, and Fed-watchers indicate that future rate increases might be announced more quickly than previously forecast. Domestic economic strength, as well as the surprise outcome of the US presidential election and proposed spending policies of the Trump administration, could cause the Fed to accelerate future interest rate hikes.
The US continues to be an outlier in terms of base rate borrowing costs as most major global economies continue to maintain interest rates at, near or below zero to fuel inflation and spur economic growth. Many major central banks, including the European Central Bank, the Bank of England and the Bank of Japan, all cut rates during 2016.
In July 2014, the US Securities and Exchange Commission announced new money market fund reforms. These
reforms, intended to further strengthen the resiliency of money market funds during times of economic stress, were fully implemented in the US on October 14, 2016.
At the beginning of 2016, government money market assets accounted for approximately 45% of all US money market assets.2 As investors adjusted their allocation preferences in advance of the October 2016 final implementation date, large amounts of assets moved into government funds from prime and tax-exempt money market funds. Following the October 14 reform deadline, government money market assets comprised 81% of all US money market fund assets.2 Following the Fed’s December 2016 rate hike, we continued to see some divergence in the yields of prime and government money market funds.
On April 29, 2016 Invesco V.I. Money Market Fund changed its name to Invesco V.I. Government Money Market Fund. It also changed its investment strategy to qualify as, and begin operating as, a government money market fund.
1 | Source: US Federal Reserve |
2 | Source: Investment Company Institute |
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.
You could lose money by investing in the Fund. Although the Fund seeks to preserve your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Portfolio Composition by Maturity | |||||
In days, as of 12/31/16 | % of total net assets | ||||
1 - 7 | 34.5 | % | |||
8 - 30 | 19.9 | ||||
31 - 60 | 18.3 | ||||
61 - 90 | 12.6 | ||||
91 - 180 | 14.7 | ||||
181+ | 0.0 |
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. Government Money Market Fund
Invesco V.I. Government Money Market Fund’s investment objective is to provide current income consistent with preservation of capital and liquidity.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Debt securities risk. The prices of debt securities held by the Fund will be affected by changes in interest rates, the credit-worthiness of the issuer and other factors. An increase in prevailing interest rates typically causes the value of existing debt securities to fall and often has a greater impact on longer-duration debt securities and higher quality debt securities. Falling interest rates will cause the Fund to reinvest the proceeds of debt securities that have been repaid by the issuer at lower interest rates. Falling interest rates may also reduce the Fund’s distributable income because interest payments on floating rate debt instruments held by the Fund will decline. The Fund could lose money on investments in debt securities if the issuer or borrower fails to meet its obligations to make interest payments and/or to repay principal in a timely manner. Changes in an issuer’s financial strength, the market’s perception of such strength or in the credit rating of the issuer or the security may affect the value of debt securities. The Adviser’s credit analysis may fail to anticipate such changes, which could result in buying a debt security at an inopportune time or failing to sell a debt security in advance of a price decline or other credit event.
Liquidity risk. The Fund may be unable to sell illiquid investments at the time or price it desires and, as a result, could lose its entire investment in such investments. Liquid securities can become illiquid during periods of market stress. If a significant amount of the Fund’s securities become illiquid, the Fund may not be able to timely pay redemption proceeds and may need to sell securities at significantly reduced prices.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
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, amendments to money market fund regulations could impact the Fund’s operations and possibly negatively impact its return.
Repurchase agreement risk. If the seller of a repurchase agreement defaults or otherwise does not fulfill its obligations, the Fund may incur delays and losses arising from selling the underlying securities, enforcing its rights, or declining collateral value.
US government obligations risk. Obligations of US government agencies and authorities receive varying levels of support and may not be backed by the full faith and credit of the US government, which could affect the Fund’s ability to recover should they default. No assurance can be given that the US government will provide financial support to its agencies and authorities if it is not obligated by law to do so.
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. When interest rates are very low, the Fund’s expenses could absorb all or a portion of the Fund’s income and yield. Additionally, inflation may outpace and diminish investment returns over time.
Invesco V.I. Government Money Market Fund
Schedule of Investments
December 31, 2016
Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||
U.S. Government Sponsored Agency Securities–40.41% |
| |||||||||||||||
Federal Farm Credit Bank (FFCB)–10.68% | ||||||||||||||||
Unsec. Bonds(a) | 0.86 | % | 04/25/2017 | $ | 12,000 | $ | 11,999,992 | |||||||||
Unsec. Bonds | 0.65 | % | 05/01/2017 | 1,700 | 1,700,298 | |||||||||||
Unsec. Bonds(a) | 0.66 | % | 06/05/2017 | 3,000 | 2,998,719 | |||||||||||
Unsec. Bonds(a) | 0.68 | % | 07/06/2017 | 10,000 | 9,998,701 | |||||||||||
Unsec. Bonds(a) | 0.72 | % | 07/14/2017 | 6,000 | 6,000,634 | |||||||||||
Unsec. Bonds(a) | 0.81 | % | 08/29/2017 | 15,525 | 15,519,230 | |||||||||||
Unsec. Bonds(a) | 0.71 | % | 11/13/2017 | 4,480 | 4,475,508 | |||||||||||
Unsec. Bonds(a) | 0.73 | % | 11/13/2017 | 5,000 | 4,995,850 | |||||||||||
Unsec. Bonds(a) | 0.78 | % | 11/22/2017 | 7,000 | 6,992,472 | |||||||||||
Unsec. Bonds(a) | 0.74 | % | 01/17/2018 | 5,715 | 5,713,556 | |||||||||||
Unsec. Bonds(a) | 0.90 | % | 03/02/2018 | 5,000 | 5,009,532 | |||||||||||
Unsec. Bonds(a) | 0.76 | % | 05/17/2018 | 3,000 | 3,000,000 | |||||||||||
78,404,492 | ||||||||||||||||
Federal Home Loan Bank (FHLB)–20.07% | ||||||||||||||||
Unsec. Bonds | 0.75 | % | 01/06/2017 | 3,500 | 3,500,123 | |||||||||||
Unsec. Bonds | 0.54 | % | 01/26/2017 | 5,000 | 4,999,827 | |||||||||||
Unsec. Bonds | 0.68 | % | 02/27/2017 | 2,500 | 2,500,579 | |||||||||||
Unsec. Bonds | 0.75 | % | 03/02/2017 | 21,000 | 21,008,942 | |||||||||||
Unsec. Bonds(a) | 0.80 | % | 06/22/2017 | 10,000 | 10,000,000 | |||||||||||
Unsec. Bonds(a) | 0.68 | % | 08/08/2017 | 4,000 | 4,000,000 | |||||||||||
Unsec. Bonds(a) | 0.73 | % | 08/18/2017 | 4,000 | 3,998,736 | |||||||||||
Unsec. Bonds(a) | 0.82 | % | 01/26/2018 | 3,000 | 3,000,000 | |||||||||||
Unsec. Bonds(a) | 0.79 | % | 03/15/2018 | 5,000 | 5,000,000 | |||||||||||
Unsec. Bonds(a) | 0.79 | % | 03/16/2018 | 6,000 | 6,000,000 | |||||||||||
Unsec. Bonds(a) | 0.62 | % | 04/13/2018 | 8,000 | 7,999,900 | |||||||||||
Unsec. Bonds(a) | 0.61 | % | 04/23/2018 | 4,000 | 3,999,734 | |||||||||||
Unsec. Disc. Notes(b) | 0.48 | % | 01/25/2017 | 1,694 | 1,693,458 | |||||||||||
Unsec. Disc. Notes(b) | 0.63 | % | 05/31/2017 | 20,000 | 19,947,584 | |||||||||||
Unsec. Disc. Notes(b) | 0.66 | % | 06/16/2017 | 5,000 | 4,984,783 | |||||||||||
Unsec. Global Bonds(a) | 0.84 | % | 01/23/2017 | 12,000 | 12,000,000 | |||||||||||
Unsec. Global Bonds(a) | 0.85 | % | 02/24/2017 | 12,000 | 12,000,000 | |||||||||||
Unsec. Global Bonds | 0.88 | % | 05/24/2017 | 2,650 | 2,652,895 | |||||||||||
Unsec. Global Bonds(a) | 0.71 | % | 08/15/2017 | 4,000 | 4,000,000 | |||||||||||
Unsec. Global Bonds(a) | 0.70 | % | 12/05/2017 | 5,000 | 4,999,762 | |||||||||||
Unsec. Global Bonds(a) | 0.77 | % | 02/23/2018 | 4,000 | 4,000,000 | |||||||||||
Unsec. Global Bonds(a) | 0.82 | % | 03/26/2018 | 5,000 | 5,000,000 | |||||||||||
147,286,323 | ||||||||||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–3.87% | ||||||||||||||||
Unsec. Global Notes | 0.88 | % | 02/22/2017 | 4,000 | 4,001,995 | |||||||||||
Unsec. Global Notes | 1.00 | % | 03/08/2017 | 5,000 | 5,004,094 | |||||||||||
Unsec. Global Notes(a) | 0.74 | % | 04/20/2017 | 2,400 | 2,399,166 | |||||||||||
Unsec. Global Notes(a) | 0.80 | % | 04/27/2017 | 5,000 | 4,999,124 | |||||||||||
Unsec. Global Notes(a) | 0.87 | % | 07/21/2017 | 12,000 | 11,999,320 | |||||||||||
28,403,699 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Money Market Fund
Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||
Federal National Mortgage Association (FNMA)–2.72% | ||||||||||||||||
Unsec. Global Notes | 0.75 | % | 04/20/2017 | $ | 2,000 | $ | 2,001,147 | |||||||||
Unsec. Global Notes | 1.13 | % | 04/27/2017 | 2,000 | 2,003,598 | |||||||||||
Unsec. Global Notes(a) | 0.66 | % | 09/08/2017 | 10,000 | 9,992,067 | |||||||||||
Unsec. Notes(a) | 0.72 | % | 08/16/2017 | 6,000 | 5,999,246 | |||||||||||
19,996,058 | ||||||||||||||||
Overseas Private Investment Corp. (OPIC)–3.07% | ||||||||||||||||
Sr. Unsec. Gtd. VRD COP Bonds(c) | 0.72 | % | 02/15/2028 | 10,000 | 10,000,000 | |||||||||||
Unsec. Gtd. VRD COP Bonds(c) | 0.72 | % | 09/15/2020 | 5,000 | 5,000,000 | |||||||||||
Unsec. Gtd. VRD COP Bonds(c) | 0.70 | % | 07/07/2040 | 7,500 | 7,500,000 | |||||||||||
22,500,000 | ||||||||||||||||
Total U.S. Government Sponsored Agency Securities (Cost $296,590,572) | 296,590,572 | |||||||||||||||
U.S. Treasury Securities–30.89% |
| |||||||||||||||
U.S. Treasury Bills(b) | 0.40 | % | 02/02/2017 | 50,000 | 49,982,444 | |||||||||||
U.S. Treasury Bills(b) | 0.43 | % | 02/09/2017 | 25,000 | 24,988,625 | |||||||||||
U.S. Treasury Bills(b) | 0.44 | % | 02/16/2017 | 5,000 | 4,997,221 | |||||||||||
U.S. Treasury Bills(b) | 0.45 | % | 02/16/2017 | 4,000 | 3,997,726 | |||||||||||
U.S. Treasury Bills(b) | 0.46 | % | 02/16/2017 | 5,000 | 4,997,119 | |||||||||||
U.S. Treasury Bills(b) | 0.36 | % | 02/23/2017 | 10,000 | 9,994,847 | |||||||||||
U.S. Treasury Bills(b) | 0.45 | % | 02/23/2017 | 2,000 | 1,998,688 | |||||||||||
U.S. Treasury Bills(b) | 0.46 | % | 02/23/2017 | 8,000 | 7,994,700 | |||||||||||
U.S. Treasury Bills(b) | 0.36 | % | 03/02/2017 | 25,000 | 24,985,242 | |||||||||||
U.S. Treasury Bills(b) | 0.49 | % | 03/02/2017 | 8,000 | 7,993,600 | |||||||||||
U.S. Treasury Bills(b) | 0.48 | % | 03/09/2017 | 10,000 | 9,991,234 | |||||||||||
U.S. Treasury Bills(b) | 0.50 | % | 04/13/2017 | 10,000 | 9,985,975 | |||||||||||
U.S. Treasury Bills(b) | 0.62 | % | 05/25/2017 | 45,000 | 44,889,931 | |||||||||||
U.S. Treasury Bills(b) | 0.66 | % | 06/15/2017 | 20,000 | 19,940,829 | |||||||||||
Total U.S. Treasury Securities (Cost $226,738,181) | 226,738,181 | |||||||||||||||
TOTAL INVESTMENTS (excluding Repurchase Agreements)–71.30% (Cost $523,328,753) | 523,328,753 | |||||||||||||||
Repurchase Amount | ||||||||||||||||
Repurchase Agreements–29.24%(d) | ||||||||||||||||
ABN AMRO Bank N.V., joint term agreement dated 12/30/2016, aggregate maturing value of $250,014,167 (collateralized by domestic agency mortgage-backed securities and U.S. Treasury obligations valued at $255,000,012; | 0.51 | % | 01/03/2017 | 26,565,603 | 26,564,098 | |||||||||||
Bank of Nova Scotia (The), joint term agreement dated 12/30/2016, aggregate maturing value of $900,050,000 (collateralized by U.S. Treasury obligations valued at $918,000,018; 0.63%-2.75%, 08/15/2017-11/15/2042)(e) | 0.50 | % | 01/03/2017 | 40,002,222 | 40,000,000 | |||||||||||
ING Financial Markets, LLC, joint term agreement dated 12/30/2016, aggregate maturing value of $75,007,438 (collateralized by domestic agency mortgage-backed securities valued at $76,502,702; 2.50%-3.50%, 10/01/2031-08/01/2045)(e) | 0.51 | % | 01/06/2017 | 15,001,488 | 15,000,000 | |||||||||||
ING Financial Markets, LLC, term agreement dated 12/30/2016, maturing value of $5,000,000 (collateralized by a domestic agency mortgage-backed security valued at $5,100,526; 4.00%, 11/01/2031)(a) | 0.80 | % | 06/28/2017 | 5,000,000 | 5,000,000 | |||||||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc., term agreement dated 12/29/2016, maturing value of $30,003,150 (collateralized by a U.S. Treasury obligation valued at $30,807,183; 3.75%, 11/15/2043)(e) | 0.54 | % | 01/05/2017 | 30,003,150 | 30,000,000 | |||||||||||
RBC Capital Markets LLC, joint term agreement dated 12/13/2016, aggregate maturing value of $600,640,000 (collateralized by domestic agency mortgage-backed securities valued at $612,000,000; 0.75%-6.50%, 05/01/2017-01/01/2047)(e) | 0.60 | % | 02/15/2017 | 15,016,000 | 15,000,000 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Money Market Fund
Interest Rate | Maturity Date | Repurchase Amount | Value | |||||||||||||
RBC Capital Markets LLC, joint term agreement dated 12/30/2016, aggregate maturing value of $560,000,000 (collateralized by domestic agency mortgage-backed securities valued at $571,200,000; 1.74%-6.00%, 12/01/2017-01/01/2047)(a)(e) | 0.66 | % | 03/01/2017 | $ | 20,000,000 | $ | 20,000,000 | |||||||||
Societe Generale, open agreement dated 09/28/2016, (collateralized by domestic agency mortgage-backed securities valued at $20,400,000; 1.01%-3.00%, 09/15/2022-05/15/2045)(f) | 0.40 | % | — | — | 20,000,000 | |||||||||||
Wells Fargo Securities, LLC, joint term agreement dated 12/30/2016, aggregate maturing value of $565,031,389 (collateralized by U.S. Treasury obligations valued at $576,300,036; 0.88%-3.75%, 06/15/2017-11/15/2026)(e) | 0.50 | % | 01/03/2017 | 40,002,222 | 40,000,000 | |||||||||||
Wells Fargo Securities, LLC, term agreement dated 12/05/2016, maturing value of $3,004,253 (collateralized by domestic agency mortgage-backed securities valued at $3,060,000; 2.50%, 11/20/2046) | 0.58 | % | 03/03/2017 | 3,004,253 | 3,000,000 | |||||||||||
Total Repurchase Agreements (Cost $214,564,098) | 214,564,098 | |||||||||||||||
TOTAL INVESTMENTS(g)–100.54% (Cost $737,892,851) | 737,892,851 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–(0.54)% | (3,998,299 | ) | ||||||||||||||
NET ASSETS–100.00% | $ | 733,894,552 |
Investment Abbreviations:
COP | – Certificates of Participation | |
Disc. | – Discounted | |
Gtd. | – Guaranteed | |
Sr. | – Senior | |
Unsec. | – Unsecured | |
VRD | – Variable Rate Demand |
Notes to Schedule of Investments:
(a) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2016. |
(b) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(c) | 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, 2016. |
(d) | Principal amount equals value at period end. See Note 1I. |
(e) | The Fund may demand payment of the term repurchase agreement upon one to seven business days’ notice depending on the timing of the demand. |
(f) | Either party may terminate the agreement upon demand. Interest rates, principal amount and collateral are redetermined daily. |
(g) | Also represents cost for federal income tax purposes. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Money Market Fund
Statement of Assets and Liabilities
December 31, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, excluding repurchase agreements, at value and cost | $ | 523,328,753 | ||
Repurchase agreements, at value and cost | 214,564,098 | |||
Total investments, at value and cost | 737,892,851 | |||
Receivable for: | ||||
Fund shares sold | 241,701 | |||
Interest | 229,984 | |||
Custody expenses reimbursed | 459 | |||
Fund expenses absorbed | 41,312 | |||
Investment for trustee deferred compensation and retirement plans | 49,364 | |||
Other assets | 1,403 | |||
Total assets | 738,457,074 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 4,015,987 | |||
Dividends | 2,610 | |||
Accrued fees to affiliates | 484,963 | |||
Accrued trustees’ and officers’ fees and benefits | 713 | |||
Trustee deferred compensation and retirement plans | 58,249 | |||
Total liabilities | 4,562,522 | |||
Net assets applicable to shares outstanding | $ | 733,894,552 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 733,891,935 | ||
Undistributed net investment income | (5,563 | ) | ||
Undistributed net realized gain | 8,180 | |||
$ | 733,894,552 | |||
Net Assets: |
| |||
Series I | $ | 636,532,122 | ||
Series II | $ | 97,362,430 | ||
Shares outstanding, no par value, |
| |||
Series I | 636,518,711 | |||
Series II | 97,360,362 | |||
Series I: | ||||
Net asset value per share | $ | 1.00 | ||
Series II: | ||||
Net asset value per share | $ | 1.00 |
Investment income: |
| |||
Interest | $ | 3,453,654 | ||
Expenses: | ||||
Advisory fees | 1,691,197 | |||
Administrative services fees | 1,150,887 | |||
Custodian fees | 7,540 | |||
Distribution fees — Series II | 195,804 | |||
Transfer agent fees | 15,435 | |||
Trustees’ and officers’ fees and benefits | 30,724 | |||
Reports to shareholders | 6,528 | |||
Professional services fees | 43,592 | |||
Other | 12,223 | |||
Total expenses | 3,153,930 | |||
Less: Fees waived and expenses reimbursed | (367,807 | ) | ||
Net expenses | 2,786,123 | |||
Net investment income | 667,531 | |||
Net realized gain from investment securities | 8,180 | |||
Net increase in net assets resulting from operations | $ | 675,711 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Money Market Fund
Statement of Changes in Net Assets
For the years ended December 31, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income | $ | 667,531 | $ | 71,644 | ||||
Net realized gain | 8,180 | 5,582 | ||||||
Net increase in net assets resulting from operations | 675,711 | 77,226 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (637,907 | ) | (69,408 | ) | ||||
Series ll | (29,624 | ) | (2,236 | ) | ||||
Total distributions from net investment income | (667,531 | ) | (71,644 | ) | ||||
Share transactions–net: | ||||||||
Series l | (101,332,142 | ) | 131,299,685 | |||||
Series ll | 73,420,621 | 6,443,746 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (27,911,521 | ) | 137,743,431 | |||||
Net increase (decrease) in net assets | (27,903,341 | ) | 137,749,013 | |||||
Net assets: | ||||||||
Beginning of year | 761,797,893 | 624,048,880 | ||||||
End of year (includes undistributed net investment income of $(5,563) and $(11,145), respectively) | $ | 733,894,552 | $ | 761,797,893 |
Notes to Financial Statements
December 31, 2016
NOTE 1—Significant Accounting Policies
Invesco V.I. Government Money Market Fund (the “Fund”), formerly Invesco V.I. Money Market 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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 Fund 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. Government Money Market Fund
investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the 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 daily and paid monthly to separate accounts of participating insurance companies. Distributions from net realized gain, if any, are generally declared and paid annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Repurchase Agreements — The Fund may enter into repurchase agreements. Collateral on repurchase agreements, including the Fund’s pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. Collateral consisting of U.S. Government Securities and U.S. Government Sponsored Agency Securities is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. 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. |
J. | Other Risks — Investments in obligations issued by agencies and instrumentalities of the U.S. Government 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. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
Effective May 1, 2016, 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 0.15% of the Fund’s average daily net assets.
Prior to May 1, 2016, the Fund paid 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, 2016, the effective advisory fees incurred by the Fund was 0.22%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and
Invesco V.I. Government Money Market Fund
Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 1.50% and Series II shares to 1.75% of average daily net assets (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
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, 2016, Invesco voluntarily waived advisory fees of $238,474 and reimbursed class level expenses of $129,333 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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $338,803 for accounting and fund administrative services and was reimbursed $812,084 for fees paid to 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, 2016, 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, 2016, 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, 2016, all of the securities in this Fund were valued based on Level 2 inputs (see the Schedule of Investments for security categories). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2016, the Fund engaged in securities sales of $85,462,722, which did not result in net realized gains (losses).
Invesco V.I. Government Money Market Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The Bank of New York Mellon, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 667,531 | $ | 71,644 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 59,805 | ||
Temporary book/tax differences | (57,188 | ) | ||
Shares of beneficial interest | 733,891,935 | |||
Total net assets | $ | 733,894,552 |
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 carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund does not have a capital loss carryforward as of December 31, 2016.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of distributions, on December 31, 2016, undistributed net investment income was increased by $5,582 and undistributed net realized gain was decreased by $5,582. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Government Money Market Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,047,450,351 | $ | 1,047,450,351 | 1,241,321,035 | $ | 1,241,321,035 | ||||||||||
Series II | 145,053,508 | 145,053,508 | 34,663,428 | 34,663,428 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 622,014 | 622,014 | 67,722 | 67,722 | ||||||||||||
Series II | 29,624 | 29,624 | 2,236 | 2,236 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,149,404,507 | ) | (1,149,404,507 | ) | (1,110,089,072 | ) | (1,110,089,072 | ) | ||||||||
Series II | (71,662,511 | ) | (71,662,511 | ) | (28,221,918 | ) | (28,221,918 | ) | ||||||||
Net increase (decrease) in share activity | (27,911,521 | ) | $ | (27,911,521 | ) | 137,743,431 | $ | 137,743,431 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 87% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
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 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 12/31/16 | $ | 1.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | (0.00 | ) | $ | 1.00 | 0.10 | % | $ | 636,532 | 0.35 | %(c) | 0.38 | %(c) | 0.10 | %(c) | |||||||||||||||||||||
Year ended 12/31/15 | 1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.01 | 737,858 | 0.21 | 0.51 | 0.01 | ||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.01 | 606,553 | 0.16 | 0.50 | 0.01 | ||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.03 | 97,362 | 0.43 | (c) | 0.63 | (c) | 0.02 | (c) | |||||||||||||||||||||||||||||
Year ended 12/31/15 | 1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.01 | 23,940 | 0.21 | 0.76 | 0.01 | ||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 1.00 | 0.00 | 0.00 | �� | 0.00 | (0.00 | ) | 1.00 | 0.01 | 17,496 | 0.16 | 0.75 | 0.01 | |||||||||||||||||||||||||||||||
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 |
(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 $691,727 and $78,321 for Series I and Series II shares, respectively. |
Invesco V.I. Government 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 the Invesco V.I. Government 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 the Invesco V.I. Government Money Market Fund (formerly Invesco V.I. Money Market Fund, one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
Invesco V.I. Government 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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,000.80 | $ | 1.66 | $ | 1,023.48 | $ | 1.68 | 0.33 | % | ||||||||||||
Series II | 1,000.00 | 1,000.30 | 2.16 | 1,022.97 | 2.19 | 0.43 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Government 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, 2016:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0.00 | % | ||
U.S. Treasury Obligations* | 6.33 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Government 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 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) Past 5 Years | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Globe Specialty Metals, Inc. (metallurgical company); Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A |
Invesco V.I. Government 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) Past 5 Years | ||||
Other Officers—(continued) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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 Senior Vice President, The Invesco Funds
Formerly: Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A |
Invesco V.I. Government 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) Past 5 Years | ||||
Other Officers—(continued) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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. Government Money Market Fund
| ||||
Annual Report to Shareholders
| December 31, 2016 | |||
| ||||
Invesco V.I. Government Securities Fund
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIGOV-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, 2016, Series I shares of Invesco V.I. Government Securities Fund (the Fund) had positive performance and outperformed the Fund’s style-specific index, the Bloomberg Barclays U.S Government Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 1.23 | % | |||
Series II Shares | 1.00 | ||||
Bloomberg Barclays U.S. Aggregate Index▼ (Broad Market Index) | 2.65 | ||||
Bloomberg Barclays U.S. Government Index▼ (Style-Specific Index) | 1.05 | ||||
Lipper VUF General U.S. Government Funds Index◾ (Peer Group Index) | 1.20 |
Source(s): ▼FactSet Research Systems Inc.; ◾Lipper Inc.
Market conditions and your Fund
During the year ended December 31, 2016, US economic data was generally positive, despite notable weakness in manufacturing, mining and drilling in the first quarter due to the precipitous decline in the price of oil. The unemployment rate consistently fell at or slightly below 5% in 2016, and finished the year at 4.7%.1 The housing market remained relatively robust in the midst of a positive economic backdrop and low mortgage rate environment; new home sales and housing starts were up 12.4% and 9.2% year-over-year, respectively.2 However, gross domestic product (GDP) annual growth remained modest in the 1.3% to 1.7% range throughout most of the year and inflation remained well-contained near 2.0%.2
The year will most be remembered for surprising political votes. In June, UK voters opted to leave the European Union sending markets sharply lower. Following the UK vote was the surprise outcome of the US presidential election in November. Both votes were unexpected, and in the midst of these market moving events
there was pending action by the US Federal Reserve (the Fed) to raise interest rates. Market expectations for a Fed rate hike fluctuated throughout the year. Given modest GDP growth and non-threatening inflation results, the Fed rate hike was delayed until December when the federal funds target rate was increased by 0.25% to a range of 0.50% to 0.75%.3 US Treasury rates overall moved modestly higher, but had rallied notably earlier in the year with the concerns surrounding oil and persistent economic weakness in the Far East and Europe.
The 10-year US Treasury yield increased from 2.27% at the beginning of the year to 2.44% by year end.2 However, at the end of the second quarter, the yield had fallen to 1.47% post the Brexit vote.2 Market volatility was high throughout the year as rates increased by nearly 1% from mid-year. After the US election, the policy actions from the president-elect and a Republican-controlled Congress dominated market discussions. The Fed’s rate hike in December was priced in, but shorter market rates and
securities were still under pressure, with further rate hikes expected in 2017.
Fixed income returns were muted for the year, in the midst of market volatility, yet remained slightly positive despite the significant rise in rates toward the end of the year. As rates increased, the agency mortgage-backed securities sector significantly underperformed comparable Treasury maturities with extension concerns but finished the year slightly underperforming.
Given this market backdrop, the Fund’s total return for the year was positive, and the Fund outperformed its style-specific benchmark, the Bloomberg Barclays U.S. Government Index.
Most of the relative Fund performance in 2016 was driven by the portfolio’s underweight position in duration versus the Fund’s style-specific benchmark. As a result, the strong rise in interest rates after the November US presidential election was a key factor in Fund performance. The Fund’s asset allocation to mortgages, including commercial mortgage-backed securities and non-agency collateralized mortgage obligations, also helped Fund performance. Positioning that detracted from Fund performance included curve steepening positions and exposure to inflation protected securities. The Fund’s use of derivatives included interest rate futures to manage yield curve exposure and swaptions to hedge interest rate volatility.
The Fund utilizes 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
Portfolio Composition | |||||
By security type | % of total net assets |
U.S. Government Sponsored Agency Mortgage-Backed Securities | 45.1 | % | |||
U.S. Treasury Securities | 27.2 | ||||
Non-U.S. Government Sponsored Agency Securities | 16.4 | ||||
U.S. Government Sponsored Agency Securities | 5.1 | ||||
Certificates of Deposit | 1.8 | ||||
Options Purchased | 0.1 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 4.3 |
Top Five Debt Issuers* | |||
% of total net assets |
1. | U.S. Treasury | 26.9 | % | ||||
2. | Federal National Mortgage Association | 11.6 | |||||
3. | Federal Home Loan Mortgage Corp. | 10.3 | |||||
4. | Freddie Mac REMICs | 8.9 | |||||
5. | Fannie Mae REMICs | 6.2 |
Total Net Assets | $ | 558.6 million | |||||
Total Number of Holdings* | 688 |
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.
Data presented here are as of
December 31, 2016
Invesco V.I. Government Securities Fund
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 Fund, 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 tends 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: Bureau of Labor Statistics |
2 | Source: Bloomberg L.P. |
3 | Source: US Federal Reserve |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Clint Dudley Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Government | ||
Securities Fund. He joined Invesco in 1998. Mr. Dudley earned a BBA and an MBA from Baylor University. | ||
Brian Schneider Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Government | ||
Securities Fund. He joined Invesco in 1987. Mr. Schneider earned a BA in economics and an MBA from Bellarmine University (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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (5/5/93) | 4.32 | % | |||
10 Years | 3.67 | ||||
5 Years | 1.09 | ||||
1 Year | 1.23 | ||||
Series II Shares | |||||
Inception (9/19/01) | 3.35 | % | |||
10 Years | 3.40 | ||||
5 Years | 0.84 | ||||
1 Year | 1.00 |
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 0.67% and 0.92%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. Government Securities Fund
Invesco V.I. Government Securities Fund’s investment objective is total return, comprised of current income and capital appreciation.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Changing fixed income market conditions risk. The current 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 near, at or below zero. Increases 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.
Collateralized loan obligations risk. CLOs are subject to the risks of substantial losses due to actual defaults by underlying borrowers, which will be greater during periods of economic or financial stress. CLOs may also lose value due to collateral defaults and disappearance of subordinate tranches, market anticipation of defaults, and investor aversion to CLO securities as a class. The risks of CLOs will be greater if the Fund invests in CLOs that hold loans of uncreditworthy borrowers or if the Fund holds subordinate tranches of the CLO that absorbs losses from the defaults before senior tranches. In addition, CLOs are subject to interest rate risk and credit risk.
Debt securities risk. The prices of debt securities held by the Fund will be affected by changes in interest rates, the creditworthiness of the issuer and other factors. An increase in prevailing interest rates typically causes the value of existing debt securities to fall and often has a greater impact on longer-duration debt securities and higher quality debt securities. Falling interest rates will cause the Fund to reinvest the proceeds of debt securities that have been repaid by the issuer at lower interest rates. Falling interest rates may also reduce the Fund’s distributable income because interest payments on floating rate debt instruments held by
the Fund will decline. The Fund could lose money on investments in debt securities if the issuer or borrower fails to meet its obligations to make interest payments and/or to repay principal in a timely manner. Changes in an issuer’s financial strength, the market’s perception of such strength or in the credit rating of the issuer or the security may affect the value of debt securities. The Adviser’s credit analysis may fail to anticipate such changes, which could result in buying a debt security at an inopportune time or failing to sell a debt security in advance of a price decline or other credit event.
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.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Mortgage- and asset-backed securities risk. Mortgage- and asset-backed securities, including collateralized debt obligations and collateralized mortgage obligations, are subject to prepayment or call risk, which is the risk that a borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. This could result in the Fund reinvesting these early payments at lower interest rates, thereby reducing the Fund’s income. Mortgage- and asset-backed securities also are subject to extension risk, which is the risk that an unexpected rise in interest rates could reduce the rate of prepayments, causing the price of the mortgage- and asset-backed securities and the Fund’s share price to fall. 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 Fund may invest in mortgage pools that include subprime mortgages, which are loans made to borrowers with weakened credit histories or with lower capacity to make timely payments on their mortgages. Privately
Invesco V.I. Government Securities Fund
issued mortgage-related securities are not subject to the same underwriting requirements as those with government or government-sponsored entity guarantees and, therefore, mortgage loans underlying privately issued mortgage-related securities may have less favorable collateral, credit risk or other underwriting characteristics, and wider variances in interest rate, term, size, purpose and borrower characteristics.
TBA transactions risk. TBA transactions involve the risk of loss if the securities received are less favorable than what was anticipated by the Fund when entering into the TBA transaction, or if the counterparty fails to deliver the securities. 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. 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. In addition, taking short positions results in a form of leverage, which could increase the volatility of the Fund’s share price.
US government obligations risk. Obligations of US government agencies and authorities receive varying levels of support and may not be backed by the full faith and credit of the US government, which could affect the Fund’s ability to recover should they default. No assurance can be given that the US government will provide financial support to its agencies and authorities if it is not obligated by law to do so.
When-issued, delayed delivery and forward commitment risks. When-issued and delayed delivery transactions subject the Fund to market risk because the value or yield of a security at delivery may be more or less than the purchase price or yield generally available when delivery occurs, and counterparty risk because the Fund relies on the buyer or seller, as the case may be, to consummate the transaction. These transactions also have a leveraging effect on the Fund because the Fund commits to purchase securities that it does not have to pay for until a later
date, which increases the Fund’s overall investment exposure and, as a result, its volatility.
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 loans that periodically pay interest.
About indexes used in this report
The Bloomberg Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Bloomberg 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.
Invesco V.I. Government Securities Fund
Schedule of Investments
December 31, 2016
Principal Amount | Value | |||||||
U.S. Government Sponsored Agency Mortgage–Backed Securities–45.08% |
| |||||||
Collateralized Mortgage Obligations–19.56% | ||||||||
Fannie Mae REMICs, | ||||||||
4.00%, 07/25/2018 to 07/25/2040 | $ | 3,369,283 | $ | 3,537,092 | ||||
5.00%, 08/25/2019 | 486,750 | 497,349 | ||||||
3.00%, 10/25/2025 | 804,267 | 817,314 | ||||||
2.50%, 03/25/2026 | 893,992 | 901,790 | ||||||
7.00%, 09/18/2027 | 343,585 | 379,269 | ||||||
6.50%, 03/25/2032 | 936,520 | 1,062,480 | ||||||
5.75%, 10/25/2035 | 483,356 | 530,758 | ||||||
1.06%, 05/25/2036(a) | 3,476,477 | 3,463,431 | ||||||
4.25%, 02/25/2037 | 1,212,587 | 1,260,933 | ||||||
1.21%, 03/25/2037(a) | 1,854,207 | 1,854,280 | ||||||
1.26%, 03/25/2037 to 05/25/2041(a) | 5,838,350 | 5,851,721 | ||||||
1.16%, 06/25/2038(a) | 4,833,343 | 4,834,796 | ||||||
6.58%, 06/25/2039(a) | 3,902,922 | 4,543,141 | ||||||
1.31%, 02/25/2041(a) | 3,632,442 | 3,654,071 | ||||||
1.28%, 11/25/2041(a) | 1,658,882 | 1,666,285 | ||||||
Federal Home Loan Bank | ||||||||
5.77%, 03/23/2018 | 752,455 | 787,639 | ||||||
Freddie Mac REMICs, | ||||||||
4.00%, 12/15/2017 to 06/15/2039 | 123,185 | 124,327 | ||||||
5.00%, 02/15/2018 to 04/15/2019 | 439,792 | 445,511 | ||||||
4.50%, 07/15/2018 | 113,764 | 116,208 | ||||||
3.00%, 10/15/2018 to 04/15/2026 | 1,725,676 | 1,754,960 | ||||||
1.20%, 12/15/2035 to 03/15/2040(a) | 5,886,433 | 5,912,604 | ||||||
1.00%, 03/15/2036 to 09/15/2044(a) | 14,370,091 | 14,368,081 | ||||||
0.88%, 11/15/2036(a) | 5,533,530 | 5,515,048 | ||||||
1.07%, 03/15/2037(a) | 1,604,844 | 1,602,711 | ||||||
1.10%, 05/15/2037 to 06/15/2037(a) | 4,031,892 | 4,036,960 | ||||||
1.56%, 11/15/2039(a) | 934,874 | 952,954 | ||||||
1.15%, 03/15/2040 to 02/15/2042(a) | 14,919,807 | 14,914,060 | ||||||
Freddie Mac STRIPS | ||||||||
0.88%, 10/15/2037(a) | 4,276,749 | 4,253,799 | ||||||
Ginnie Mae REMICs, | ||||||||
6.00%, 01/16/2025 | 540,042 | 588,112 | ||||||
5.72%, 08/20/2034(a) | 1,409,635 | 1,575,708 | ||||||
4.50%, 09/16/2034 | 161,543 | 162,582 | ||||||
4.00%, 02/20/2038 | 242,082 | 244,751 | ||||||
5.88%, 01/20/2039(a) | 4,855,078 | 5,445,304 | ||||||
1.51%, 09/16/2039(a) | 1,667,543 | 1,693,931 | ||||||
4.49%, 07/20/2041(a) | 1,008,857 | 1,071,032 | ||||||
2.05%, 09/20/2041(a) | 4,572,714 | 4,739,065 | ||||||
0.99%, 01/20/2042(a) | 1,065,302 | 1,062,239 | ||||||
Ginnie Mae REMICs, IO, | ||||||||
1.58%, 09/20/2064(a) | 9,968,046 | 1,017,822 | ||||||
1.62%, 11/20/2064(a) | 6,403,049 | 504,240 | ||||||
1.68%, 12/20/2064(a) | 17,129,024 | 1,536,011 | ||||||
109,280,369 |
Principal Amount | Value | |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–10.36% | ||||||||
Pass Through Ctfs., | ||||||||
6.00%, 04/01/2017 to 07/01/2038 | $ | 632,133 | $ | 689,447 | ||||
6.50%, 04/01/2017 to 12/01/2035 | 3,159,609 | 3,600,573 | ||||||
7.00%, 04/01/2017 to 03/01/2036 | 3,701,893 | 4,203,054 | ||||||
5.00%, 07/01/2018 to 01/01/2040 | 1,662,783 | 1,818,307 | ||||||
4.50%, 09/01/2020 to 08/01/2041 | 10,866,762 | 11,787,832 | ||||||
10.00%, 03/01/2021 | 9,356 | 9,534 | ||||||
9.00%, 06/01/2021 to 06/01/2022 | 71,320 | 75,125 | ||||||
8.00%, 12/01/2021 to 09/01/2036 | 1,592,647 | 1,754,185 | ||||||
7.50%, 09/01/2022 to 06/01/2035 | 1,175,839 | 1,323,740 | ||||||
8.50%, 11/17/2022 to 08/01/2031 | 524,456 | 587,577 | ||||||
5.50%, 12/01/2022 | 355,636 | 370,512 | ||||||
3.50%, 08/01/2026 | 949,707 | 998,006 | ||||||
3.00%, 05/01/2027 | 1,555,978 | 1,609,260 | ||||||
7.05%, 05/20/2027 | 122,048 | 134,907 | ||||||
6.03%, 10/20/2030 | 809,907 | 918,266 | ||||||
Pass Through Ctfs., ARM, | ||||||||
3.03%, 09/01/2035(a) | 5,622,263 | 5,951,716 | ||||||
3.05%, 07/01/2036(a) | 4,433,856 | 4,690,418 | ||||||
2.85%, 10/01/2036(a) | 2,835,924 | 2,995,650 | ||||||
3.34%, 10/01/2036(a) | 184,871 | 196,295 | ||||||
3.38%, 11/01/2037(a) | 2,526,240 | 2,624,992 | ||||||
2.93%, 01/01/2038(a) | 122,453 | 130,724 | ||||||
3.00%, 07/01/2038(a) | 1,106,381 | 1,177,910 | ||||||
2.57%, 06/01/2043(a) | 3,281,021 | 3,454,959 | ||||||
2.92%, 02/01/2045(a) | 2,420,329 | 2,472,851 | ||||||
2.74%, 08/01/2045(a) | 1,907,178 | 1,942,990 | ||||||
3.16%, 09/01/2045(a) | 2,289,765 | 2,343,702 | ||||||
57,862,532 | ||||||||
Federal National Mortgage Association (FNMA)–11.56% | ||||||||
Pass Through Ctfs., | ||||||||
7.50%, 04/01/2017 to 08/01/2037 | 5,342,969 | 6,147,386 | ||||||
6.50%, 05/01/2017 to 11/01/2037 | 3,252,501 | 3,623,661 | ||||||
7.00%, 06/01/2017 to 06/01/2036 | 4,897,986 | 5,356,141 | ||||||
6.00%, 09/01/2017 to 10/01/2038 | 2,454,191 | 2,776,091 | ||||||
5.00%, 11/01/2017 to 12/01/2033 | 380,004 | 397,335 | ||||||
8.50%, 11/01/2017 to 08/01/2037 | 1,250,934 | 1,434,231 | ||||||
8.00%, 12/01/2017 to 10/01/2037 | 3,857,677 | 4,557,508 | ||||||
4.50%, 04/01/2019 to 08/01/2041 | 7,951,956 | 8,545,626 | ||||||
5.50%, 03/01/2021 to 05/01/2035 | 1,943,037 | 2,218,503 | ||||||
6.75%, 07/01/2024 | 387,682 | 438,868 | ||||||
6.95%, 10/01/2025 | 19,571 | 20,106 | ||||||
3.50%, 03/01/2027 to 08/01/2027 | 10,751,078 | 11,226,267 | ||||||
3.00%, 05/01/2027 to 08/01/2027 | 4,742,142 | 4,878,976 |
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, | ||||||||
2.85%, 10/01/2034(a) | $ | 2,590,467 | $ | 2,747,680 | ||||
2.76%, 05/01/2035(a) | 433,116 | 458,090 | ||||||
2.85%, 03/01/2038(a) | 131,352 | 139,397 | ||||||
2.76%, 02/01/2042(a) | 1,628,691 | 1,689,715 | ||||||
2.29%, 06/01/2043(a) | 3,063,280 | 3,090,907 | ||||||
2.18%, 08/01/2043(a) | 2,523,163 | 2,556,937 | ||||||
2.25%, 05/01/2044(a) | 2,250,387 | 2,281,730 | ||||||
64,585,155 | ||||||||
Government National Mortgage Association (GNMA)–3.60% | ||||||||
Pass Through Ctfs., | ||||||||
7.50%, 03/15/2017 to 10/15/2035 | 2,548,168 | 2,910,894 | ||||||
7.00%, 04/15/2017 to 12/15/2036 | 1,028,802 | 1,126,976 | ||||||
6.50%, 04/20/2017 to 01/15/2035 | 3,998,720 | 4,488,739 | ||||||
8.00%, 05/15/2017 to 01/15/2037 | 1,344,992 | 1,557,121 | ||||||
8.50%, 12/15/2017 to 01/15/2037 | 147,971 | 155,778 | ||||||
10.00%, 06/15/2019 | 3,500 | 3,552 | ||||||
6.00%, 09/15/2020 to 08/15/2033 | 658,492 | 736,315 | ||||||
5.00%, 02/15/2025 | 187,625 | 205,186 | ||||||
6.95%, 08/20/2025 to 08/20/2027 | 301,327 | 308,808 | ||||||
6.38%, 10/20/2027 to 04/20/2028 | 325,159 | 356,239 | ||||||
6.10%, 12/20/2033 | 4,410,775 | 5,038,237 | ||||||
3.50%, 10/20/2042 | 3,112,267 | 3,183,995 | ||||||
20,071,840 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities |
| 251,799,896 | ||||||
U.S. Treasury Securities–27.24% |
| |||||||
U.S. Treasury Bills–0.31% | ||||||||
0.59%, 05/11/2017(b)(c) | 1,700,000 | 1,696,463 | ||||||
U.S. Treasury Notes–21.71% | ||||||||
0.75%, 08/31/2018 | 5,000,000 | 4,968,570 | ||||||
1.50%, 12/31/2018 | 2,500,000 | 2,514,375 | ||||||
1.00%, 03/15/2019 | 7,500,000 | 7,459,103 | ||||||
1.63%, 06/30/2019 | 4,000,000 | 4,029,016 | ||||||
0.75%, 07/15/2019 | 11,000,000 | 10,837,794 | ||||||
1.63%, 07/31/2019 | 2,700,000 | 2,718,303 | ||||||
1.75%, 09/30/2019 | 2,500,000 | 2,523,940 | ||||||
3.38%, 11/15/2019 | 625,000 | 659,221 | ||||||
1.38%, 08/31/2020 | 11,000,000 | 10,879,363 | ||||||
2.00%, 09/30/2020 | 6,000,000 | 6,064,536 | ||||||
1.75%, 12/31/2020 | 8,000,000 | 7,992,184 | ||||||
1.38%, 01/31/2021 | 3,000,000 | 2,950,050 | ||||||
3.13%, 05/15/2021 | 2,100,000 | 2,211,392 | ||||||
1.38%, 05/31/2021 | 4,000,000 | 3,917,452 | ||||||
1.13%, 06/30/2021 | 3,250,000 | 3,143,036 | ||||||
2.13%, 06/30/2021 | 6,500,000 | 6,565,091 | ||||||
1.13%, 07/31/2021 | 4,300,000 | 4,153,202 | ||||||
2.13%, 08/15/2021 | 2,700,000 | 2,723,550 | ||||||
2.00%, 10/31/2021 | 2,500,000 | 2,505,210 | ||||||
2.00%, 11/15/2021 | 3,300,000 | 3,306,399 |
Principal Amount | Value | |||||||
U.S. Treasury Notes–(continued) | ||||||||
2.13%, 06/30/2022 | $ | 3,000,000 | $ | 3,007,839 | ||||
2.00%, 07/31/2022 | 2,000,000 | 1,990,800 | ||||||
1.63%, 11/15/2022 | 2,000,000 | 1,944,550 | ||||||
2.13%, 12/31/2022 | 7,000,000 | 6,989,325 | ||||||
1.63%, 04/30/2023 | 4,000,000 | 3,864,784 | ||||||
1.63%, 05/31/2023 | 1,400,000 | 1,351,106 | ||||||
1.63%, 10/31/2023 | 625,000 | 600,660 | ||||||
1.50%, 08/15/2026 | 10,250,000 | 9,412,360 | ||||||
121,283,211 | ||||||||
U.S. Treasury Bonds–5.22% | ||||||||
8.75%, 05/15/2020 | 1,200,000 | 1,480,412 | ||||||
7.88%, 02/15/2021 | 1,100,000 | 1,363,951 | ||||||
5.38%, 02/15/2031 | 3,800,000 | 5,053,711 | ||||||
3.38%, 05/15/2044 | 6,000,000 | 6,350,352 | ||||||
3.00%, 05/15/2045 | 3,000,000 | 2,953,416 | ||||||
2.88%, 08/15/2045 | 750,000 | 720,216 | ||||||
3.00%, 11/15/2045 | 3,000,000 | 2,952,756 | ||||||
2.50%, 05/15/2046 | 6,000,000 | 5,319,060 | ||||||
2.25%, 08/15/2046 | 3,550,000 | 2,977,424 | ||||||
29,171,298 | ||||||||
Total U.S. Treasury Securities | 152,150,972 | |||||||
Non-U.S. Government Sponsored Agency Securities–16.43% |
| |||||||
Collateralized Mortgage Obligations–13.53% | ||||||||
Banc of America Commercial Mortgage Trust, | 16,815,232 | 965,811 | ||||||
Barclays Bank Commercial Mortgage Securities Trust, Series 2015-RRI, Class D, Floating Rate Pass Through Ctfs., | 2,460,000 | 2,458,123 | ||||||
Bear Stearns ARM Trust, Series 2004-10, Class 12A1, Variable Rate Pass Through Ctfs., | 934,929 | 928,271 | ||||||
Chase Mortgage Trust, | 2,965,709 | 2,885,759 | ||||||
Series 2016-2, Class M3, Pass Through Ctfs., 3.75%, 12/25/2045(e) | 3,366,663 | 3,272,099 | ||||||
Commercial Mortgage Trust, | 5,900,000 | 5,918,349 | ||||||
Series 2015-CR23, Class CMB, Variable Rate Pass Through Ctfs., 3.68%, 05/10/2048(a)(e) | 4,740,000 | 4,712,702 | ||||||
Series 2015-CR24, Class B, Variable Rate Pass Through Ctfs., 4.37%, 08/10/2048(a) | 6,200,000 | 6,467,209 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Principal Amount | Value | |||||||
Collateralized Mortgage Obligations–(continued) | ||||||||
Credit Suisse Mortgage Capital Trust, Series 2015-TOWN, Class B, Floating Rate Pass Through Ctfs., 2.60%, 03/15/2017(a)(e) | $ | 7,100,000 | $ | 6,990,768 | ||||
La Hipotecaria El Salvadorian Mortgage Trust (El Salvador), Series 2013-1A, Class A, Pass Through Ctfs., 3.50%, 10/25/2041(e) | 8,768,591 | 9,127,560 | ||||||
La Hipotecaria Panamanian Mortgage Trust (El Salvador), Series 2010-1GA, Class A, Floating Rate Pass Through Ctfs., 2.25%, 09/08/2039(a)(e) | 14,574,313 | 15,066,196 | ||||||
LSTAR Commercial Mortgage Trust, Series 2014-2, Class A2, Pass Through Ctfs., 2.77%, 01/20/2041(e) | 3,866,481 | 3,865,974 | ||||||
Morgan Stanley Capital I Trust, Series 2015-XLF2, Class AFSD, Floating Rate Pass Through Ctfs., 4.36%, 08/15/2026(a)(e) | 3,000,000 | 3,019,841 | ||||||
Towd Point Mortgage Trust, Series 2015-1, Class AES, Pass Through Ctfs., 3.00%, 10/25/2053(e) | 4,008,867 | 4,053,179 | ||||||
Wells Fargo Commercial Mortgage Trust, Series 2015-C28, Class B, Variable Rate Pass Through Ctfs., 4.14%, 05/15/2048(a) | 5,900,000 | 5,846,728 | ||||||
75,578,569 | ||||||||
Bonds & Notes–2.90% | ||||||||
Israel Government Agency for International Development (AID) Bond, Unsec. Gtd. Global Bonds, 5.13%, 11/01/2024 | 3,800,000 | 4,504,685 | ||||||
Private Export Funding Corp., Series BB, Sec. Gtd. Notes, 4.30%, 12/15/2021 | 1,540,000 | 1,693,323 | ||||||
Series FF, Sec. Gtd. Notes, 1.38%, 02/15/2017 | 5,000,000 | 5,003,723 | ||||||
Series HH, Sr. Sec. Gtd. Notes, 1.45%, 08/15/2019 | 5,000,000 | 4,992,083 | ||||||
16,193,814 | ||||||||
Total Non-U.S. Government Sponsored Agency Securities |
| 91,772,383 |
Principal Amount | Value | |||||||
U.S. Government Sponsored Agency |
| |||||||
Federal Agricultural Mortgage Corp. (FAMC)–2.54% | ||||||||
Series 2007-1, Sec. Gtd. Notes, 5.13%, 04/19/2017(e) | $ | 14,000,000 | $ | 14,186,368 | ||||
Federal Farm Credit Bank (FFCB)–0.48% | ||||||||
Unsec. Medium-Term Notes, 5.75%, 12/07/2028 | 2,100,000 | 2,693,185 | ||||||
Federal Home Loan Bank (FHLB)–1.18% | ||||||||
Unsec. Bonds, | 6,220,000 | 6,566,286 | ||||||
Financing Corp (FICO)–0.55% | ||||||||
Sec. Bonds, | 700,000 | 774,212 | ||||||
Series E, Sec. Bonds, | 1,985,000 | 2,284,255 | ||||||
3,058,467 | ||||||||
Tennessee Valley Authority (TVA)–0.35% | ||||||||
Sr. Unsec. Global Notes, 1.88%, 08/15/2022 | 2,000,000 | 1,970,374 | ||||||
Total U.S. Government Sponsored Agency Securities |
| 28,474,680 | ||||||
Certificate of Deposit–1.79% |
| |||||||
Credit Agricole Corporate and Investment Bank (France), 1.22%, 08/01/2017(a) | 10,000,000 | 10,003,125 | ||||||
Shares | ||||||||
Money Market Funds–3.81% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43% | 21,306,381 | 21,306,381 | ||||||
Options Purchased–0.03% |
| |||||||
(Cost $295,000)(g) | 196,143 | |||||||
TOTAL INVESTMENTS–99.48% | 555,703,580 | |||||||
OTHER ASSETS LESS LIABILITIES–0.52% | 2,919,962 | |||||||
NET ASSETS–100.00% | $ | 558,624,342 |
Investment Abbreviations:
ARM | – Adjustable Rate Mortgage | |
Ctfs. | – Certificates | |
Gtd. | – Guaranteed | |
IO | – Interest Only | |
REMICs | – Real Estate Mortgage Investment Conduits | |
Sec. | – Secured | |
Sr. | – Senior | |
STRIPS | – Separately Traded Registered Interest and Principal Security | |
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, 2016. |
(b) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(c) | 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. |
(d) | Principal amount of security and interest payments are adjusted for inflation. See Note 1I. |
(e) | 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, 2016 was $75,556,918, which represented 13.53% of the Fund’s Net Assets. |
(f) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
(g) | The table below details options purchases: |
Open Over-The-Counter Interest Rate Swaptions Purchased | ||||||||||||||||||||||||||||||||
Description | Type of Contract | Counterparty | Exercise Rate | Pay/ Receive Exercise Rate | Floating Rate Index | Expiration Date | Notional Value | Value | ||||||||||||||||||||||||
30 Year Interest Rate Swap | Call | Deutsche Bank Securities Inc. | 1.67 | % | Receive | 3 Month USD LIBOR | 05/16/2017 | $ | 5,000,000 | $ | 7,892 | |||||||||||||||||||||
30 Year Interest Rate Swap | Put | Deutsche Bank Securities Inc. | 2.67 | Pay | 3 Month USD LIBOR | 05/16/2017 | 5,000,000 | 188,251 | ||||||||||||||||||||||||
Total Options Purchased — Interest Rate Risk (Cost $295,000) |
| $ | 196,143 |
Abbreviations:
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $530,620,215) | $ | 534,397,199 | ||
Investments in affiliated money market funds, at value and cost | 21,306,381 | |||
Total investments, at value (Cost $551,926,596) | 555,703,580 | |||
Receivable for: | ||||
Variation margin — futures | 225,899 | |||
Fund shares sold | 516,912 | |||
Dividends and interest | 2,205,543 | |||
Principal paydowns | 939,578 | |||
Investment for trustee deferred compensation and retirement plans | 229,781 | |||
Other assets | 19,318 | |||
Total assets | 559,840,611 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 338,169 | |||
Accrued fees to affiliates | 584,597 | |||
Accrued trustees’ and officers’ fees and benefits | 694 | |||
Accrued other operating expenses | 36,102 | |||
Trustee deferred compensation and retirement plans | 256,707 | |||
Total liabilities | 1,216,269 | |||
Net assets applicable to shares outstanding | $ | 558,624,342 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 563,486,615 | ||
Undistributed net investment income | 10,784,856 | |||
Undistributed net realized gain (loss) | (19,401,611 | ) | ||
Net unrealized appreciation | 3,754,482 | |||
$ | 558,624,342 | |||
Net Assets: |
| |||
Series I | $ | 353,614,051 | ||
Series II | $ | 205,010,291 | ||
Shares outstanding, no par value, |
| |||
Series I | 30,922,012 | |||
Series II | 18,089,055 | |||
Series I: | ||||
Net asset value per share | $ | 11.44 | ||
Series II: | ||||
Net asset value per share | $ | 11.33 |
Investment income: |
| |||
Interest | $ | 15,928,647 | ||
Dividends from affiliated money market funds | 19,278 | |||
Other income | 55,252 | |||
Total investment income | 16,003,177 | |||
Expenses: | ||||
Advisory fees | 2,830,916 | |||
Administrative services fees | 1,317,359 | |||
Distribution fees — Series II | 519,583 | |||
Transfer agent fees | 44,283 | |||
Trustees’ and officers’ fees and benefits | 31,789 | |||
Reports to shareholders | 12,000 | |||
Professional services fees | 52,520 | |||
Other | 116,182 | |||
Total expenses | 4,924,632 | |||
Less: Fees waived | (6,472 | ) | ||
Net expenses | 4,918,160 | |||
Net investment income | 11,085,017 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (941,624 | ) | ||
Futures contracts | 2,771,290 | |||
1,829,666 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (4,890,274 | ) | ||
Futures contracts | (302,703 | ) | ||
(5,192,977 | ) | |||
Net realized and unrealized gain (loss) | (3,363,311 | ) | ||
Net increase in net assets resulting from operations | $ | 7,721,706 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: | ||||||||
Net investment income | $ | 11,085,017 | $ | 8,746,964 | ||||
Net realized gain | 1,829,666 | 3,331,844 | ||||||
Change in net unrealized appreciation (depreciation) | (5,192,977 | ) | (9,886,504 | ) | ||||
Net increase in net assets resulting from operations | 7,721,706 | 2,192,304 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (7,819,357 | ) | (9,684,904 | ) | ||||
Series ll | (3,787,853 | ) | (3,821,202 | ) | ||||
Total distributions from net investment income | (11,607,210 | ) | (13,506,106 | ) | ||||
Share transactions–net: | ||||||||
Series l | (37,454,400 | ) | (73,711,835 | ) | ||||
Series ll | 11,482,998 | (13,837,280 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | (25,971,402 | ) | (87,549,115 | ) | ||||
Net increase (decrease) in net assets | (29,856,906 | ) | (98,862,917 | ) | ||||
Net assets: | ||||||||
Beginning of year | 588,481,248 | 687,344,165 | ||||||
End of year (includes undistributed net investment income of $10,784,856 and $11,306,883, respectively) | $ | 558,624,342 | $ | 588,481,248 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Government Securities Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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 may be 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 roll 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. | Call Options Purchased and Written — The Fund may write covered call options and/or buy call options. A covered call option gives the purchaser of such option the right to buy, and the writer the obligation to sell, the underlying security or foreign currency at the stated exercise price during the option period. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. |
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.
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 call options purchased and written are included in the Statement of Operations as Net realized gain (loss) from and Change in net unrealized appreciation (depreciation) of Investment securities and Option contacts written. A risk in writing a covered call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised.
Invesco V.I. Government Securities Fund
When the Fund buys a call option, an amount equal to the premium paid by the Fund is recorded as an investment on the Statement of Assets and Liabilities. The amount of the investment is subsequently “marked-to-market” to reflect the current value of the option purchased. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased.
M. | Put Options Purchased and Written — The Fund may purchase put options including options on securities indexes, or foreign currency 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 put options purchased and written are included in the Statement of Operations as Net realized gain (loss) from and Change in net unrealized appreciation (depreciation) of Investment securities and Option contacts written. 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.
N. | 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. A swap agreement may be negotiated bilaterally and traded over-the-counter (“OTC”) between two parties (“uncleared/OTC”) or, in some instances, must be transacted through a future commission merchant (“FCM”) and cleared through a clearinghouse that serves as a central Counterparty (“centrally cleared swap”). These agreements may contain among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency 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
Invesco V.I. Government Securities Fund
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 cash or liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Cash held as collateral is recorded as deposits with brokers on the Statement of Assets and Liabilities. 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, 2016 for which the Fund is the seller of protection are disclosed in the open swap agreements table. 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.
O. | 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. |
P. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $250 million | 0.50% | |||
Over $250 million | 0.45% |
For the year ended December 31, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $6,472.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and
Invesco V.I. Government Securities Fund
responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $143,302 for accounting and fund administrative services and was reimbursed $1,174,057 for fees paid to 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, 2016, 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, 2016, 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, 2016. 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 | |||||||||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities | $ | — | $ | 251,799,896 | $ | — | $ | 251,799,896 | ||||||||
U.S. Treasury Securities | — | 152,150,972 | — | 152,150,972 | ||||||||||||
Non-U.S. Government Sponsored Agency Securities | — | 91,772,383 | — | 91,772,383 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 28,474,680 | — | 28,474,680 | ||||||||||||
Certificate of Deposit | — | 10,003,125 | — | 10,003,125 | ||||||||||||
Money Market Funds | 21,306,381 | — | — | 21,306,381 | ||||||||||||
Options Purchased | — | 196,143 | — | 196,143 | ||||||||||||
21,306,381 | 534,397,199 | — | 555,703,580 | |||||||||||||
Futures Contracts* | (22,502 | ) | — | — | (22,502 | ) | ||||||||||
Total Investments | $ | 21,283,879 | $ | 534,397,199 | $ | — | $ | 555,681,078 |
* | Unrealized appreciation (depreciation). |
Invesco V.I. Government Securities Fund
NOTE 4—Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
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, 2016:
Value | ||||
Derivative Assets | Interest Rate Risk | |||
Unrealized appreciation on futures contracts — Exchange-Traded(a) | $ | 187,167 | ||
Options purchased, at value — OTC(b) | 196,143 | |||
Total Derivative Assets | 383,310 | |||
Derivatives not subject to master netting agreements | (187,167 | ) | ||
Total Derivative Assets subject to master netting agreements | $ | 196,143 | ||
Value | ||||
Derivative Liabilities | Interest Rate Risk | |||
Unrealized depreciation on futures contracts — Exchange-Traded(a) | $ | (209,669 | ) | |
Derivatives not subject to master netting agreements | 209,669 | |||
Total Derivative Liabilities subject to master netting agreements | $ | — |
(a) | Includes cumulative appreciation (depreciation) on futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
(b) | Options purchased, at value as reported in the Schedule of Investments. |
Open Futures Contracts | ||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||
U.S. Treasury 2 Year Notes | Short | 20 | March-2017 | $ | (4,333,750 | ) | $ | 1,520 | ||||||||||
U.S. Treasury 5 Year Notes | Long | 329 | March-2017 | 38,711,477 | (71,611 | ) | ||||||||||||
U.S. Treasury 10 Year Notes | Long | 274 | March-2017 | 34,053,063 | (136,027 | ) | ||||||||||||
U.S. Treasury 10 Year Ultra Bonds | Short | 49 | March-2017 | (6,569,063 | ) | (2,031 | ) | |||||||||||
U.S. Treasury Long Bond | Short | 92 | March-2017 | (13,860,375 | ) | 114,781 | ||||||||||||
U.S. Treasury Ultra Bonds | Long | 182 | March-2017 | 29,165,500 | 70,866 | |||||||||||||
Total futures contracts — interest rate risk | $ | (22,502 | ) |
Offsetting Assets and Liabilities
The table below reflects the Fund’s exposure to Counterparties subject to either an ISDA Master Agreement or other agreement for OTC derivative transactions as of December 31, 2016.
Financial Derivative Assets | Financial Derivative Liabilities | Collateral (Received)/ Pledged | ||||||||||||||||||||||
Counterparty | Options purchased | Options purchased | Net value of derivatives | Non-Cash | Cash | Net Amount | ||||||||||||||||||
Deutsche Bank Securities Inc. | $ | 196,143 | $ | — | $ | 196,143 | $ | — | $ | (196,143 | ) | $ | — |
Invesco V.I. Government Securities Fund
Effect of Derivative Investments for the year ended December 31, 2016
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 | ||||
Interest Rate Risk | ||||
Realized Gain (Loss): | ||||
Futures contracts | $ | 2,771,290 | ||
Options purchased(a) | (140,000 | ) | ||
Change in Net Unrealized Appreciation (Depreciation): | ||||
Futures contracts | (302,703 | ) | ||
Options purchased(a) | (98,857 | ) | ||
Total | $ | 2,229,730 |
(a) | Options purchased are included in the net realized gain (loss) from investment securities and the change in net unrealized appreciation (depreciation) of investment securities. |
The table below summarizes the twelve month average notional value of futures contracts and the ten month average notional value of options purchased outstanding during the period.
Futures Contracts | Options Purchased | |||||||
Average notional value | $ | 137,566,944 | $ | 15,000,000 |
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. The Fund may not purchase additional securities when any borrowings from banks exceed 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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 11,607,210 | $ | 13,506,106 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 11,043,081 | ||
Net unrealized appreciation — investments | 3,775,945 | |||
Temporary book/tax differences | (523,646 | ) | ||
Capital loss carryforward | (19,157,653 | ) | ||
Shares of beneficial interest | 563,486,615 | |||
Total net assets | $ | 558,624,342 |
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. Government Securities 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 has a capital loss carryforward as of December 31, 2016, 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 | 8,772,508 | 6,539,306 | 15,311,814 | |||||||||
$ | 12,618,347 | $ | 6,539,306 | $ | 19,157,653 |
* | 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, 2016 was $39,397,537 and $156,589,258, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $143,354,650 and $71,593,934, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 9,050,678 | ||
Aggregate unrealized (depreciation) of investment securities | (5,274,733 | ) | ||
Net unrealized appreciation of investment securities | $ | 3,775,945 |
Cost of investments for tax purposes is $551,927,635.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of paydowns, on December 31, 2016, undistributed net investment income was increased by $166 and undistributed net realized gain (loss) was decreased by $166. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 5,588,689 | $ | 65,831,931 | 5,071,141 | $ | 59,701,741 | ||||||||||
Series II | 3,992,862 | 46,492,943 | 2,597,649 | 30,202,874 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 666,044 | 7,819,357 | 834,905 | 9,684,904 | ||||||||||||
Series II | 325,417 | 3,787,853 | 331,990 | 3,821,202 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (9,454,799 | ) | (111,105,688 | ) | (12,198,556 | ) | (143,098,480 | ) | ||||||||
Series II | (3,337,612 | ) | (38,797,798 | ) | (4,103,260 | ) | (47,861,356 | ) | ||||||||
Net increase (decrease) in share activity | (2,219,399 | ) | $ | (25,971,402 | ) | (7,466,131 | ) | $ | (87,549,115 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 78% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco 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 12/31/16 | $ | 11.52 | $ | 0.23 | $ | (0.07 | ) | $ | 0.16 | $ | (0.24 | ) | $ | 11.44 | 1.32 | % | $ | 353,614 | 0.73 | %(d) | 0.73 | %(d) | 1.93 | %(d) | 31 | % | ||||||||||||||||||||||
Year ended 12/31/15 | 11.74 | 0.17 | (0.13 | ) | 0.04 | (0.26 | ) | 11.52 | 0.34 | 393,090 | 0.77 | 0.77 | 1.44 | 59 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 11.64 | 0.16 | 0.32 | 0.48 | (0.38 | ) | 11.74 | 4.14 | 474,556 | 0.78 | 0.78 | 1.36 | 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 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 11.42 | 0.20 | (0.08 | ) | 0.12 | (0.21 | ) | 11.33 | 1.00 | 205,010 | 0.98 | (d) | 0.98 | (d) | 1.68 | (d) | 31 | |||||||||||||||||||||||||||||||
Year ended 12/31/15 | 11.64 | 0.14 | (0.13 | ) | 0.01 | (0.23 | ) | 11.42 | 0.06 | 195,392 | 1.02 | 1.02 | 1.19 | 59 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 11.54 | 0.13 | 0.31 | 0.44 | (0.34 | ) | 11.64 | 3.88 | 212,788 | 1.03 | 1.03 | 1.11 | 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 |
(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 $393,481 and $207,833 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 AIM Variable Insurance Funds (Invesco Variable Insurance Funds) and Shareholders of the 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 the Invesco V.I. Government Securities Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16) 1 | Expenses Paid During Period 2 | Ending Account Value (12/31/16) | Expenses Paid During Period 2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 973.40 | $ | 3.42 | $ | 1,021.67 | $ | 3.51 | 0.69 | % | ||||||||||||
Series II | 1,000.00 | 971.70 | 4.66 | 1,020.41 | 4.77 | 0.94 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Government Securities Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2016:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0.00 | % | ||
U.S. Treasury Obligations* | 18.16 | % |
* | 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
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, 2016, Series I shares of Invesco V.I. Growth and Income Fund (the Fund) outperformed the Russell 1000 Value Index, the Fund’s style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 19.69 | % | |||
Series II Shares | 19.43 | ||||
S&P 500 Index▼ (Broad Market Index) | 19.96 | ||||
Russell 1000 Value Index Index▼ (Style-Specific Index) | 17.34 | ||||
Lipper VUF Large-Cap Value Funds Index◾ (Peer Group Index) | 15.55 |
Source(s): ▼FactSet Research Systems Inc.; ◾Lipper Inc.
Market conditions and your Fund
Stocks began calendar year 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets sharply lower. Markets again recovered, and major US equity indexes hit record highs during the summer. Following the surprise outcome of the US presidential election, a stock market rally sent major US equity market indexes to new record highs. The rally was led by financials, gaining on the belief that they might benefit from higher interest rates and lower taxes. Also in November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 – its only increase during the reporting period.1
For the reporting period, most US equity market indexes delivered strong gains, with value stocks – as a group – outperforming
growth stocks by a large margin, regardless of market capitalization. All sectors within the Fund’s style-specific benchmark, the Russell 1000 Value Index, had positive performance, with the materials, energy, telecommunication services, industrials and financials sectors posting returns of over 20% for the reporting period.
Strong stock selection in and overweight exposure to the financials sector were the largest contributors to the Fund’s relative performance for the reporting period. Specifically, within banks and diversified financials, the portfolio’s top contributors included Bank of America, JP Morgan Chase, Comerica, Morgan Stanley and Citizens Financial Group. These companies benefited from the strong rally in financials stocks following the election results, as investor optimism on future interest rates and the economy fueled returns.
Stock selection in and underweight exposure to the consumer staples sector also contributed to the Fund’s relative performance. ADM and Sysco were key contributors. ADM moved higher throughout
the year as expectations for improvement in grain shipment volumes increased. We sold ADM and Sysco before the close of the reporting period.
Having no exposure to the real estate sector also enhanced the Fund’s relative performance. Although real estate posted positive returns for the year, it was a bottom-performing sector within the Russell 1000 Value Index. The Fund has remained materially underweight in this sector because we believe it to be over-valued, as investors have driven up stock prices in a quest for yield in a low interest rate environment.
Strong stock selection within the energy sector helped the Fund’s relative returns. Canadian Natural Resources, Apache and Devon Energy were among the Fund’s top contributors. Canadian Natural Resources’ stock rose sharply, based on the potential for strong future cash flows from two upcoming expansions of the company’s Horizon Oil Sands project.
Weak stock selection within the health care sector detracted from the Fund’s relative return. Much of the Fund’s underperformance in the sector was attributable to its pharmaceutical holdings, such as Eli Lilly, Novartis, and Teva Pharmaceuticals Industries. Eli Lilly’s stock declined after it was reported that its Alzheimer’s drug would not be approved by the FDA. Teva’s stock declined after company management announced a delay in the acquisition of a generic drug maker. We sold our positin in Teva during the reporting during.
Stock selection within the telecommunication services sector also hurt relative performance. UK-based Vodafone Group was a large detractor within the sector. Vodafone underperformed as earnings expectations were lowered. Also, not
Portfolio Composition | |||||
By sector | % of total net assets |
Financials | 34.6 | % | |||
Energy | 14.2 | ||||
Information Technology | 12.9 | ||||
Health Care | 10.7 | ||||
Consumer Discretionary | 8.0 | ||||
Industrials | 7.7 | ||||
Consumer Staples | 4.1 | ||||
Materials | 2.9 | ||||
Telecommunication Services | 1.7 | ||||
Utilities | 1.3 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 1.9 |
Top 10 Equity Holdings* | |||
% of total net assets |
1. | Citigroup Inc. | 5.0 | % | ||||
2. | JPMorgan Chase & Co. | 4.3 | |||||
3. | Bank of America Corp. | 4.0 | |||||
4. | Morgan Stanley | 3.0 | |||||
5. | Apache Corp. | 2.6 | |||||
6. | Citizens Financial Group, Inc. | 2.5 | |||||
7. | Devon Energy Corp. | 2.2 | |||||
8. | Baker Hughes Inc. | 2.2 | |||||
9. | Royal Dutch Shell PLC-Class A | 2.2 | |||||
10. | Walgreens Boots Alliance, Inc. | 2.0 |
Total Net Assets
| $
| 2.0 billion
|
| ||||
Total Number of Holdings* | 73 |
The Fund’s holdings are subject to change, and
there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Data presented here are as of December 31, 2016.
Invesco V.I. Growth and Income Fund |
owning AT&T hurt Fund performance, as the stock performed well for the reporting period.
Underweight exposure to the materials sector also dampened the Fund’s relative return, mainly from having very little exposure to metals and mining companies, which posted outsized performance last year, as metal prices recovered from the prior year’s weakness.
We used currency forward contracts 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 positive impact on the Fund’s performance relative to its style-specific benchmark for the reporting period, largely due to the strength of the US dollar compared to the foreign currencies in which the Fund’s non-US holdings were denominated.
During the reporting period, we increased our exposure to the energy and materials sectors, and reduced exposure to the consumer staples and health care sectors. At the end of the reporting period, the Fund’s largest overweight exposures relative to the style-specific benchmark were in the financials and consumer discretionary sectors, while the largest underweight exposures were in the real estate and utilities sectors.
Equity markets were positive during the reporting period, but had significant volatility at times as macro events generally overshadowed company fundamentals in investors’ minds. We believe that market volatility can create 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.
1 | Source: US Federal Reserve |
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. 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 the University of Michigan. |
Brian Jurkash Portfolio Manager, is manager of Invesco V.I. Growth and Income Fund. He joined Invesco | ||
in 2000. Mr. Jurkash earned a BBA degree in finance from Stephen F. Austin State University and an MBA in finance from the University of Houston. |
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. |
Matthew Titus Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Growth and | ||
Income Fund. He joined Invesco in 2016. Mr. Titus earned a bachelor’s degree in accounting and economics from Luther College in Decorah, Iowa, and an MBA from Ohio State University. |
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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (12/23/96) | 9.04 | % | |||
10 Years | 6.54 | ||||
5 Years | 14.49 | ||||
1 Year | 19.69 | ||||
Series II Shares | |||||
Inception (9/18/00) | 6.68 | % | |||
10 Years | 6.27 | ||||
5 Years | 14.20 | ||||
1 Year | 19.43 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Growth and Income Portfolio, advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Growth and Income Fund (renamed Invesco V.I. Growth and Income Fund on April 29, 2013). Returns shown above, prior to June 1, 2010, 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 0.79% and 1.04%, 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 0.85% and 1.10%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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, 2018. 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, 2018. 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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Convertible securities risk. The market values of convertible securities are affected by market interest rates, the risk of actual issuer default on interest or principal payments and the value of the underlying common stock into which the convertible security may be converted. Additionally, a convertible security is subject to the same types of market and issuer risks as apply to the underlying common stock. In addition, certain convertible securities are subject to involuntary conversions and may undergo principal write-downs upon the occurrence of certain triggering events, and, as a result, are subject to an increased risk of loss.
Depositary receipts risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. The Fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer.
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 adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
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. Shares of real estate related companies, which tend to be small- and mid-cap companies, may be more volatile and less liquid.
Sector focus risk. The Fund may from time to time invest a significant amount of its assets (i.e. over 25%) in one market sector or group of related industries. In this event, the Fund’s performance will depend to a greater extent on the overall condition of the sector or group of industries and there is increased risk that the Fund will lose significant value if conditions adversely affect that sector or group of industries.
Small- and mid-capitalization companies risks. Small- and mid-capitalization companies tend to be more vulnerable to changing market conditions, may have little or no operating history or track record of success, and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
Value investing style risk. A value investing style subjects the Fund 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.
Invesco V.I. Growth and Income 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. Growth and Income Fund
Schedule of Investments(a)
December 31, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.12% |
| |||||||
Aerospace & Defense–1.41% | ||||||||
General Dynamics Corp. | 164,213 | $ | 28,353,017 | |||||
Apparel, Accessories & Luxury Goods–0.75% | ||||||||
Michael Kors Holdings Ltd.(b) | 349,163 | 15,007,026 | ||||||
Application Software–0.81% | ||||||||
Citrix Systems, Inc.(b) | 182,242 | 16,276,033 | ||||||
Asset Management & Custody Banks–2.76% | ||||||||
Northern Trust Corp. | 280,852 | 25,009,870 | ||||||
State Street Corp. | 391,626 | 30,437,173 | ||||||
55,447,043 | ||||||||
Automobile Manufacturers–1.13% | ||||||||
General Motors Co. | 653,323 | 22,761,773 | ||||||
Biotechnology–0.89% | ||||||||
Amgen Inc. | 122,030 | 17,842,006 | ||||||
Broadcasting–0.32% | ||||||||
CBS Corp.–Class B | 100,186 | 6,373,833 | ||||||
Building Products–0.92% | ||||||||
Johnson Controls International PLC | 448,575 | 18,476,804 | ||||||
Cable & Satellite–2.36% | ||||||||
Charter Communications, Inc.–Class A(b) | 63,550 | 18,297,316 | ||||||
Comcast Corp.–Class A | 420,555 | 29,039,323 | ||||||
47,336,639 | ||||||||
Communications Equipment–3.11% | ||||||||
Cisco Systems, Inc. | 1,064,171 | 32,159,248 | ||||||
Juniper Networks, Inc. | 1,067,659 | 30,172,043 | ||||||
62,331,291 | ||||||||
Construction Machinery & Heavy Trucks–1.34% | ||||||||
Caterpillar Inc. | 289,601 | 26,857,597 | ||||||
Data Processing & Outsourced Services–0.84% | ||||||||
PayPal Holdings, Inc.(b) | 428,262 | 16,903,501 | ||||||
Diversified Banks–14.59% | ||||||||
Bank of America Corp. | 3,615,107 | 79,893,865 | ||||||
Citigroup Inc. | 1,694,574 | 100,708,533 | ||||||
Comerica Inc. | 381,132 | 25,958,900 | ||||||
JPMorgan Chase & Co. | 998,754 | 86,182,483 | ||||||
292,743,781 | ||||||||
Diversified Metals & Mining–0.74% | ||||||||
BHP Billiton Ltd. (Australia) | 825,871 | 14,742,783 | ||||||
Drug Retail–2.00% | ||||||||
Walgreens Boots Alliance, Inc. | 485,641 | 40,191,649 |
Shares | Value | |||||||
Electric Utilities–1.29% | ||||||||
FirstEnergy Corp. | 291,853 | $ | 9,038,687 | |||||
PG&E Corp. | 278,240 | 16,908,645 | ||||||
25,947,332 | ||||||||
Fertilizers & Agricultural Chemicals–2.16% | ||||||||
Agrium Inc. (Canada) | 140,789 | 14,156,334 | ||||||
Mosaic Co. (The) | 995,318 | 29,192,677 | ||||||
43,349,011 | ||||||||
Financial Exchanges & Data–0.42% | ||||||||
CME Group Inc.–Class A | 72,371 | 8,347,995 | ||||||
Health Care Equipment–2.10% | ||||||||
Baxter International Inc. | 430,198 | 19,074,979 | ||||||
Medtronic PLC | 323,504 | 23,043,190 | ||||||
42,118,169 | ||||||||
Health Care Services–0.63% | ||||||||
Express Scripts Holding Co.(b) | 182,555 | 12,557,958 | ||||||
Home Improvement Retail–0.74% | ||||||||
Kingfisher PLC (United Kingdom) | 3,437,134 | 14,805,186 | ||||||
Hotels, Resorts & Cruise Lines–1.83% | ||||||||
Carnival Corp. | 706,124 | 36,760,815 | ||||||
Industrial Conglomerates–1.77% | ||||||||
General Electric Co. | 1,120,929 | 35,421,356 | ||||||
Industrial Machinery–1.04% | ||||||||
Ingersoll-Rand PLC | 278,983 | 20,934,884 | ||||||
Insurance Brokers–2.77% | ||||||||
Aon PLC | 217,294 | 24,234,800 | ||||||
Marsh & McLennan Cos., Inc. | 227,174 | 15,354,690 | ||||||
Willis Towers Watson PLC | 131,417 | 16,069,671 | ||||||
55,659,161 | ||||||||
Integrated Oil & Gas–5.33% | ||||||||
Exxon Mobil Corp. | 208,307 | 18,801,790 | ||||||
Occidental Petroleum Corp. | 296,231 | 21,100,534 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 1,572,032 | 43,327,431 | ||||||
TOTAL S.A. (France) | 462,966 | 23,631,109 | ||||||
106,860,864 | ||||||||
Integrated Telecommunication Services–1.03% | ||||||||
Orange S.A. (France) | 288,137 | 4,372,289 | ||||||
Verizon Communications Inc. | 306,651 | 16,369,030 | ||||||
20,741,319 | ||||||||
Internet Software & Services–1.20% | ||||||||
eBay Inc.(b) | 811,966 | 24,107,271 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Shares | Value | |||||||
Investment Banking & Brokerage–5.50% | ||||||||
Charles Schwab Corp. (The) | 587,810 | $ | 23,200,861 | |||||
Goldman Sachs Group, Inc. (The) | 113,425 | 27,159,616 | ||||||
Morgan Stanley | 1,417,129 | 59,873,700 | ||||||
110,234,177 | ||||||||
IT Consulting & Other Services–0.51% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 181,003 | 10,141,598 | ||||||
Managed Health Care–0.73% | ||||||||
Anthem, Inc. | 102,298 | 14,707,384 | ||||||
Movies & Entertainment–0.85% | ||||||||
Time Warner Inc. | 175,692 | 16,959,549 | ||||||
Oil & Gas Equipment & Services–2.20% | ||||||||
Baker Hughes Inc. | 678,464 | 44,079,806 | ||||||
Oil & Gas Exploration & Production–6.65% | ||||||||
Apache Corp. | 817,263 | 51,871,683 | ||||||
Canadian Natural Resources Ltd. (Canada) | 1,161,856 | 37,022,615 | ||||||
Devon Energy Corp. | 973,281 | 44,449,743 | ||||||
133,344,041 | ||||||||
Other Diversified Financial Services–0.72% | ||||||||
Voya Financial, Inc. | 368,149 | 14,438,804 | ||||||
Packaged Foods & Meats–1.10% | ||||||||
Mondelez International, Inc.–Class A | 496,910 | 22,028,020 | ||||||
Pharmaceuticals–6.39% | ||||||||
Eli Lilly and Co. | 180,589 | 13,282,321 | ||||||
Merck & Co., Inc. | 653,721 | 38,484,555 | ||||||
Novartis AG (Switzerland) | 308,318 | 22,434,687 | ||||||
Pfizer Inc. | 1,087,695 | 35,328,334 | ||||||
Sanofi (France) | 230,429 | 18,651,176 | ||||||
128,181,073 | ||||||||
Railroads–1.26% | ||||||||
CSX Corp. | 705,941 | 25,364,460 | ||||||
Regional Banks–7.82% | ||||||||
BB&T Corp. | 288,872 | 13,582,762 |
Shares | Value | |||||||
Regional Banks–(continued) | ||||||||
Citizens Financial Group, Inc. | 1,383,454 | $ | 49,292,466 | |||||
Fifth Third Bancorp | 1,336,633 | 36,048,992 | ||||||
First Horizon National Corp. | 955,811 | 19,125,778 | ||||||
PNC Financial Services Group, Inc. (The) | 331,953 | 38,825,223 | ||||||
156,875,221 | ||||||||
Semiconductor Equipment–1.05% | ||||||||
Applied Materials, Inc. | 653,294 | 21,081,797 | ||||||
Semiconductors–2.73% | ||||||||
Intel Corp. | 626,343 | 22,717,460 | ||||||
QUALCOMM, Inc. | 492,049 | 32,081,595 | ||||||
54,799,055 | ||||||||
Systems Software–2.69% | ||||||||
Microsoft Corp. | 333,400 | 20,717,476 | ||||||
Oracle Corp. | 864,081 | 33,223,915 | ||||||
53,941,391 | ||||||||
Tobacco–1.01% | ||||||||
Philip Morris International Inc. | 222,443 | 20,351,310 | ||||||
Wireless Telecommunication Services–0.63% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 516,555 | 12,619,439 | ||||||
Total Common Stocks & Other Equity Interests |
| 1,968,403,222 | ||||||
Money Market Funds–4.09% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(c) | 49,290,164 | 49,290,164 | ||||||
Treasury Portfolio–Institutional Class, 0.37%(c) | 32,860,110 | 32,860,110 | ||||||
Total Money Market Funds |
| 82,150,274 | ||||||
TOTAL INVESTMENTS–102.21% |
| 2,050,553,496 | ||||||
OTHER ASSETS LESS LIABILITIES–(2.21)% |
| (44,397,489 | ) | |||||
NET ASSETS–100.00% |
| $ | 2,006,156,007 |
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. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $1,609,646,246) | $ | 1,968,403,222 | ||
Investments in affiliated money market funds, at value and cost | 82,150,274 | |||
Total investments, at value (Cost $1,691,796,520) | 2,050,553,496 | |||
Cash | 111,593 | |||
Foreign currencies, at value (Cost $635,635) | 643,818 | |||
Receivable for: | ||||
Investments sold | 1,338,093 | |||
Fund shares sold | 575,995 | |||
Dividends | 3,693,438 | |||
Fund expenses absorbed | 26,754 | |||
Investment for trustee deferred compensation and retirement plans | 192,032 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 3,193,985 | |||
Total assets | 2,060,329,204 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 7,752,642 | |||
Fund shares reacquired | 43,540,355 | |||
Accrued fees to affiliates | 2,598,167 | |||
Accrued trustees’ and officers’ fees and benefits | 1,069 | |||
Accrued other operating expenses | 58,855 | |||
Trustee deferred compensation and retirement plans | 222,109 | |||
Total liabilities | 54,173,197 | |||
Net assets applicable to shares outstanding | $ | 2,006,156,007 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 1,540,476,102 | ||
Undistributed net investment income | 25,770,737 | |||
Undistributed net realized gain | 77,961,791 | |||
Net unrealized appreciation | 361,947,377 | |||
$ | 2,006,156,007 | |||
Net Assets: |
| |||
Series I | $ | 168,081,857 | ||
Series II | $ | 1,838,074,150 | ||
Shares outstanding, no par value, |
| |||
Series I | 7,983,995 | |||
Series II | 87,436,740 | |||
Series I: | ||||
Net asset value per share | $ | 21.05 | ||
Series II: | ||||
Net asset value per share | $ | 21.02 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $1,020,894) | $ | 42,662,748 | ||
Dividends from affiliated money market funds | 318,220 | |||
Other income | 7,932 | |||
Total investment income | 42,988,900 | |||
Expenses: | ||||
Advisory fees | 9,848,937 | |||
Administrative services fees | 3,688,981 | |||
Distribution fees — Series II | 3,986,404 | |||
Transfer agent fees | 33,273 | |||
Trustees’ and officers’ fees and benefits | 47,154 | |||
Reports to shareholders | 8,922 | |||
Professional services fees | 53,585 | |||
Other | 32,725 | |||
Total expenses | 17,699,981 | |||
Less: Fees waived | (301,332 | ) | ||
Net expenses | 17,398,649 | |||
Net investment income | 25,590,251 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $25,049) | 72,168,753 | |||
Foreign currencies | 96,964 | |||
Forward foreign currency contracts | 8,462,017 | |||
80,727,734 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 220,196,026 | |||
Foreign currencies | 30,980 | |||
Forward foreign currency contracts | 1,888,416 | |||
222,115,422 | ||||
Net realized and unrealized gain | 302,843,156 | |||
Net increase in net assets resulting from operations | $ | 328,433,407 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income | $ | 25,590,251 | $ | 22,301,531 | ||||
Net realized gain | 80,727,734 | 178,601,705 | ||||||
Change in net unrealized appreciation (depreciation) | 222,115,422 | (270,962,701 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 328,433,407 | (70,059,465 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (1,752,815 | ) | (4,613,558 | ) | ||||
Series ll | (15,406,306 | ) | (39,391,652 | ) | ||||
Total distributions from net investment income | (17,159,121 | ) | (44,005,210 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (14,485,559 | ) | (23,975,128 | ) | ||||
Series ll | (163,022,756 | ) | (230,492,529 | ) | ||||
Total distributions from net realized gains | (177,508,315 | ) | (254,467,657 | ) | ||||
Share transactions–net: | ||||||||
Series l | 7,123,071 | 20,537,185 | ||||||
Series ll | 281,089,879 | (58,547,345 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | 288,212,950 | (38,010,160 | ) | |||||
Net increase (decrease) in net assets | 421,978,921 | (406,542,492 | ) | |||||
Net assets: | ||||||||
Beginning of year | 1,584,177,086 | 1,990,719,578 | ||||||
End of year (includes undistributed net investment income of $25,770,737 and $17,242,643, respectively) | $ | 2,006,156,007 | $ | 1,584,177,086 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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 asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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 the 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, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2018, 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 (the “expense limits”). 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
Invesco V.I. Growth and Income Fund
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, 2018. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $301,332.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $381,884 for accounting and fund administrative services and was reimbursed $3,307,097 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $4,700 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, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interests | $ | 1,867,524,425 | $ | 100,878,797 | $ | — | $ | 1,968,403,222 | ||||||||
Money Market Funds | 82,150,274 | — | — | 82,150,274 | ||||||||||||
1,949,674,699 | 100,878,797 | — | 2,050,553,496 | |||||||||||||
Forward Foreign Currency Contracts* | — | 3,193,985 | — | 3,193,985 | ||||||||||||
Total Investments | $ | 1,949,674,699 | $ | 104,072,782 | $ | — | $ | 2,053,747,481 |
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
Invesco V.I. Growth and Income Fund
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
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, 2016:
Value | ||||
Derivative Assets | Currency Risk | |||
Unrealized appreciation on forward foreign currency contracts outstanding | $ | 3,193,985 | ||
Derivatives not subject to master netting agreements | — | |||
Total Derivative Assets subject to master netting agreements | $ | 3,193,985 |
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement
| Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | AUD | 8,155,173 | USD | 6,112,221 | $ | 5,881,935 | $ | 230,286 | |||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | CAD | 19,282,056 | USD | 14,703,637 | 14,362,970 | 340,667 | |||||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | CHF | 8,118,875 | USD | 8,050,765 | 7,985,582 | 65,183 | |||||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | EUR | 16,209,395 | USD | 17,285,213 | 17,081,112 | 204,101 | |||||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | GBP | 20,723,446 | USD | 26,320,434 | 25,561,328 | 759,106 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | AUD | 8,147,520 | USD | 6,108,114 | 5,876,415 | 231,699 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | CAD | 19,285,753 | USD | 14,703,654 | 14,365,724 | 337,930 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | CHF | 8,114,069 | USD | 8,043,647 | 7,980,855 | 62,792 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | EUR | 16,230,894 | USD | 17,308,950 | 17,103,767 | 205,183 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | GBP | 20,726,400 | USD | 26,322,010 | 25,564,972 | 757,038 | |||||||||||||||||||
Total Forward Foreign Currency Contracts — Currency Risk | $ | 3,193,985 |
Currency Abbreviations:
AUD | – Australian Dollar | |
CAD | – Canadian Dollar |
CHF | – Swiss Franc | |
EUR | – Euro |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Offsetting Assets and Liabilities
The table below reflects the Fund’s exposure to Counterparties subject to either an ISDA Master Agreement or other agreement for OTC derivative transactions as of December 31, 2016.
Financial Derivative Assets | Financial Derivative Liabilities | Collateral (Received)/Pledged | ||||||||||||||||||||||
Counterparty | Forward foreign currency contracts | Forward foreign currency contracts | Net value of derivatives | Non-Cash | Cash | Net amount | ||||||||||||||||||
Fund | ||||||||||||||||||||||||
Bank of New York Mellon (The) | $ | 1,599,343 | $ | — | $ | 1,599,343 | $ | — | $ | — | $ | 1,599,343 | ||||||||||||
State Street Bank and Trust Co. | 1,594,642 | — | 1,594,642 | — | — | 1,594,642 | ||||||||||||||||||
Total | $ | 3,193,985 | $ | — | $ | 3,193,985 | $ | — | $ | — | $ | 3,193,985 |
Effect of Derivative Investments for the year ended December 31, 2016
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 | ||||
Currency Risk | ||||
Realized Gain: | ||||
Forward foreign currency contracts | $ | 8,462,017 | ||
Change in Net Unrealized Appreciation: | ||||
Forward foreign currency contracts | 1,888,416 | |||
Total | $ | 10,350,433 |
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
Forward Foreign Currency Contracts | ||||
Average notional value | $ | 149,463,355 |
Invesco V.I. Growth and Income Fund
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2016, the Fund engaged in securities purchases of $38,168 and securities sales of $178,657, which resulted in net realized gains of $25,049.
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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 17,159,121 | $ | 59,704,246 | ||||
Long-term capital gain | 177,508,315 | 238,768,621 | ||||||
Total distributions | $ | 194,667,436 | $ | 298,472,867 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 33,454,943 | ||
Undistributed long-term gain | 74,454,237 | |||
Net unrealized appreciation — investments | 357,995,972 | |||
Net unrealized appreciation (depreciation) — other investments | (3,584 | ) | ||
Temporary book/tax differences | (221,663 | ) | ||
Shares of beneficial interest | 1,540,476,102 | |||
Total net assets | $ | 2,006,156,007 |
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, 2016.
Invesco V.I. Growth and Income Fund
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2016 was $599,858,756 and $470,103,428, 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 | $ | 404,615,748 | ||
Aggregate unrealized (depreciation) of investment securities | (46,619,776 | ) | ||
Net unrealized appreciation of investment securities | $ | 357,995,972 |
Cost of investments for tax purposes is $1,692,557,524.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, on December 31, 2016, undistributed net investment income was increased by $96,964 and undistributed net realized gain was decreased by $96,964. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,098,200 | $ | 21,457,639 | 873,247 | $ | 20,855,550 | ||||||||||
Series II | 26,177,046 | 523,596,316 | 9,865,909 | 222,630,272 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 855,102 | 16,238,374 | 1,523,917 | 28,588,686 | ||||||||||||
Series II | 9,405,855 | 178,429,062 | 14,393,823 | 269,884,181 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,574,684 | ) | (30,572,942 | ) | (1,228,356 | ) | (28,907,051 | ) | ||||||||
Series II | (21,459,558 | ) | (420,935,499 | ) | (23,832,436 | ) | (551,061,798 | ) | ||||||||
Net increase (decrease) in share activity | 14,501,961 | $ | 288,212,950 | 1,596,104 | $ | (38,010,160 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 81% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Growth and Income Fund
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | $ | 19.60 | $ | 0.33 | $ | 3.29 | $ | 3.62 | $ | (0.23 | ) | $ | (1.94 | ) | $ | (2.17 | ) | $ | 21.05 | 19.69 | % | $ | 168,082 | 0.77 | %(d) | 0.79 | %(d) | 1.69 | %(d) | 28 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 25.15 | 0.33 | (1.30 | ) | (0.97 | ) | (0.74 | ) | (3.84 | ) | (4.58 | ) | 19.60 | (3.06 | ) | 149,066 | 0.78 | 0.84 | 1.41 | 22 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 26.29 | 0.59 | (e) | 2.02 | 2.61 | (0.50 | ) | (3.25 | ) | (3.75 | ) | 25.15 | 10.28 | 161,866 | 0.78 | 0.83 | 2.22 | (e) | 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 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 19.58 | 0.28 | 3.28 | 3.56 | (0.18 | ) | (1.94 | ) | (2.12 | ) | 21.02 | 19.37 | 1,838,074 | 1.02 | (d) | 1.04 | (d) | 1.44 | (d) | 28 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 25.09 | 0.27 | (1.29 | ) | (1.02 | ) | (0.65 | ) | (3.84 | ) | (4.49 | ) | 19.58 | (3.26 | ) | 1,435,111 | 1.03 | 1.09 | 1.16 | 22 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 26.23 | 0.52 | (e) | 2.01 | 2.53 | (0.42 | ) | (3.25 | ) | (3.67 | ) | 25.09 | 9.96 | 1,828,854 | 1.03 | 1.08 | 1.97 | (e) | 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 |
(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 $150,700 and $1,594,561 for Series I and Series II shares, respectively. |
(e) | 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%, and $0.28 and 1.04%, for Series I and Series II, 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 the 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 the Invesco V.I. Growth and Income Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,186.10 | $ | 4.18 | $ | 1,021.32 | $ | 3.86 | 0.76 | % | ||||||||||||
Series II | 1,000.00 | 1,184.60 | 5.55 | 1,020.06 | 5.13 | 1.01 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. 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, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 177,508,315 | ||
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. 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
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, 2016, Series I shares of Invesco V.I. High Yield Fund (the Fund) underperformed the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Cap Index, the Fund’s style-specific index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 11.21 | % | |||
Series II Shares | 10.83 | ||||
Bloomberg Barclays U.S. Aggregate Index▼ (Broad Market Index) | 2.65 | ||||
Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Cap Index▼ (Style-Specific Index) | 17.13 | ||||
Lipper VUF High Yield Bond Funds Classification Average∎ (Peer Group) | 13.08 | ||||
Source(s): ▼FactSet Research System Inc.; ∎Lipper Inc. |
Market conditions and your Fund
The high yield market produced strong results for the year ended December 31, 2016, as the market rebounded sharply during the first three quarters of the year. The US economy continued its modest but steady growth, although the health of individual economic sectors varied.
The US Federal Reserve (the Fed) raised interest rates at the end of the year by 0.25% to a range of 0.50% to 0.75%; this was only the second rate hike since the global financial crisis of 2008.1 At its December 2016 meeting, the Fed noted signs of a stronger labor market, moderate growth and increasing inflation. During the year, oil prices experienced considerable volatility – hitting a low of $26 per barrel early in the year and closing the year near the 2016 high of $53 per barrel.2
The high yield market had a strong year in 2016, producing positive monthly performance each month except January
and November. After a decline in January, the high yield market began to turn in February as sentiment changed when oil prices bounced off their lows, concerns about the Chinese currency abated, and US economic data improved. For the year, the high yield market had very strong returns and was driven by two sectors: metals and mining, and energy. Even the weakest sector in the high yield market, health care, managed to post a positive return. From a rating perspective, the lowest-rated part of the market delivered the strongest performance, while the highest-rated part of the market delivered the weakest (but still double-digit) return.
The par-weighted high yield default rate increased in 2016 and ended the year at 3.32%, according to JP Morgan.3 Defaults were concentrated in the energy sector and occurred largely in the early part of the year. New issuance was about
Portfolio Composition† | |||
By credit quality | % of total investments |
BBB | 6.3% | |
BB | 53.5 | |
B | 36.6 | |
CCC | 2.5 | |
Non-Rated | 1.1 |
† | 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. |
Top Five Debt Issuers* | |||
% of total net assets | |||
1. T-Mobile USA, Inc. | 1.7% | ||
2. HCA, Inc. | 1.7 | ||
3. Sprint Corp. | 1.7 | ||
4. First Data Corp. | 1.7 | ||
5. Ally Financial Inc. | 1.6 |
Total Net Assets | $177.6 million | |
Total Number of Holdings* | 292 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding US Treasury bills and money market fund holdings.
Data presented here are as of December 31, 2016.
the same in 2016 as in 2015 and ended the year at $286 billion.3 Most new issuance was for refinancing of existing debt.
The Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Cap Index, which measures the performance of the US high yield bond market and is the Fund’s style-specific index, generated a strong return for the year ended December 31, 2016. Likewise, the Fund generated a positive return for the year.
The Fund’s performance relative to its style-specific benchmark was hindered in 2016 due to its defensive posture, which was based on our belief we were in the latter stages of the credit cycle and business cycle which warranted such a posture. Our positioning left us underweight to certain names and sectors that rebounded off their lows. These names and sectors have shown strong performance despite weak fundamentals. For much of the year, high yield bond returns were driven by double-digit gains in energy and metals and mining. During the year, the lowest-rated bonds outperformed the highest-rated bonds. History shows us that, generally, the lowest-rated bonds either perform very well, or very poorly, relative to the rest of the market. These lower-rated securities generally perform very well just prior to the end of credit cycles. We view the strong performance of the lower-rated part of the market as a warning of market volatility to come, not a sign of market strength going forward.
With this in mind, at the close of the year, we were comfortable with our positioning as we felt that there were still pockets of risk within certain sectors. We sought to manage risk while attempting to capture upside returns, but in such an environment, we believed caution was warranted. With the 2016 rally in the distressed part of the market, many managers focused on higher quality issuers that had lagged the market. We seek to deliver value by managing risks as the credit cycle changes. While we’ve been early in our efforts to protect investors, we believe waiting too long to manage risks as the market declines means it’s too late.
At the close of 2016, we were awaiting fourth quarter earnings reports. We generally expected fourth quarter earnings to look similar to third quarter earnings in that the known trouble spots were still likely under pressure.
At the close of the reporting period, we were still focused on health care earnings, as there was widespread uncertainty as to how the Affordable Care Act will be modified.
Invesco V.I. High Yield Fund
These changes may impact the revenue and earning profiles of many companies in the sector. Also, we expected fourth quarter earnings to be disappointing for many retailers. The continued shift to online shopping may further impact revenues for companies with weak online strategies. Additionally, while earnings for some companies in the energy sector had improved throughout 2016, we realized that many challenges persisted in the oil field services sector, particularly those in the offshore segment.
We used currency forward contracts during the reporting period for the purpose of hedging currency exposure of non-US-dollar-denominated debt. We also used credit default swaps (CDX) to efficiently manage the portfolio and to take advantage of relative value opportunities.
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 tends 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.
Our macroeconomic expectations for 2017 were greatly influenced by the policy direction of the new administration. We believe there are several policies that will likely be implemented – including tax cuts, increased infrastructure spending and greater deregulation of the economy – that may affect the high yield market. In particular, the new president has indicated a desire to reform the Affordable Care Act (also known as Obamacare), reduce regulation on the energy industry and amend the Dodd-Frank Wall Street Reform and Consumer Protection Act, which deals with regulation of the financial
services industry. These changes are likely to boost US growth in the near term. Because the new president won the election using an anti-trade message, we expect some impediments to free trade may be implemented in the near term. Such measures may have a medium-term negative impact on global growth.
Thank you for investing in Invesco V.I. High Yield Fund and for sharing our long-term investment horizon.
1 | Source: US Federal Reserve |
2 | Source: Thompson-Reuters |
3 | Source: JP Morgan High Yield Market 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.
Andrew Geryol Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. High Yield Fund. He joined Invesco | ||
in 2011. Mr. Geryol earned a BS in business administration from Miami University. |
Jennifer Hartviksen Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. High Yield Fund. She is the Head of | ||
Canada Fixed Income. Ms. Hartviksen joined Invesco in 2013. She earned a BA in economics from the University of Toronto. |
Joseph Portera Portfolio Manager, is manager of Invesco V.I. High Yield Fund. He joined Invesco in 2012. Mr. Portera earned BA | ||
and MA degrees in Soviet studies and an MA in international political economy and development from Fordham 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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (5/1/98) | 4.24 | % | |||
10 Years | 6.11 | ||||
5 Years | 6.55 | ||||
1 Year | 11.21 | ||||
Series II Shares | |||||
Inception (3/26/02) | 6.93 | % | |||
10 Years | 5.86 | ||||
5 Years | 6.32 | ||||
1 Year | 10.83 |
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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. High Yield Fund
Invesco V.I. High Yield Fund’s investment objective is total return, comprised of current income and capital appreciation.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Active trading risk. Active trading of portfolio securities may result in added expenses, a lower return and increased tax liability.
Changing fixed income market conditions risk. The current 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 near, at or below zero. Increases 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.
Collateralized loan obligations risk. CLOs are subject to the risks of substantial losses due to actual defaults by underlying borrowers, which will be greater during periods of economic or financial stress. CLOs may also lose value due to collateral defaults and disappearance of subordinate tranches, market anticipation of defaults, and investor aversion to CLO securities as a class. The risks of CLOs will be greater if the Fund invests in CLOs that hold loans of uncreditworthy borrowers or if the Fund holds subordinate tranches of the CLO that absorbs losses from the defaults before senior tranches. In addition, CLOs are subject to interest rate risk and credit risk.
Convertible securities risk. The market values of convertible securities are affected by market interest rates, the risk of actual issuer default on interest or principal payments and the value of the underlying common stock into which the convertible security may be converted. Additionally, a convertible security is subject to the same types of market and issuer risks as apply to the underlying common stock. In addition, certain convertible securities are subject to involuntary conversions
and may undergo principal write-downs upon the occurrence of certain triggering events, and, as a result, are subject to an increased risk of loss.
Debt securities risk. The prices of debt securities held by the Fund will be affected by changes in interest rates, the creditworthiness of the issuer and other factors. An increase in prevailing interest rates typically causes the value of existing debt securities to fall and often has a greater impact on longer-duration debt securities and higher quality debt securities. Falling interest rates will cause the Fund to reinvest the proceeds of debt securities that have been repaid by the issuer at lower interest rates. Falling interest rates may also reduce the Fund’s distributable income because interest payments on floating rate debt instruments held by the Fund will decline. The Fund could lose money on investments in debt securities if the issuer or borrower fails to meet its obligations to make interest payments and/or to repay principal in a timely manner. Changes in an issuer’s financial strength, the market’s perception of such strength or in the credit rating of the issuer or the security may affect the value of debt securities. The Adviser’s credit analysis may fail to anticipate such changes, which could result in buying a debt security at an inopportune time or failing to sell a debt security in advance of a price decline or other credit event.
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.
Emerging markets securities risk. Emerging markets (also referred to as developing markets) are generally subject to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated
Invesco V.I. High Yield Fund
in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
High yield debt securities (junk bond) risk. Investments in high yield debt securities (“junk bonds”) and other lower-rated securities will subject the Fund to substantial risk of loss. These securities are considered to be speculative with respect to the issuer’s ability to pay interest and principal when due, are more susceptible to default or decline in market value and are less liquid than investment grade debt securities. Prices of high yield debt securities tend to be very volatile.
Liquidity risk. The Fund may be unable to sell illiquid investments at the time or price it desires and, as a result, could lose its entire investment in such investments. Liquid securities can become illiquid during periods of market stress. If a significant amount of the Fund’s securities become illiquid, the Fund may not be able to timely pay redemption proceeds and may need to sell securities at significantly reduced prices.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Mortgage- and asset-backed securities risk. Mortgage- and asset-backed securities, including collateralized debt obligations and collateralized mortgage obligations, are subject to prepayment or call
risk, which is the risk that a borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. This could result in the Fund reinvesting these early payments at lower interest rates, thereby reducing the Fund’s income. Mortgage- and asset-backed securities also are subject to extension risk, which is the risk that an unexpected rise in interest rates could reduce the rate of prepayments, causing the price of the mortgage- and asset-backed securities and the Fund’s share price to fall. 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 Fund may invest in mortgage pools that include subprime mortgages, which are loans made to borrowers with weakened credit histories or with lower capacity to make timely payments on their mortgages. Privately issued mortgage-related securities are not subject to the same underwriting requirements as those with government or government-sponsored entity guarantees and, therefore, mortgage loans underlying privately issued mortgage-related securities may have less favorable collateral, credit risk or other underwriting characteristics, and wider variances in interest rate, term, size, purpose and borrower characteristics.
Municipal securities risk. The risk of a municipal obligation generally depends on the financial and credit status of the issuer. 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 the security. Failure of a municipal security issuer to comply with applicable tax requirements may make income paid thereon taxable, resulting in a decline in the security’s value. In addition, there could be changes in applicable tax laws or tax treatments that reduce or eliminate the current federal income tax exemption on municipal securities or otherwise adversely affect the current federal or state tax status of municipal securities.
Preferred securities risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities. Preferred securities also may be subordinated to bonds or other debt instruments, subjecting them to a greater risk of non-payment, may be less liquid than many other securities, such as
common stocks, and generally offer no voting rights with respect to the issuer.
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 loans that periodically pay interest.
About indexes used in this report
The Bloomberg Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Cap Index is an unmanaged index considered representative of the US high-yield, fixed-rate corporate bond market. Index weights for each issuer are capped at 2%.
The Lipper VUF High Yield Bond Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper High 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, 2016
Principal Amount | Value | |||||||
U.S. Dollar Denominated Bonds & Notes–91.90% |
| |||||||
Advertising–0.48% | ||||||||
Lamar Media Corp., Sr. Unsec. Gtd. Global Notes, 5.75%, 02/01/2026 | $ | 801,000 | $ | 845,055 | ||||
Aerospace & Defense–2.16% | ||||||||
Bombardier Inc. (Canada), Sr. Unsec. Notes, | ||||||||
6.00%, 10/15/2022(b) | 380,000 | 362,425 | ||||||
7.50%, 03/15/2025(b) | 300,000 | 295,875 | ||||||
KLX Inc., Sr. Unsec. Gtd. Notes, 5.88%, 12/01/2022(b) | 640,000 | 660,800 | ||||||
Moog Inc., Sr. Unsec. Gtd. Notes, 5.25%, 12/01/2022(b) | 442,000 | 453,050 | ||||||
TransDigm Inc., Sr. Unsec. Gtd. Sub. Global Notes, 6.50%, 05/15/2025 | 1,960,000 | 2,062,900 | ||||||
3,835,050 | ||||||||
Agricultural & Farm Machinery–0.48% | ||||||||
Titan International Inc., Sr. Sec. Gtd. First Lien Global Notes, 6.88%, 10/01/2020 | 861,000 | 848,085 | ||||||
Alternative Carriers–0.45% | ||||||||
Level 3 Financing, Inc., | ||||||||
Sr. Unsec. Gtd. Notes, 5.25%, 03/15/2026(b) | 573,000 | 568,703 | ||||||
Sr. Unsec. Gtd. Global Notes, 5.38%, 05/01/2025 | 220,000 | 224,400 | ||||||
793,103 | ||||||||
Aluminum–0.49% | ||||||||
Alcoa Nederland Holding B.V., Sr. Unsec. Gtd. Notes, 6.75%, 09/30/2024(b) | 800,000 | 868,552 | ||||||
Apparel Retail–0.99% | ||||||||
Hot Topic, Inc., Sr. Sec. Gtd. First Lien Notes, 9.25%, 06/15/2021(b) | 647,000 | 684,202 | ||||||
L Brands, Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
6.75%, 07/01/2036 | 101,000 | 102,768 | ||||||
6.88%, 11/01/2035 | 404,000 | 413,595 | ||||||
Men’s Wearhouse, Inc. (The), Sr. Unsec. Gtd. Global Notes, 7.00%, 07/01/2022 | 564,000 | 556,245 | ||||||
1,756,810 | ||||||||
Asset Management & Custody Banks–0.76% | ||||||||
Prime Security Services Borrower, LLC/Prime Finance, Inc., Sec. Gtd. Second Lien Notes, 9.25%, 05/15/2023(b) | 1,230,000 | 1,345,312 | ||||||
Auto Parts & Equipment–0.26% | ||||||||
Dana Inc., Sr. Unsec. Notes, | ||||||||
5.38%, 09/15/2021 | 133,000 | 137,988 | ||||||
5.50%, 12/15/2024 | 313,000 | 319,260 | ||||||
457,248 |
Principal Amount | Value | |||||||
Broadcasting–3.02% | ||||||||
iHeartCommunications, Inc., | ||||||||
Series B, Sr. Unsec. Gtd. Global Notes, 6.50%, 11/15/2022 | $ | 644,000 | $ | 663,320 | ||||
Series B, Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 03/15/2020 | 697,000 | 697,000 | ||||||
Sr. Sec. Gtd. First Lien Global Notes, 9.00%, 12/15/2019 | 1,274,000 | 1,047,865 | ||||||
Netflix, Inc., Sr. Unsec. Global Notes, 5.75%, 03/01/2024 | 833,000 | 897,557 | ||||||
Nexstar Escrow Corp., Sr. Unsec. Gtd. Notes, 5.63%, 08/01/2024(b) | 540,000 | 537,300 | ||||||
Sirius XM Radio Inc., Sr. Unsec. Gtd. Notes, | ||||||||
5.38%, 04/15/2025(b) | 313,000 | 313,783 | ||||||
5.38%, 07/15/2026(b) | 620,000 | 609,150 | ||||||
Tribune Media Co., Sr. Unsec. Gtd. Global Notes, 5.88%, 07/15/2022 | 581,000 | 592,620 | ||||||
5,358,595 | ||||||||
Building Products–1.24% | ||||||||
Allegion PLC, Sr. Unsec. Gtd. Notes, 5.88%, 09/15/2023 | 408,000 | 433,373 | ||||||
BMC East, LLC, Sr. Sec. Gtd. First Lien Notes, 5.50%, 10/01/2024(b) | 519,000 | 519,000 | ||||||
Builders FirstSource, Inc., Sr. Unsec. Gtd. Notes, 10.75%, 08/15/2023(b) | 435,000 | 501,337 | ||||||
Gibraltar Industries Inc., Sr. Unsec. Gtd. Sub. Global Notes, 6.25%, 02/01/2021 | 721,000 | 744,432 | ||||||
2,198,142 | ||||||||
Cable & Satellite–8.47% | ||||||||
AMC Networks Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 04/01/2024 | 500,000 | 502,500 | ||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Sr. Unsec. Notes, 5.75%, 02/15/2026(b) | 2,445,000 | 2,536,687 | ||||||
CSC Holdings LLC, | ||||||||
Sr. Unsec. Gtd. Notes, 6.63%, 10/15/2025(b) | 200,000 | 218,500 | ||||||
Sr. Unsec. Notes, 10.13%, 01/15/2023(b) | 1,755,000 | 2,035,800 | ||||||
DISH DBS Corp., Sr. Unsec. Gtd. Global Notes, 5.88%, 11/15/2024 | 2,154,000 | 2,226,697 | ||||||
Hughes Satellite Systems Corp., | ||||||||
Sr. Sec. Gtd. First Lien Notes, 5.25%, 08/01/2026(b) | 271,000 | 266,596 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/2021 | 642,000 | 707,805 | ||||||
Intelsat Jackson Holdings S.A. (Luxembourg), Sr. Unsec. Gtd. Global Notes, | ||||||||
7.25%, 04/01/2019 | 242,000 | 204,490 | ||||||
7.25%, 10/15/2020 | 575,000 | 448,500 | ||||||
SFR Group S.A. (France), | ||||||||
Sr. Sec. Gtd. First Lien Bonds, 6.00%, 05/15/2022(b) | 1,645,000 | 1,690,238 | ||||||
Sr. Sec. Gtd. First Lien Notes, 7.38%, 05/01/2026(b) | 564,000 | 578,805 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Cable & Satellite–(continued) | ||||||||
Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH (Germany), Sr. Sec. Gtd. First Lien Bonds, 5.00%, 01/15/2025(b) | $ | 1,250,000 | $ | 1,254,688 | ||||
Virgin Media Finance PLC (United Kingdom), | ||||||||
REGS, Sr. Unsec. Gtd. Euro Notes, 6.00%, 10/15/2024(b) | 209,000 | 216,054 | ||||||
Sr. Unsec. Gtd. Notes, 6.00%, 10/15/2024(b) | 450,000 | 462,375 | ||||||
Virgin Media Secured Finance PLC (United Kingdom), | ||||||||
Sr. Sec. Gtd. First Lien Bonds, 5.25%, 01/15/2026(b) | 200,000 | 197,250 | ||||||
Sr. Sec. Gtd. First Lien Notes, 5.50%, 08/15/2026(b) | 299,000 | 299,374 | ||||||
VTR Finance B.V. (Chile), Sr. Sec. First Lien Notes, 6.88%, 01/15/2024(b) | 590,000 | 607,700 | ||||||
Ziggo Bond Finance B.V. (Netherlands), Sr. Unsec. Notes, | 600,000 | 597,000 | ||||||
15,051,059 | ||||||||
Casinos & Gaming–2.35% | ||||||||
Boyd Gaming Corp., | ||||||||
Sr. Unsec. Gtd. Notes, 6.38%, 04/01/2026(b) | 213,000 | 229,508 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.88%, 05/15/2023 | 940,000 | 1,015,200 | ||||||
Codere Finance 2 (Luxembourg) S.A. (Spain), Sr. Sec. Gtd. Notes, 7.63%, 11/01/2021(b) | 248,000 | 243,040 | ||||||
MGM Resorts International, Sr. Unsec. Gtd. Notes, | ||||||||
4.63%, 09/01/2026 | 286,000 | 276,705 | ||||||
6.00%, 03/15/2023 | 475,000 | 514,187 | ||||||
7.75%, 03/15/2022 | 519,000 | 600,742 | ||||||
Pinnacle Entertainment, Inc., Sr. Unsec. Notes, 5.63%, 05/01/2024(b) | 914,000 | 920,855 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sr. Unsec. Gtd. Notes, 5.50%, 03/01/2025(b) | 385,000 | 383,075 | ||||||
4,183,312 | ||||||||
Commercial Printing–0.41% | ||||||||
Multi-Color Corp., Sr. Unsec. Gtd. Notes, 6.13%, 12/01/2022(b) | 698,000 | 732,900 | ||||||
Commodity Chemicals–0.28% | ||||||||
Koppers Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 12/01/2019 | 481,000 | 490,019 | ||||||
Construction Machinery & Heavy Trucks–1.54% | ||||||||
Allied Specialty Vehicles, Inc., Sr. Sec. Notes, 8.50%, 11/01/2019(b) | 695,000 | 717,587 | ||||||
Commercial Vehicle Group Inc., Sec. Gtd. Second Lien Global Notes, 7.88%, 04/15/2019 | 887,000 | 889,217 | ||||||
Meritor Inc., Sr. Unsec. Gtd. Notes, | ||||||||
6.25%, 02/15/2024 | 186,000 | 182,745 | ||||||
6.75%, 06/15/2021 | 497,000 | 508,183 |
Principal Amount | Value | |||||||
Construction Machinery & Heavy Trucks–(continued) | ||||||||
Oshkosh Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
5.38%, 03/01/2022 | $ | 240,000 | $ | 251,400 | ||||
5.38%, 03/01/2025 | 179,000 | 182,133 | ||||||
2,731,265 | ||||||||
Consumer Finance–1.56% | ||||||||
Ally Financial Inc., Sr. Unsec. Global Notes, | ||||||||
4.63%, 03/30/2025 | 1,799,000 | 1,758,522 | ||||||
5.13%, 09/30/2024 | 991,000 | 1,010,820 | ||||||
2,769,342 | ||||||||
Copper–0.40% | ||||||||
First Quantum Minerals Ltd. (Canada), Sr. Unsec. Gtd. Notes, | ||||||||
6.75%, 02/15/2020(b) | 500,000 | 502,500 | ||||||
7.25%, 10/15/2019(b) | 200,000 | 203,500 | ||||||
706,000 | ||||||||
Data Processing & Outsourced Services–1.67% | ||||||||
First Data Corp., | ||||||||
Sr. Sec. Gtd. First Lien Notes, 5.00%, 01/15/2024(b) | 343,000 | 346,001 | ||||||
Sr. Unsec. Gtd. Notes, 7.00%, 12/01/2023(b) | 2,450,000 | 2,621,500 | ||||||
2,967,501 | ||||||||
Diversified Banks–2.27% | ||||||||
Bank of America Corp., Series K, Jr. Unsec. Sub. Global | 197,000 | 203,403 | ||||||
Citigroup Inc., | �� | |||||||
Series R, Jr. Unsec. Sub. Global Notes, 6.13%(c) | 440,000 | 457,600 | ||||||
Series T, Jr. Unsec. Sub. Global Notes, 6.25%(c) | 664,000 | 686,410 | ||||||
Dresdner Funding Trust I (Germany), REGS, Jr. Unsec. Sub. Euro Notes, 8.15%, 06/30/2031(b) | 365,000 | 422,548 | ||||||
JPMorgan Chase & Co., Series 1, Jr. Unsec. Sub. Global Notes, 7.90%(c) | 445,000 | 463,912 | ||||||
Royal Bank of Scotland Group PLC (The) (United Kingdom), Unsec. Sub. Global Bonds, | ||||||||
5.13%, 05/28/2024 | 808,000 | 803,309 | ||||||
6.13%, 12/15/2022 | 940,000 | 999,700 | ||||||
4,036,882 | ||||||||
Diversified Chemicals–0.85% | ||||||||
Chemours Co. (The), Sr. Unsec. Gtd. Global Notes, 6.63%, 05/15/2023 | 1,069,000 | 1,070,336 | ||||||
Tronox Finance LLC, Sr. Unsec. Gtd. Global Notes, 6.38%, 08/15/2020 | 477,000 | 448,380 | ||||||
1,518,716 | ||||||||
Diversified Metals & Mining–2.29% | ||||||||
FMG Resources (August 2006) Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, 6.88%, 04/01/2022(b) | 828,000 | 862,155 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Diversified Metals & Mining–(continued) | ||||||||
Freeport-McMoRan Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
3.88%, 03/15/2023 | $ | 575,000 | $ | 529,719 | ||||
5.40%, 11/14/2034 | 530,000 | 450,500 | ||||||
HudBay Minerals, Inc. (Canada), | ||||||||
Sr. Unsec. Gtd. Notes, | ||||||||
7.25%, 01/15/2023(b) | 86,000 | 89,655 | ||||||
7.63%, 01/15/2025(b) | 413,000 | 432,618 | ||||||
Teck Resources Ltd. (Canada), | ||||||||
Sr. Unsec. Gtd. Global Notes, 4.75%, 01/15/2022 | 1,064,000 | 1,074,640 | ||||||
Sr. Unsec. Notes, 6.13%, 10/01/2035 | 645,000 | 630,487 | ||||||
4,069,774 | ||||||||
Diversified Support Services–0.07% | ||||||||
Ritchie Bros. Auctioneers Inc. (Canada), Sr. Unsec. Gtd. Notes, 5.38%, 01/15/2025(b) | 122,000 | 125,050 | ||||||
Electric Utilities–0.16% | ||||||||
Southern Co. (The), Series B, Jr. Unsec. Sub. Global Notes, 5.50%, 03/15/2057 | 286,000 | 289,612 | ||||||
Electrical Components & Equipment–0.82% | ||||||||
EnerSys, Sr. Unsec. Gtd. Notes, 5.00%, 04/30/2023(b) | 798,000 | 807,975 | ||||||
Sensata Technologies B.V., Sr. Unsec. Gtd. Notes, | ||||||||
4.88%, 10/15/2023(b) | 270,000 | 278,438 | ||||||
5.00%, 10/01/2025(b) | 370,000 | 363,062 | ||||||
1,449,475 | ||||||||
Environmental & Facilities Services–0.23% | ||||||||
Advanced Disposal Services, Inc., Sr. Unsec. Gtd. Notes, 5.63%, 11/15/2024(b) | 408,000 | 409,020 | ||||||
Food Distributors–0.38% | ||||||||
US Foods, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 06/15/2024(b) | 653,000 | 680,753 | ||||||
Food Retail–0.42% | ||||||||
1011778 BC ULC/ New Red Finance, Inc. (Canada), Sec. Gtd. Second Lien Notes, 6.00%, 04/01/2022(b) | 715,000 | 753,431 | ||||||
Forest Products–0.00% | ||||||||
Sino-Forest Corp. (Hong Kong), Sr. Unsec. Gtd. Notes, 6.25%, 10/21/2017 (Acquired 04/01/2014; | 40,000 | 4 | ||||||
Gas Utilities–1.53% | ||||||||
AmeriGas Partners, L.P./AmeriGas Finance Corp., Sr. Unsec. Global Notes, | ||||||||
5.63%, 05/20/2024 | 390,000 | 400,725 | ||||||
5.88%, 08/20/2026 | 492,000 | 501,840 | ||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Global Notes, 6.50%, 05/01/2021 | 584,000 | 581,080 |
Principal Amount | Value | |||||||
Gas Utilities–(continued) | ||||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Global Notes, 5.50%, 06/01/2024 | $ | 1,214,000 | $ | 1,232,210 | ||||
2,715,855 | ||||||||
General Merchandise Stores–0.32% | ||||||||
Dollar Tree, Inc., Sr. Unsec. Gtd. Global Notes, 5.75%, 03/01/2023 | 537,000 | 570,563 | ||||||
Health Care Facilities–5.05% | ||||||||
Acadia Healthcare Co., Inc., Sr. Unsec. Gtd. Global Notes, 6.50%, 03/01/2024 | 500,000 | 508,750 | ||||||
Community Health Systems, Inc., Sr. Sec. Gtd. First Lien Global Notes, | ||||||||
5.13%, 08/15/2018 | 107,000 | 105,529 | ||||||
5.13%, 08/01/2021 | 425,000 | 395,250 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.88%, 02/01/2022 | 529,202 | 370,441 | ||||||
HCA Holdings, Inc., Sr. Unsec. Notes, 6.25%, 02/15/2021 | 94,000 | 101,638 | ||||||
HCA, Inc., | ||||||||
Sr. Sec. Gtd. First Lien Notes, 5.25%, 04/15/2025 | 698,000 | 728,974 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.50%, 02/15/2022 | 334,000 | 380,760 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.38%, 02/01/2025 | 640,000 | 644,000 | ||||||
5.88%, 02/15/2026 | 1,310,000 | 1,350,937 | ||||||
HealthSouth Corp., Sr. Unsec. Gtd. Global Notes, 5.75%, 09/15/2025 | 395,000 | 396,481 | ||||||
LifePoint Health, Inc., Sr. Unsec. Gtd. Notes, | ||||||||
5.38%, 05/01/2024(b) | 405,000 | 397,913 | ||||||
5.88%, 12/01/2023 | 110,000 | 112,200 | ||||||
Surgical Care Affiliates, Inc., Sr. Unsec. Gtd. Notes, 6.00%, 04/01/2023(b) | 965,000 | 1,003,600 | ||||||
Tenet Healthcare Corp., | ||||||||
Sec. Gtd. Second Lien Notes, 7.50%, 01/01/2022(b) | 103,000 | 108,150 | ||||||
Sr. Unsec. Global Notes, | ||||||||
6.75%, 06/15/2023 | 1,114,000 | 985,890 | ||||||
8.00%, 08/01/2020 | 308,000 | 305,690 | ||||||
8.13%, 04/01/2022 | 945,000 | 895,387 | ||||||
Universal Health Services, Inc, Sr. Sec. Gtd. First Lien Notes, 5.00%, 06/01/2026(b) | 177,000 | 173,239 | ||||||
8,964,829 | ||||||||
Health Care Services–1.71% | ||||||||
AMN Healthcare, Inc., Sr. Unsec. Gtd. Notes, 5.13%, 10/01/2024(b) | 418,000 | 419,045 | ||||||
DaVita Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 05/01/2025 | 815,000 | 809,906 | ||||||
MEDNAX, Inc., Sr. Unsec. Gtd. Notes, 5.25%, 12/01/2023(b) | 765,000 | 790,580 | ||||||
MPH Acquisition Holdings LLC, Sr. Unsec. Gtd. Notes, 7.13%, 06/01/2024(b) | 969,000 | 1,019,872 | ||||||
3,039,403 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Home Improvement Retail–0.46% | ||||||||
Hillman Group Inc. (The), Sr. Unsec. Gtd. Notes, 6.38%, 07/15/2022(b) | $ | 880,000 | $ | 818,400 | ||||
Homebuilding–1.93% | ||||||||
Ashton Woods USA LLC/Ashton Woods Finance Co., Sr. Unsec. Notes, 6.88%, 02/15/2021(b) | 627,000 | 608,190 | ||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/2021 | 887,000 | 918,045 | ||||||
CalAtlantic Group Inc., Sr. Unsec. Gtd. Notes, 5.38%, 10/01/2022 | 554,000 | 569,235 | ||||||
KB Home, Sr. Unsec. Gtd. Notes, 7.50%, 09/15/2022 | 105,000 | 112,088 | ||||||
Meritage Homes Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
6.00%, 06/01/2025 | 405,000 | 414,112 | ||||||
7.15%, 04/15/2020 | 270,000 | 295,650 | ||||||
Taylor Morrison Communities Inc./ Monarch Communities Inc., Sr. Unsec. Gtd. Notes, 5.88%, 04/15/2023(b) | 498,000 | 507,960 | ||||||
3,425,280 | ||||||||
Household Products–1.34% | ||||||||
Reynolds Group Issuer Inc./LLC (New Zealand), | ||||||||
Sr. Sec. Gtd. First Lien Notes, 5.13%, 07/15/2023(b) | 200,000 | 205,000 | ||||||
Sr. Sec. Gtd. First Lien Global Notes, 5.75%, 10/15/2020 | 357,000 | 369,495 | ||||||
Sr. Unsec. Gtd. Notes, 7.00%, 07/15/2024(b) | 561,000 | 596,062 | ||||||
Sr. Unsec. Gtd. Global Notes, 8.25%, 02/15/2021 | 342,632 | 355,052 | ||||||
Spectrum Brands, Inc., Sr. Unsec. Gtd. Global Notes, 5.75%, 07/15/2025 | 350,000 | 364,438 | ||||||
Springs Industries, Inc., Sr. Sec. Global Notes, 6.25%, 06/01/2021 | 469,000 | 487,760 | ||||||
2,377,807 | ||||||||
Independent Power Producers & Energy Traders–2.99% | ||||||||
AES Corp. (The), Sr. Unsec. Notes, 5.50%, 04/15/2025 | 1,969,000 | 1,969,000 | ||||||
Calpine Corp., Sr. Unsec. Global Notes, | ||||||||
5.38%, 01/15/2023 | 331,000 | 325,207 | ||||||
5.50%, 02/01/2024 | 1,415,000 | 1,372,550 | ||||||
Dynegy Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/2024 | 570,000 | 529,387 | ||||||
NRG Energy, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.25%, 05/01/2024 | 295,000 | 291,313 | ||||||
Sr. Unsec. Gtd. Notes, 6.63%, 01/15/2027(b) | 781,000 | 742,926 | ||||||
Red Oak Power LLC, Series A, Sr. Sec. First Lien Bonds, 8.54%, 11/30/2019 | 83,112 | 84,151 | ||||||
5,314,534 | ||||||||
Integrated Oil & Gas–0.30% | ||||||||
California Resources Corp., Sec. Gtd. Second Lien Notes, 8.00%, 12/15/2022(b) | 469,000 | 419,755 |
Principal Amount | Value | |||||||
Integrated Oil & Gas–(continued) | ||||||||
Petróleos Mexicanos (Mexico), Sr. Unsec. Gtd. Notes, 5.38%, 03/13/2022(b) | $ | 110,000 | $ | 112,548 | ||||
532,303 | ||||||||
Integrated Telecommunication Services–2.31% | ||||||||
CenturyLink, Inc., Series Y, Sr. Unsec. Global Notes, 7.50%, 04/01/2024 | 496,000 | 522,660 | ||||||
Cincinnati Bell Inc., Sr. Unsec. Gtd. Notes, 7.00%, 07/15/2024(b) | 429,000 | 455,812 | ||||||
Communications Sales & Leasing, Inc./CSL Capital LLC, Sr. Unsec. Gtd. Notes, 7.13%, 12/15/2024(b) | 297,000 | 299,970 | ||||||
Frontier Communications Corp., Sr. Unsec. Global Notes, | ||||||||
8.88%, 09/15/2020 | 276,000 | 295,320 | ||||||
10.50%, 09/15/2022 | 880,000 | 932,800 | ||||||
11.00%, 09/15/2025 | 175,000 | 181,563 | ||||||
GCI, Inc., Sr. Unsec. Global Notes, 6.88%, 04/15/2025 | 441,000 | 448,166 | ||||||
Telecom Italia S.p.A. (Italy), Sr. Unsec. Notes, 5.30%, 05/30/2024(b) | 985,000 | 968,994 | ||||||
4,105,285 | ||||||||
Internet Software & Services–0.81% | ||||||||
CyrusOne LP/CyrusOne Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 11/15/2022 | 430,000 | 454,725 | ||||||
Equinix, Inc., Sr. Unsec. Notes, | ||||||||
5.75%, 01/01/2025 | 122,000 | 127,185 | ||||||
5.88%, 01/15/2026 | 806,000 | 850,330 | ||||||
1,432,240 | ||||||||
Leisure Facilities–0.03% | ||||||||
Cedar Fair L.P./Canada’s Wonderland Co./Magnum Management Corp., Sr. Unsec. Gtd. Global Notes, 5.38%, 06/01/2024 | 50,000 | 51,750 | ||||||
Leisure Products–0.62% | ||||||||
Vista Outdoor Inc., Sr. Unsec. Gtd. Global Notes, 5.88%, 10/01/2023 | 1,046,000 | 1,099,608 | ||||||
Managed Health Care–0.17% | ||||||||
Centene Corp., Sr. Unsec. Notes, 4.75%, 01/15/2025 | 315,000 | 308,700 | ||||||
Marine–0.60% | ||||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. First Lien Mortgage Notes, | 1,258,000 | 1,072,445 | ||||||
Metal & Glass Containers–0.48% | ||||||||
Ardagh Packaging Finance PLC / Ardagh Holdings USA Inc. (Ireland), Sr. Unsec. Gtd. Notes, | 310,000 | 327,050 | ||||||
Berry Plastics Corp., | ||||||||
Sec. Gtd. Second Lien Notes, 5.50%, 05/15/2022 | 405,000 | 422,719 | ||||||
Sec. Gtd. Second Lien Global Notes, 6.00%, 10/15/2022 | 90,000 | 95,737 | ||||||
845,506 |
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–0.49% | ||||||||
AMC Entertainment Holdings, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 5.75%, 06/15/2025 | $ | 390,000 | $ | 400,725 | ||||
Lions Gate Entertainment Corp., Sr. Unsec. Gtd. Notes, 5.88%, 11/01/2024(b) | 466,000 | 474,155 | ||||||
874,880 | ||||||||
Oil & Gas Drilling–0.65% | ||||||||
Ensco PLC, Sr. Unsec. Global Notes, 4.50%, 10/01/2024 | 548,000 | 472,650 | ||||||
Precision Drilling Corp. (Canada), | ||||||||
Sr. Unsec. Gtd. Global Notes, 5.25%, 11/15/2024 | 264,000 | 244,200 | ||||||
Sr. Unsec. Gtd. Notes, 7.75%, 12/15/2023(b) | 94,000 | 99,523 | ||||||
Rowan Cos., Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 06/15/2025 | 84,000 | 86,100 | ||||||
Transocean Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 04/15/2031 | 308,000 | 257,180 | ||||||
1,159,653 | ||||||||
Oil & Gas Equipment & Services–0.46% | ||||||||
SESI, L.L.C., Sr. Unsec. Gtd. Global Notes, 7.13%, 12/15/2021 | 501,000 | 508,515 | ||||||
Weatherford International Ltd., Sr. Unsec. Gtd. Notes, 6.50%, 08/01/2036 | 374,000 | 301,070 | ||||||
809,585 | ||||||||
Oil & Gas Exploration & Production–7.39% | ||||||||
Antero Midstream Partners LP/Antero Midstream Finance Corp., Sr. Unsec. Gtd. Notes, 5.38%, 09/15/2024(b) | 207,000 | 211,658 | ||||||
Antero Resources Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
5.13%, 12/01/2022 | 185,000 | 187,544 | ||||||
5.38%, 11/01/2021 | 435,000 | 446,962 | ||||||
5.63%, 06/01/2023 | 1,072,000 | 1,098,800 | ||||||
Callon Petroleum Co., Sr. Unsec. Gtd. Notes, 6.13%, 10/01/2024(b) | 327,000 | 338,445 | ||||||
Concho Resources Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
5.50%, 10/01/2022 | 87,000 | 90,589 | ||||||
5.50%, 04/01/2023 | 607,000 | 630,521 | ||||||
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 09/15/2022 | 669,000 | 672,345 | ||||||
Denbury Resources Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 05/01/2022 | 323,000 | 283,433 | ||||||
Gulfport Energy Corp., Sr. Unsec. Gtd. Notes, 6.00%, 10/15/2024(b) | 497,000 | 504,455 | ||||||
Newfield Exploration Co., Sr. Unsec. Global Notes, 5.63%, 07/01/2024 | 1,288,000 | 1,349,180 | ||||||
Oasis Petroleum Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.88%, 01/15/2023 | 619,000 | 637,570 | ||||||
Sr. Unsec. Gtd. Notes, 6.50%, 11/01/2021 | 165,000 | 169,950 | ||||||
Parsley Energy LLC/Parsley Finance Corp., Sr. Unsec. Gtd. Notes, 6.25%, 06/01/2024(b) | 699,000 | 737,445 |
Principal Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
QEP Resources, Inc., Sr. Unsec. Notes, 6.88%, 03/01/2021 | $ | 724,000 | $ | 772,870 | ||||
Range Resources Corp., Sr. Unsec. Gtd. Notes, | ||||||||
5.00%, 08/15/2022(b) | 183,000 | 183,000 | ||||||
5.00%, 03/15/2023(b) | 690,000 | 687,412 | ||||||
Rice Energy Inc., Sr. Unsec. Gtd. Global Notes, 6.25%, 05/01/2022 | 626,000 | 644,780 | ||||||
RSP Permian, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.63%, 10/01/2022 | 405,000 | 430,312 | ||||||
Sr. Unsec. Gtd. Notes, 5.25%, 01/15/2025(b) | 329,000 | 332,290 | ||||||
SM Energy Co., Sr. Unsec. Global Notes, | ||||||||
6.13%, 11/15/2022 | 161,000 | 163,818 | ||||||
6.50%, 01/01/2023 | 281,000 | 287,322 | ||||||
Southwestern Energy Co., Sr. Unsec. Global Notes, 4.10%, 03/15/2022 | 551,000 | 523,450 | ||||||
Whiting Petroleum Corp., Sr. Unsec. Gtd. Global Notes, 6.25%, 04/01/2023 | 624,000 | 627,120 | ||||||
WPX Energy Inc., Sr. Unsec. Global Notes, 6.00%, 01/15/2022 | 1,075,000 | 1,107,250 | ||||||
13,118,521 | ||||||||
Oil & Gas Refining & Marketing–0.25% | ||||||||
MPLX LP, Sr. Unsec. Gtd. Global Notes, 4.88%, 06/01/2025 | 430,000 | 442,094 | ||||||
Oil & Gas Storage & Transportation–3.97% | ||||||||
Energy Transfer Equity, L.P., Sr. Sec. First Lien Notes, 5.88%, 01/15/2024 | 1,302,000 | 1,347,570 | ||||||
Holly Energy Partners L.P./Holly Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.00%, 08/01/2024(b) | 707,000 | 740,582 | ||||||
Sabine Pass Liquefaction, LLC, | ||||||||
Sr. Sec. First Lien Global Notes, | ||||||||
5.63%, 04/15/2023 | 200,000 | 213,438 | ||||||
5.63%, 03/01/2025 | 1,232,000 | 1,322,090 | ||||||
Sr. Sec. Notes, | 336,000 | 340,620 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., | ||||||||
Sr. Unsec. Gtd. Global Bonds, 5.25%, 05/01/2023 | 798,000 | 805,980 | ||||||
Sr. Unsec. Gtd. Notes, 5.13%, 02/01/2025(b) | 723,000 | 719,385 | ||||||
Tesoro Logistics L.P./Tesoro Logistics Finance Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
6.13%, 10/15/2021 | 235,000 | 247,337 | ||||||
6.38%, 05/01/2024 | 681,000 | 732,075 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.25%, 01/15/2025 | 144,000 | 146,880 | ||||||
Willams Cos. Inc. (The), Sr. Unsec. Global Notes, 4.55%, 06/24/2024 | 440,000 | 442,216 | ||||||
7,058,173 | ||||||||
Other Diversified Financial Services–0.30% | ||||||||
Lincoln Finance Ltd. (Netherlands), Sr. Sec. Gtd. First Lien Notes, 7.38%, 04/15/2021(b) | 492,000 | 525,899 |
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–1.33% | ||||||||
JBS Investments GmbH (Brazil), | ||||||||
Gtd. Notes, 7.25%, 04/03/2024(b) | $ | 625,000 | $ | 661,719 | ||||
REGS, Sr. Unsec. Gtd. Euro Notes, 7.25%, 04/03/2024(b) | 230,000 | 241,500 | ||||||
JBS USA LLC/JBS USA Finance Inc. (Brazil), Sr. Unsec. Gtd. Notes, 5.75%, 06/15/2025(b) | 180,000 | 184,275 | ||||||
Lamb Weston Holdings, Inc., Sr. Unsec. Gtd. Notes, 4.63%, 11/01/2024(b) | 420,000 | 423,150 | ||||||
TreeHouse Foods, Inc., Sr. Unsec. Gtd. Notes, 6.00%, 02/15/2024(b) | 814,000 | 858,770 | ||||||
2,369,414 | ||||||||
Paper Packaging–0.32% | ||||||||
Graphic Packaging International Inc., Sr. Unsec. Gtd. Notes, 4.88%, 11/15/2022 | 550,000 | 566,500 | ||||||
Paper Products–0.41% | ||||||||
Clearwater Paper Corp., Sr. Unsec. Gtd. Global Notes, 4.50%, 02/01/2023 | 394,000 | 387,598 | ||||||
P.H. Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 5.38%, 10/15/2020 | 326,000 | 334,965 | ||||||
722,563 | ||||||||
Pharmaceuticals–1.17% | ||||||||
Endo Finance LLC/ Endo Ltd./Endo Finco Inc., Sr. Unsec. Gtd. Notes, 6.00%, 07/15/2023(b) | 240,000 | 211,500 | ||||||
Valeant Pharmaceuticals International, Inc., | ||||||||
REGS, Sr. Unsec. Gtd. Euro Notes, 6.13%, 04/15/2025(b) | 335,000 | 252,925 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.50%, 03/01/2023(b) | 388,000 | 289,060 | ||||||
5.63%, 12/01/2021(b) | 16,000 | 12,480 | ||||||
5.88%, 05/15/2023(b) | 200,000 | 152,000 | ||||||
6.13%, 04/15/2025(b) | 410,000 | 309,550 | ||||||
7.50%, 07/15/2021(b) | 1,000,000 | 850,000 | ||||||
2,077,515 | ||||||||
Restaurants–0.48% | ||||||||
Brinker International Inc., Sr. Unsec. Gtd. Notes, 5.00%, 10/01/2024(b) | 351,000 | 352,875 | ||||||
Carrols Restaurant Group, Inc., Sec. Gtd. Second Lien Global Notes, 8.00%, 05/01/2022 | 465,000 | 502,200 | ||||||
855,075 | ||||||||
Semiconductors–1.31% | ||||||||
Micron Technology, Inc., | ||||||||
Sr. Unsec. Global Notes, 5.50%, 02/01/2025 | 856,000 | 856,000 | ||||||
Sr. Unsec. Notes, | 1,075,000 | 1,084,406 | ||||||
5.25%, 01/15/2024(b) | 390,000 | 390,000 | ||||||
2,330,406 |
Principal Amount | Value | |||||||
Specialized Consumer Services–0.79% | ||||||||
ServiceMaster Co., LLC (The), | ||||||||
Sr. Unsec. Gtd. Notes, 5.13%, 11/15/2024(b) | $ | 272,000 | $ | 277,440 | ||||
Sr. Unsec. Notes, 7.45%, 08/15/2027 | 1,086,000 | 1,124,010 | ||||||
1,401,450 | ||||||||
Specialized Finance–3.60% | ||||||||
AerCap Global Aviation Trust (Netherlands), Jr. Unsec. Gtd. Sub. Notes, 6.50%, 06/15/2045(b) | 969,000 | 982,324 | ||||||
Aircastle Ltd., Sr. Unsec. Notes, | ||||||||
5.00%, 04/01/2023 | 596,000 | 613,135 | ||||||
5.50%, 02/15/2022 | 720,000 | 766,800 | ||||||
CIT Group Inc., Sr. Unsec. Global Notes, 5.00%, 08/01/2023 | 2,260,000 | 2,344,750 | ||||||
Fly Leasing Ltd. (Ireland), Sr. Unsec. Global Notes, 6.75%, 12/15/2020 | 821,000 | 862,050 | ||||||
MSCI Inc., Sr. Unsec. Gtd. Notes, | ||||||||
5.25%, 11/15/2024(b) | 640,000 | 670,400 | ||||||
5.75%, 08/15/2025(b) | 140,000 | 149,100 | ||||||
6,388,559 | ||||||||
Specialized REIT’s–0.58% | ||||||||
GLP Capital L.P./GLP Financing II, Inc., Sr. Unsec. Gtd. Notes, 5.38%, 04/15/2026 | 495,000 | 519,750 | ||||||
Rayonier A.M. Products Inc., Sr. Unsec. Gtd. Notes, 5.50%, 06/01/2024(b) | 542,000 | 512,190 | ||||||
1,031,940 | ||||||||
Specialty Chemicals–2.18% | ||||||||
Ashland LLC, Sr. Unsec. Gtd. Global Notes, 4.75%, 08/15/2022 | 610,000 | 634,400 | ||||||
Axalta Coating Systems, LLC, Sr. Unsec. Gtd. Notes, 4.88%, 08/15/2024(b) | 472,000 | 474,360 | ||||||
GCP Applied Technologies Inc., Sr. Unsec. Gtd. Notes, 9.50%, 02/01/2023(b) | 516,000 | 594,690 | ||||||
Kraton Polymers LLC/Kraton Polymers Capital Corp., Sr. Unsec. Gtd. Notes, 10.50%, 04/15/2023(b) | 643,000 | 729,805 | ||||||
PolyOne Corp., Sr. Unsec. Global Notes, 5.25%, 03/15/2023 | 588,000 | 598,290 | ||||||
PQ Corp., Sr. Sec. Gtd. First Lien Notes, 6.75%, 11/15/2022(b) | 415,000 | 446,125 | ||||||
Valvoline Inc., Sr. Unsec. Gtd. Notes, 5.50%, 07/15/2024(b) | 388,000 | 401,580 | ||||||
3,879,250 | ||||||||
Steel–1.14% | ||||||||
ArcelorMittal (Luxembourg), | ||||||||
Sr. Unsec. Global Bonds, 6.13%, 06/01/2025 | 453,000 | 498,300 | ||||||
Sr. Unsec. Global Notes, 8.00%, 10/15/2039 | 122,000 | 134,200 | ||||||
Steel Dynamics, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 12/15/2026(b) | 850,000 | 850,000 | ||||||
United States Steel Corp., | ||||||||
Sr. Unsec. Global Notes, 7.50%, 03/15/2022 | 462,000 | 473,550 | ||||||
Sr. Unsec. Notes, 6.88%, 04/01/2021 | 69,000 | 69,690 | ||||||
2,025,740 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Technology Hardware, Storage & Peripherals–2.07% | ||||||||
CommScope Technologies Finance LLC, Sr. Unsec. Gtd. Notes, 6.00%, 06/15/2025(b) | $ | 810,000 | $ | 858,600 | ||||
Diamond 1 Finance Corp./Diamond 2 Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 06/15/2024(b) | 1,187,000 | 1,317,570 | ||||||
Western Digital Corp., | ||||||||
Sr. Sec. Gtd. First Lien Notes, 7.38%, 04/01/2023(b) | 930,000 | 1,030,847 | ||||||
Sr. Unsec. Gtd. Notes, 10.50%, 04/01/2024(b) | 390,000 | 462,150 | ||||||
3,669,167 | ||||||||
Tobacco–0.20% | ||||||||
Alliance One International, Inc., Sr. Sec. Gtd. First Lien Notes, 8.50%, 04/15/2021(b) | 352,000 | 359,480 | ||||||
Trading Companies & Distributors–0.83% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance Inc., Sr. Unsec. Gtd. Notes, 5.13%, 06/01/2022(b) | 415,000 | 408,775 | ||||||
United Rentals North America, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 5.50%, 07/15/2025 | 41,000 | 42,333 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.50%, 05/15/2027 | 201,000 | 201,000 | ||||||
6.13%, 06/15/2023 | 775,000 | 824,406 | ||||||
1,476,514 | ||||||||
Trucking–0.52% | ||||||||
Kenan Advantage Group Inc. (The), Sr. Unsec. Notes, | 918,000 | 931,770 | ||||||
Wireless Telecommunication Services–6.31% | ||||||||
Altice Luxembourg S.A. (Luxembourg), | ||||||||
REGS, Sr. Unsec. Gtd. Euro Notes, 7.75%, 05/15/2022(b) | 800,000 | 856,000 | ||||||
Sr. Unsec. Gtd. Notes, 7.75%, 05/15/2022(b) | 1,300,000 | 1,392,625 | ||||||
Digicel Group Ltd. (Jamaica), Sr. Unsec. Notes, 8.25%, 09/30/2020(b) | 400,000 | 344,000 | ||||||
Digicel Ltd. (Jamaica), Sr. Unsec. Gtd. Notes, 6.75%, 03/01/2023(b) | 500,000 | 453,750 | ||||||
SBA Communications Corp., Sr. Unsec. Notes, 4.88%, 09/01/2024(b) | 983,000 | 974,399 | ||||||
Sprint Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
7.25%, 09/15/2021 | 1,366,000 | 1,454,790 | ||||||
7.63%, 02/15/2025 | 535,000 | 563,756 | ||||||
7.88%, 09/15/2023 | 910,000 | 973,700 | ||||||
T-Mobile USA, Inc., | ||||||||
Sr. Unsec. Gtd. Global Bonds, | ||||||||
6.50%, 01/15/2026 | 968,000 | 1,050,280 | ||||||
6.84%, 04/28/2023 | 87,000 | 93,416 | ||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
6.38%, 03/01/2025 | 1,132,000 | 1,214,070 | ||||||
6.63%, 04/01/2023 | 706,000 | 751,007 |
Principal Amount | Value | |||||||
Wireless Telecommunication Services–(continued) | ||||||||
Wind Acquisition Finance S.A. (Italy), | ||||||||
REGS, Sr. Sec. Gtd. First Lien Euro Notes, 6.50%, 04/30/2020(b) | $ | 200,000 | $ | 208,500 | ||||
Sr. Sec. Gtd. First Lien Notes 6.50%, 04/30/2020(b) | 250,000 | 262,500 | ||||||
Sec. Gtd. Second Lien Notes, 7.38%, 04/23/2021(b) | 595,000 | 620,288 | ||||||
11,213,081 | ||||||||
Total U.S. Dollar Denominated Bonds & Notes |
| 163,231,804 | ||||||
Non-U.S. Dollar Denominated Bonds & |
| |||||||
Cable & Satellite–0.36% | ||||||||
Virgin Media Secured Finance PLC (United Kingdom), REGS, Sr. Sec. Gtd. First Lien Medium-Term Euro Notes, 5.13%, 01/15/2025(b) | GBP | 500,000 | 633,300 | |||||
Casinos & Gaming–0.06% | ||||||||
Snai S.p.A. (Italy), Sr. Sec. First Lien Bonds, 6.38%, 11/07/2021(b) | EUR | 100,000 | 110,807 | |||||
Health Care Services–0.10% | ||||||||
Synlab Unsecured Bondco PLC (United Kingdom), REGS, Sr. Unsec. Gtd. Euro Bonds, | EUR | 160,000 | 183,986 | |||||
Hotels, Resorts & Cruise Lines–0.15% | ||||||||
Thomas Cook Finance PLC (United Kingdom), Sr. Unsec. Gtd. Bonds, 6.75%, 06/15/2021(b) | EUR | 231,000 | 259,429 | |||||
Leisure Facilities–0.13% | ||||||||
Cirsa Funding Luxembourg S.A. (Spain), REGS, Sr. Unsec. Gtd. Euro Notes, 5.88%, 05/15/2023(b) | EUR | 200,000 | 224,193 | |||||
Other Diversified Financial Services–0.37% | ||||||||
eircom Finance DAC (Ireland), Sr. Sec. Gtd. Bonds, 4.50%, 05/31/2022(b) | EUR | 600,000 | 664,692 | |||||
Packaged Foods & Meats–0.15% | ||||||||
Moy Park (Bondco) PLC (United Kingdom), Sr. Unsec. Gtd. Notes, 6.25%, 05/29/2021(b) | GBP | 200,000 | 259,413 | |||||
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $2,476,703) |
| 2,335,820 | ||||||
U.S. Treasury Bills–0.18%(g)(h) | ||||||||
0.56%, 05/11/2017 | 325,000 | 324,324 | ||||||
Shares | ||||||||
Exchange-Traded Funds–1.05% |
| |||||||
PowerShares Senior Loan Portfolio (Cost $1,854,968)(i) | 80,000 | 1,868,800 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Variable Rate Senior Loan Interests–0.17%(j) |
| |||||||
Specialty Chemicals–0.17% | ||||||||
Kraton Polymers LLC/Kraton Polymers Capital Corp. Term Loan, –%, 01/06/2022 | $ | 305,000 | $ | 309,031 | ||||
Shares | ||||||||
Common Stocks & Other Equity Interests–0.04% |
| |||||||
Automobile Manufacturers–0.00% | ||||||||
Motors Liquidation Co. GUC Trust | 1 | 8 | ||||||
Broadcasting–0.00% | ||||||||
Adelphia Recovery Trust–Series ACC-1(l) | 318,570 | 191 | ||||||
Adelphia Recovery Trust–Series Arahova(l) | 109,170 | 1,092 | ||||||
1,283 | ||||||||
Diversified Support Services–0.00% | ||||||||
ACC Claims Holdings, LLC(m) | 269,616 | 1,011 | ||||||
Integrated Telecommunication Services–0.04% | ||||||||
Largo Ltd.–Class A (Luxembourg) (Acquired 01/28/2010-07/15/2010; Cost $331,048)(b)(n) | 17,563 | 7,339 |
Shares | Value | |||||||
Integrated Telecommunication Services–(continued) | ||||||||
Largo Ltd.–Class B (Luxembourg) (Acquired 12/09/2010; Cost $209,647)(b)(n) | 158,069 | $ | 66,051 | |||||
73,390 | ||||||||
Total Common Stocks & Other Equity Interests |
| 75,692 | ||||||
Money Market Funds–4.16% |
| |||||||
Government & Agency Portfolio Institutional Class, 0.43%(o) | 4,427,441 | 4,427,441 | ||||||
Treasury Portfolio Institutional Class, 0.37%(o) | 2,951,627 | 2,951,627 | ||||||
Total Money Market Funds |
| 7,379,068 | ||||||
TOTAL INVESTMENTS–98.82% |
| 175,524,539 | ||||||
OTHER ASSETS LESS LIABILITIES–1.18% |
| 2,099,609 | ||||||
NET ASSETS–100.00% |
| $ | 177,624,148 |
Investment Abbreviations:
EUR | – Euro | |
GBP | – British Pound | |
Gtd. | – Guaranteed | |
GUC | – General Unsecured Creditors | |
Jr. | – Junior | |
REGS | – Regulation S | |
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, 2016 was $73,000,799, which represented 41.10% of the Fund’s Net Assets. |
(c) | Perpetual bond with no specified maturity date. |
(d) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The value of this security at December 31, 2016 represented less than 1% of the Fund’s Net Assets. |
(e) | Acquired as part of the Sino-Forest Corp. reorganization. |
(f) | Foreign denominated security. Principal amount is denominated in the currency indicated. |
(g) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(h) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1M and Note 4. |
(i) | PowerShares Senior Loan Portfolio and the Fund are affiliated by either having the same investment adviser or an investment adviser under common control with the Fund’s investment adviser. The value of this security as of December 31, 2016 represented less than 1% of the Fund’s Net Assets. See Note 5. |
(j) | 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. |
(k) | This floating rate interest will settle after December 31, 2016, at which time the interest rate will be determined. |
(l) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. |
(m) | Non-income producing security. |
(n) | Non-income producing security acquired as part of the Hawaiian Telcom bankruptcy reorganization. |
(o) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $170,372,465) | $ | 166,276,671 | ||
Investments in affiliates, at value (Cost $9,234,036) | 9,247,868 | |||
Total investments, at value (Cost $179,606,501) | 175,524,539 | |||
Foreign currencies, at value (Cost $27,424) | 27,164 | |||
Receivable for: | ||||
Investments sold | 25,751 | |||
Fund shares sold | 97,205 | |||
Dividends and interest | 2,745,313 | |||
Investment for trustee deferred compensation and retirement plans | 76,337 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 13,931 | |||
Total assets | 178,510,240 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 303,856 | |||
Fund shares reacquired | 232,768 | |||
Variation margin — futures | 22,000 | |||
Accrued fees to affiliates | 188,231 | |||
Accrued trustees’ and officers’ fees and benefits | 158 | |||
Accrued other operating expenses | 52,895 | |||
Trustee deferred compensation and retirement plans | 80,917 | |||
Unrealized depreciation on forward foreign currency contracts outstanding | 5,267 | |||
Total liabilities | 886,092 | |||
Net assets applicable to shares outstanding | $ | 177,624,148 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 189,058,154 | ||
Undistributed net investment income | 7,849,198 | |||
Undistributed net realized gain (loss) | (15,184,693 | ) | ||
Net unrealized appreciation (depreciation) | (4,098,511 | ) | ||
$ | 177,624,148 | |||
Net Assets: |
| |||
Series I | $ | 94,653,121 | ||
Series II | $ | 82,971,027 | ||
Shares outstanding, no par value, |
| |||
Series I | 17,526,372 | |||
Series II | 15,474,829 | |||
Series I: | ||||
Net asset value per share | $ | 5.40 | ||
Series II: | ||||
Net asset value per share | $ | 5.36 |
Investment income: |
| |||
Interest (net of foreign withholding taxes of $250) | $ | 10,011,099 | ||
Dividends | 106,844 | |||
Dividends from affiliates | 35,303 | |||
Total investment income | 10,153,246 | |||
Expenses: | ||||
Advisory fees | 1,022,416 | |||
Administrative services fees | 354,709 | |||
Custodian fees | 23,024 | |||
Distribution fees—Series II | 188,020 | |||
Transfer agent fees | 35,392 | |||
Trustees’ and officers’ fees and benefits | 21,716 | |||
Reports to shareholders | 10,789 | |||
Professional services fees | 86,472 | |||
Other | 22,719 | |||
Total expenses | 1,765,257 | |||
Less: Fees waived | (8,087 | ) | ||
Net expenses | 1,757,170 | |||
Net investment income | 8,396,076 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (5,518,010 | ) | ||
Foreign currencies | 7,776 | |||
Forward foreign currency contracts | 520,092 | |||
Futures contracts | (251,715 | ) | ||
Swap agreements | (300,775 | ) | ||
(5,542,632 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 13,742,659 | |||
Foreign currencies | 5,447 | |||
Forward foreign currency contracts | (37,844 | ) | ||
Futures contracts | (58,587 | ) | ||
Swap agreements | 81,941 | |||
13,733,616 | ||||
Net realized and unrealized gain | 8,190,984 | |||
Net increase in net assets resulting from operations | $ | 16,587,060 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income | $ | 8,396,076 | $ | 8,117,818 | ||||
Net realized gain (loss) | (5,542,632 | ) | (6,275,709 | ) | ||||
Change in net unrealized appreciation (depreciation) | 13,733,616 | (6,509,168 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 16,587,060 | (4,667,059 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (4,133,290 | ) | (4,255,607 | ) | ||||
Series ll | (3,068,973 | ) | (3,746,705 | ) | ||||
Total distributions from net investment income | (7,202,263 | ) | (8,002,312 | ) | ||||
Share transactions–net: | ||||||||
Series l | 16,319,925 | (14,390,517 | ) | |||||
Series ll | 7,485,826 | 17,464,885 | ||||||
Net increase in net assets resulting from share transactions | 23,805,751 | 3,074,368 | ||||||
Net increase (decrease) in net assets | 33,190,548 | (9,595,003 | ) | |||||
Net assets: | ||||||||
Beginning of year | 144,433,600 | 154,028,603 | ||||||
End of year (includes undistributed net investment income of $7,849,198 and $7,047,286, respectively) | $ | 177,624,148 | $ | 144,433,600 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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.
Variable rate senior loan interests 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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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, 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 asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. | 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. |
K. | 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.
L. | 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 the 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.
M. | 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 |
Invesco V.I. High Yield Fund
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. |
N. | 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. A swap agreement may be negotiated bilaterally and traded over-the-counter (“OTC”) between two parties (“uncleared/OTC”) or, in some instances, must be transacted through a future commission merchant (“FCM”) and cleared through a clearinghouse that serves as a central Counterparty (“centrally cleared swap”). These agreements may contain among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency 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,
Invesco V.I. High Yield Fund
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 cash or liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Cash held as collateral is recorded as deposits with brokers on the Statement of Assets and Liabilities. 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.
O. | Bank Loan Risk — 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, which may impair the Fund’s ability to sell bank loans within its desired time frame or at an acceptable price and its ability to accurately value existing and prospective investments. Extended trade settlement periods may result in cash not being immediately available to the Fund. As a result, the Fund may have to sell other investments or engage in borrowing transactions to raise cash to meet its obligations. Similar to other asset classes, bank loan funds may be exposed to counterparty credit risk, or the risk than an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund seeks to manage counterparty credit risk by entering into transactions only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. |
P. | Leverage Risk — Leverage exists when the 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. |
Q. | 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”. |
R. | 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 $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, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $8,087.
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 fees paid to insurance
Invesco V.I. High Yield Fund
companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $50,000 for accounting and fund administrative services and was reimbursed $304,709 for fees paid to 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, 2016, 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, 2016, 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, 2016. 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 | |||||||||||||
U.S. Dollar Denominated Bonds & Notes | $ | — | $ | 163,231,800 | $ | 4 | $ | 163,231,804 | ||||||||
Non-U.S. Dollar Denominated Bonds & Notes | — | 2,335,820 | — | 2,335,820 | ||||||||||||
U.S. Treasury Bills | — | 324,324 | — | 324,324 | ||||||||||||
Variable Rate Senior Loan Interests | — | 309,031 | — | 309,031 | ||||||||||||
Exchange-Traded Funds | 1,868,800 | — | — | 1,868,800 | ||||||||||||
Common Stocks & Other Equity Interests | 8 | 74,673 | 1,011 | 75,692 | ||||||||||||
Money Market Funds | 7,379,068 | — | — | 7,379,068 | ||||||||||||
$ | 9,247,876 | $ | 166,275,648 | $ | 1,015 | $ | 175,524,539 | |||||||||
Forward Foreign Currency Contracts* | — | 8,664 | — | 8,664 | ||||||||||||
Futures Contracts* | (24,152 | ) | — | — | (24,152 | ) | ||||||||||
Total Investments | $ | 9,223,724 | $ | 166,284,312 | $ | 1,015 | $ | 175,509,051 |
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
Invesco V.I. High Yield Fund
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, 2016:
Value | ||||||||||||
Derivative Assets | Currency Risk | Interest Rate Risk | Total | |||||||||
Unrealized appreciation on forward foreign currency contracts outstanding | $ | 13,931 | $ | — | $ | 13,931 | ||||||
Total derivative assets | $ | 13,931 | $ | — | $ | 13,931 | ||||||
Derivatives not subject to master netting agreements | — | — | — | |||||||||
Total derivative assets subject to master netting agreements | $ | 13,931 | $ | — | $ | 13,931 | ||||||
Value | ||||||||||||
Derivative Liabilities | Currency Risk | Interest Rate Risk | Total | |||||||||
Unrealized depreciation on futures contracts — Exchange-Traded(a) | $ | — | $ | (24,152 | ) | $ | (24,152 | ) | ||||
Unrealized depreciation on forward foreign currency contracts outstanding | (5,267 | ) | — | (5,267 | ) | |||||||
Total derivative liabilities | $ | (5,267 | ) | $ | (24,152 | ) | $ | (29,419 | ) | |||
Derivatives not subject to master netting agreements | — | 24,152 | 24,152 | |||||||||
Total derivative liabilities subject to master netting agreements | $ | (5,267 | ) | $ | — | $ | (5,267 | ) |
(a) | Includes cumulative appreciation (depreciation) on futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement Date | Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
02/28/17 | Citigroup Global Markets Inc. | GBP | 729,918 | USD | 903,886 | $ | 901,086 | $ | 2,800 | |||||||||||||||||
02/28/17 | Citigroup Global Markets Inc. | USD | 193,623 | GBP | 152,577 | 188,356 | (5,267 | ) | ||||||||||||||||||
02/28/17 | Goldman Sachs International | EUR | 1,160,837 | USD | 1,236,581 | 1,225,450 | 11,131 | |||||||||||||||||||
Total open forward foreign currency contracts — currency risk |
| $ | 8,664 |
Currency Abbreviations:
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Open Futures Contracts — Interest Rate Risk | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||
10 Year Treasury Futures | Short | 64 | March-2017 | $ | (7,954,000 | ) | $ | (24,152 | ) |
Offsetting Assets and Liabilities
The table below reflects the Fund’s exposure to Counterparties subject to either an ISDA Master Agreement or other agreement for OTC derivative transactions as of December 31, 2016.
Financial Derivative Assets | Financial Derivative Liabilities | Collateral (Received)/Pledged | ||||||||||||||||||||||
Counterparty | Forward Foreign Currency Contracts | Forward Foreign Currency Contracts | Net value of Derivatives | Non-Cash | Cash | Net Amount | ||||||||||||||||||
Fund | ||||||||||||||||||||||||
Citigroup Global Markets Inc. | $ | 2,800 | $ | (5,267 | ) | $ | (2,467 | ) | $ | — | $ | — | $ | (2,467 | ) | |||||||||
Goldman Sachs International | 11,131 | — | 11,131 | — | — | 11,131 | ||||||||||||||||||
Total | $ | 13,931 | $ | (5,267 | ) | $ | 8,664 | $ | — | $ | — | $ | 8,664 |
Invesco V.I. High Yield Fund
Effect of Derivative Investments for the year ended December 31, 2016
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 | ||||||||||||||||
Credit Risk | Currency Risk | Interest Rate Risk | Total | |||||||||||||
Realized Gain (Loss): | ||||||||||||||||
Forward foreign currency contracts | $ | — | $ | 520,092 | $ | — | $ | 520,092 | ||||||||
Futures contracts | — | — | (251,715 | ) | (251,715 | ) | ||||||||||
Swap agreements | (300,775 | ) | — | — | (300,775 | ) | ||||||||||
Change in Net Unrealized Appreciation (Depreciation): | ||||||||||||||||
Forward foreign currency contracts | — | (37,844 | ) | — | (37,844 | ) | ||||||||||
Futures contracts | — | — | (58,587 | ) | (58,587 | ) | ||||||||||
Swap agreements | 81,941 | — | — | 81,941 | ||||||||||||
Total | $ | (218,834 | ) | $ | 482,248 | $ | (310,302 | ) | $ | (46,888 | ) |
The table below summarizes the twelve month average notional value of forward foreign currency contracts, three month average notional value of futures contracts and four month average notional value of swap agreements outstanding during the period.
Forward Foreign Currency Contracts | Futures Contracts | Swap Agreements | ||||||||||
Average notional value | $ | 6,380,065 | $ | 7,849,458 | $ | 7,785,000 |
NOTE 5—Investments in Affiliates
The Fund’s Adviser and the adviser for PowerShares Senior Loan Portfolio are subsidiaries of Invesco Ltd. and therefore, PowerShares Senior Loan Portfolio is considered to be affiliated with the Fund. The following is a summary of the transactions in, and earnings from, investments in PowerShares Senior Loan Portfolio for the year ended December 31, 2016.
Value 12/31/15 | Purchases at Cost | Proceeds from Sales | Change in Unrealized Appreciation | Realized Gain | Value 12/31/16 | Dividend Income | ||||||||||||||||||||||
PowerShares Senior Loan Portfolio | $ | — | $ | 1,854,968 | $ | — | $ | 13,832 | $ | — | $ | 1,868,800 | $ | 12,086 |
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. The Fund may not purchase additional securities when any borrowings from banks exceed 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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 7,202,263 | $ | 8,002,312 |
Invesco V.I. High Yield Fund
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 7,927,163 | ||
Net unrealized appreciation (depreciation) — investments | (4,312,478 | ) | ||
Net unrealized appreciation (depreciation) — other investments | (1,061 | ) | ||
Temporary book/tax differences | (78,162 | ) | ||
Capital loss carryforward | (14,969,468 | ) | ||
Shares of beneficial interest | 189,058,154 | |||
Total net assets | $ | 177,624,148 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. 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 has a capital loss carryforward as of December 31, 2016, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 3,251,947 | $ | — | $ | 3,251,947 | ||||||
Not subject to expiration | 5,689,006 | 6,028,515 | 11,717,521 | |||||||||
$ | 8,940,953 | $ | 6,028,515 | $ | 14,969,468 |
* | 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, 2016 was $170,375,710 and $153,093,208, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 5,648,830 | ||
Aggregate unrealized (depreciation) of investment securities | (9,961,308 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (4,312,478 | ) |
Cost of investments for tax purposes is $179,837,017.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of expired capital loss carryforward and foreign currency transactions, on December 31, 2016, undistributed net investment income was decreased by $391,901, undistributed net realized gain (loss) was increased by $3,418,014 and shares of beneficial interest was decreased by $3,026,113. 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, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 17,324,848 | $ | 92,655,603 | 8,771,889 | $ | 47,952,255 | ||||||||||
Series II | 4,567,922 | 24,054,376 | 9,834,516 | 53,843,244 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 774,024 | 4,133,290 | 819,963 | 4,255,608 | ||||||||||||
Series II | 577,961 | 3,068,973 | 726,105 | 3,746,705 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (15,111,083 | ) | (80,468,968 | ) | (12,114,611 | ) | (66,598,380 | ) | ||||||||
Series II | (3,757,906 | ) | (19,637,523 | ) | (7,329,220 | ) | (40,125,064 | ) | ||||||||
Net increase in share activity | 4,375,766 | $ | 23,805,751 | 708,642 | $ | 3,074,368 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 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 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 12/31/16 | $ | 5.06 | $ | 0.28 | $ | 0.28 | $ | 0.56 | $ | (0.22 | ) | $ | 5.40 | 11.21 | % | $ | 94,653 | 0.96 | %(d) | 0.96 | %(d) | 5.25 | %(d) | 99 | % | |||||||||||||||||||||||
Year ended 12/31/15 | 5.53 | 0.29 | (0.46 | ) | (0.17 | ) | (0.30 | ) | 5.06 | (3.17 | ) | 73,594 | 1.03 | 1.03 | 5.23 | 99 | ||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 5.70 | 0.29 | (0.19 | ) | 0.10 | (0.27 | ) | 5.53 | 1.73 | 94,345 | 0.92 | 0.98 | 5.11 | 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 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 5.03 | 0.26 | 0.28 | 0.54 | (0.21 | ) | 5.36 | 10.83 | 82,971 | 1.21 | (d) | 1.21 | (d) | 5.00 | (d) | 99 | ||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 5.50 | 0.27 | (0.45 | ) | (0.18 | ) | (0.29 | ) | 5.03 | (3.37 | ) | 70,840 | 1.28 | 1.28 | 4.98 | 99 | ||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 5.67 | 0.28 | (0.19 | ) | 0.09 | (0.26 | ) | 5.50 | 1.59 | 59,683 | 1.17 | 1.23 | 4.86 | 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 |
(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. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $88,378 and $75,208 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 the 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 the Invesco V.I. High Yield Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,051.80 | $ | 4.64 | $ | 1,020.61 | $ | 4.57 | 0.90 | % | ||||||||||||
Series II | 1,000.00 | 1,049.90 | 5.93 | 1,019.36 | 5.84 | 1.15 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. High Yield Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2016:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0.46 | % | ||
U.S. Treasury Obligations* | 0.02 | % |
* | 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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
| ||||
Annual Report to Shareholders
| December 31, 2016 | |||
| ||||
Invesco V.I. International Growth Fund
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIIGR-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, 2016, Series I shares of Invesco V.I. International Growth Fund (the Fund) underperformed the Custom Invesco International Growth Index, the Fund’s style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | -0.45 | % | |||
Series II Shares | -0.70 | ||||
MSCI All Country World Ex-U.S. Index▼ (Broad Market Index) | 4.50 | ||||
Custom Invesco International Growth Index∎ (Style-Specific Index) | 0.12 | ||||
Lipper VUF International Large-Cap Growth Funds Indext (Peer Group Index) | -1.09 |
Source(s): ▼FactSet Research Systems Inc.; ∎Invesco, FactSet Research Systems Inc.; tLipper Inc.
Market conditions and your Fund
Global equities began 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Equity markets rebounded strongly in February. Central banks, including the Fed, the European Central Bank and the Bank of Japan, soothed investors’ nerves throughout the reporting period with accommodative policies and dovish rhetoric. Other factors contributing to investor sentiment included rebounding oil prices and, in the US, an improving housing market and employment picture. But the year was volatile and full of surprises – several of them involving elections.
In June, the Brexit – the decision by UK voters to leave the European Union – caused global markets to decline sharply, but only briefly. Stocks in economically sensitive sectors, including energy and financials, were hardest hit, and investors flocked to the perceived safety of US Treasuries and more defensive, dividend-paying equities. Following the surprise outcome of the US presidential election in November, US stocks surged, led by the health care and financials sectors,
which might benefit from reduced regulation. Non-US equities, particularly emerging market equities, traded lower on the news due to currency weakness and the prospect of a less favorable trade environment.
Also in November, OPEC agreed to cut production for the first time in eight years; the agreement helped support higher oil prices and energy stocks. As expected, the Fed raised interest rates in December 2016, its only rate hike during the reporting period. For the reporting period as a whole, US equities outperformed non-US equities. Emerging markets, supported by the Fed’s delayed interest rate increases and a rally in commodities, outperformed their developed-market counterparts (excluding the US) – a reversal from previous years.
Regardless of the macroeconomic environment, we remained focused on our bottom-up investment approach of identifying attractive companies that fit our earnings, quality and valuation (EQV) process. During the year, Fund holdings in the financials, consumer staples, industrials and energy sectors outperformed those of the style-specific benchmark and were among the strongest contributors to the Fund’s relative performance.
An underweight allocation in the weak consumer staples sector also contributed to relative performance. The Fund’s holdings in the consumer discretionary and health care sectors, however, underperformed those of the style-specific index and were the most significant detractors from the Fund’s relative performance.
On a geographic basis, the Fund’s holdings in Canada, Brazil and Singapore outperformed those of the style-specific benchmark and were among the most significant contributors to the Fund’s relative performance. In contrast, the Fund’s holdings in Israel and Sweden underperformed those of the style-specific benchmark and were among the most significant detractors from relative performance. The Fund’s overweight exposure to the weak UK market was also a drag on relative Fund results during the year.
From an individual securities perspective, BM&FBOVESPA, one of the world’s largest stock exchanges, was the Fund’s top contributor for the reporting period. BM&FBOVESPA’s stock was significantly depressed in 2015 due to Brazil’s political and economic turmoil, but it rose in 2016 after the ousting of Brazil’s President Rouseff under the expectation that this change could allow for reforms and a more orthodox economic policy. This high-quality company enjoyed weak competition in its key businesses, and its plan to acquire Brazil’s largest security registration business is expected to potentially add stability to BM&FBOVESPA’s earnings.
In contrast, Sky was among the most significant detractors from Fund performance for the reporting period. Sky is a UK-based, pan-European broadcasting company. Company shares dropped going into to the rights auction for the German Bundesliga (professional soccer league) matches, which caused concerns
Portfolio Composition | |||||
By sector | % of total net assets |
Consumer Discretionary | 19.1 | % | |||
Financials | 17.9 | ||||
Information Technology | 16.0 | ||||
Industrials | 13.0 | ||||
Consumer Staples | 11.7 | ||||
Health Care | 8.2 | ||||
Energy | 5.1 | ||||
Materials | 2.5 | ||||
Money Market Funds Plus Other Assets Less Liabilities |
| 6.5 |
|
Top 10 Equity Holdings* | |||||
% of total net assets |
1. Sky PLC | 3.3 | % | |||
2. RELX PLC | 3.0 | ||||
3. CGI Group Inc.-Class A | 2.7 | ||||
4. SAP S.E. | 2.6 | ||||
5. WPP PLC | 2.4 | ||||
6. Taiwan Semiconductor Manufacturing Co. Ltd.-ADR | 2.4 | ||||
7. Broadcom Ltd. | 2.4 | ||||
8. Publicis Groupe S.A. | 2.4 | ||||
9. CK Hutchison Holdings Ltd. | 2.3 | ||||
10. Deutsche Boerse AG | 2.2 |
Total Net Assets | $ | 1.7 billion | |||
Total Number of Holdings* | 67 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. International Growth Fund
around cost inflation. Additionally, the potential adverse impact that the Brexit may have had on UK consumers dragged on Sky’s stock price. However, in December, Twenty-First Century Fox (not a Fund holding) made a formal offer to acquire the 61% of Sky it didn’t already own. The offer represented a significant premium to Sky’s share price, and shares of Sky rose following this news, making the stock a top performer for the Fund in the last quarter of the year.
We continued to look for new investment opportunities during the reporting period, but struggled to find companies that met our EQV criteria. To illustrate this challenge, we added only three new holdings to the Fund during the year; in each case, we established only a small starter position. However, we increased the Fund’s position in a number of select holdings, including UK-based retailer Next, Mexico-based multi-national beverage and retail company Fomento Economico Mexicano and Japan-based tobacco products maker Japan Tobacco. We also trimmed and sold several names with EQV characteristics that were no longer compelling, including Swiss agrichemical company Syngenta due to its significant appreciation following a take-over bid. We also trimmed positions in a number of holdings due to strong share price appreciation, including China-based web service company Baidu and UK-based multi-national tobacco company British American.
As always, regardless of the macroeconomic environment, we remain focused on a bottom-up investment approach of identifying attractive companies that fit our EQV-focused investment process. We continue to look for high-quality companies that exhibit the following characteristics: strong organic growth, high returns on capital, pricing power, strong balance sheets, cash generation and reasonable valuations. In addition, we continue to favor companies that are able to consistently generate cash during weak economic environments. 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 and global growth team, is | ||
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. | ||
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. |
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 12/31/06
��
1 | Source: Lipper Inc. |
2 | Source(s): Invesco, FactSet Research Systems Inc. |
3 | Source: FactSet Research Systems Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (5/5/93) | 6.79 | % | |||
10 Years | 2.70 | ||||
5 Years | 6.05 | ||||
1 Year | -0.45 | ||||
Series II Shares | |||||
Inception (9/19/01) | 6.80 | % | |||
10 Years | 2.45 | ||||
5 Years | 5.78 | ||||
1 Year | -0.70 |
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 0.92% and 1.17%, 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 0.93% and 1.18%, 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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, 2018. 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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. The Fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer.
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.
Emerging markets securities risk. Emerging markets (also referred to as developing markets) are generally subject to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Geographic focus risk. The Fund may from time to time invest a substantial amount of its assets in securities of issuers located in a single country or a limited number of countries. Adverse economic, political or social conditions in those countries may therefore have a significant negative impact on the Fund’s investment performance.
Growth investing risk. Growth stocks tend to be more expensive relative to the issuing company’s earnings or assets compared with other types of stock. As a
result, they tend to be more sensitive to changes in, or investors’ expectations of, the issuing company’s earnings and can be more volatile.
Investing in the European Union risk. Investments in certain countries in the European Union are susceptible to high economic risks associated with high levels of debt, such as investments in sovereign debt of Greece, Italy and Spain. 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. Separately, the European Union faces issues involving its membership, structure, procedures and policies. The exit of one or more member states from the European Union, such as the United Kingdom (UK) which has announced its intention to exit, would place its currency and banking system in jeopardy. The exit by the UK or other member states will likely result in increased volatility, illiquidity and potentially lower economic growth in the affected markets, which will adversely affect the Fund’s investments.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Invesco V.I. International Growth Fund
Mid-capitalization companies risk. Mid-capitalization companies tend to be more vulnerable to changing market conditions and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
Preferred securities risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities. Preferred securities also may be subordinated to bonds or other debt instruments, subjecting them to a greater risk of non-payment, may be less liquid than many other securities, such as common stocks, and generally offer no voting rights with respect to the issuer.
About indexes used in this report
The MSCI All Country World Ex-U.S. Index is considered representative of developed and emerging market stock markets, excluding the US. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Custom Invesco International Growth Index is composed of the MSCI EAFE Growth Index through February 28, 2013, and the MSCI All Country World ex-U.S. 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 the 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-U.S. Growth Index is a market capitalization weighted index that includes growth companies in developed and emerging markets throughout the world, excluding the US. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
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, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–93.48% |
| |||||||
Australia–3.93% | ||||||||
Amcor Ltd. | 3,383,034 | $ | 36,444,418 | |||||
Brambles Ltd. | 1,539,641 | 13,734,762 | ||||||
CSL Ltd. | 234,250 | 16,923,413 | ||||||
67,102,593 | ||||||||
Brazil–1.59% | ||||||||
BM&FBOVESPA S.A. | 5,378,434 | 27,111,127 | ||||||
Canada–9.58% | ||||||||
Canadian National Railway Co. | 243,676 | 16,396,890 | ||||||
Cenovus Energy Inc. | 1,054,353 | 15,938,761 | ||||||
CGI Group Inc.–Class A(a) | 959,263 | 46,032,623 | ||||||
Fairfax Financial Holdings Ltd. | 42,653 | 20,598,332 | ||||||
Great-West Lifeco Inc. | 542,053 | 14,196,674 | ||||||
PrairieSky Royalty Ltd. | 583,278 | 13,873,403 | ||||||
Suncor Energy, Inc. | 1,121,525 | 36,664,518 | ||||||
163,701,201 | ||||||||
China–2.81% | ||||||||
Baidu, Inc.–ADR(a) | 86,796 | 14,270,130 | ||||||
Kweichow Moutai Co., Ltd.–Class A | 702,369 | 33,760,760 | ||||||
48,030,890 | ||||||||
Denmark–2.25% | ||||||||
Carlsberg A/S–Class B | 361,050 | 31,157,390 | ||||||
Novo Nordisk A/S–Class B | 201,553 | 7,239,324 | ||||||
38,396,714 | ||||||||
France–4.43% | ||||||||
Essilor International S.A. | 31,114 | 3,515,609 | ||||||
Pernod Ricard S.A. | 79,323 | 8,595,442 | ||||||
Publicis Groupe S.A. | 588,873 | 40,629,088 | ||||||
Schneider Electric S.E. | 330,626 | 22,972,234 | ||||||
75,712,373 | ||||||||
Germany–9.65% | ||||||||
Allianz S.E. | 214,922 | 35,515,936 | ||||||
Deutsche Boerse AG | 471,492 | 37,828,654 | ||||||
Deutsche Post AG | 617,826 | 20,286,383 | ||||||
ProSiebenSat.1 Media SE | 694,861 | 26,859,240 | ||||||
SAP S.E. | 508,119 | 44,402,895 | ||||||
164,893,108 | ||||||||
Hong Kong–3.90% | ||||||||
CK Hutchison Holdings Ltd. | 3,488,768 | 39,385,324 | ||||||
Galaxy Entertainment Group Ltd. | 6,316,000 | 27,172,651 | ||||||
66,557,975 | ||||||||
Israel–2.05% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 964,257 | 34,954,316 |
Shares | Value | |||||||
Japan–7.58% | ||||||||
FANUC Corp. | 91,200 | $ | 15,422,640 | |||||
Japan Tobacco, Inc. | 924,300 | 30,401,379 | ||||||
Kao Corp. | 268,400 | 12,699,379 | ||||||
Keyence Corp. | 19,300 | 13,224,515 | ||||||
Komatsu Ltd. | 740,737 | 16,720,020 | ||||||
Toyota Motor Corp. | 246,300 | 14,379,477 | ||||||
Yahoo! Japan Corp. | 6,931,600 | 26,630,345 | ||||||
129,477,755 | ||||||||
Mexico–2.74% | ||||||||
Fomento Economico Mexicano, S.A.B. de C.V.–ADR | 379,904 | 28,952,484 | ||||||
Grupo Televisa S.A.B.–ADR | 856,615 | 17,894,687 | ||||||
46,847,171 | ||||||||
Netherlands–0.99% | ||||||||
Wolters Kluwer N.V. | 465,490 | 16,832,241 | ||||||
Singapore–3.27% | ||||||||
Broadcom Ltd. | 231,250 | 40,878,063 | ||||||
United Overseas Bank Ltd. | 1,071,200 | 15,033,543 | ||||||
55,911,606 | ||||||||
South Korea–0.89% | ||||||||
Samsung Electronics Co., Ltd. | 10,219 | 15,123,833 | ||||||
Spain–1.39% | ||||||||
Amadeus IT Group S.A. | 523,363 | 23,780,873 | ||||||
Sweden–3.81% | ||||||||
Getinge AB–Class B | 964,048 | 15,446,034 | ||||||
Investor AB–Class B | 903,973 | 33,794,775 | ||||||
Sandvik AB | 683,370 | 8,438,659 | ||||||
Telefonaktiebolaget LM Ericsson–Class B | 1,284,628 | 7,490,991 | ||||||
65,170,459 | ||||||||
Switzerland–7.14% | ||||||||
Cie Financiere Richemont S.A. | 257,496 | 17,055,143 | ||||||
Julius Baer Group Ltd. | 556,025 | 24,695,842 | ||||||
Novartis AG | 152,661 | 11,108,342 | ||||||
Roche Holding AG | 151,938 | 34,617,861 | ||||||
Syngenta AG | 17,082 | 6,751,613 | ||||||
UBS Group AG | 1,776,899 | 27,830,843 | ||||||
122,059,644 | ||||||||
Taiwan–2.40% | ||||||||
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR | 1,427,135 | 41,030,131 | ||||||
Thailand–1.48% | ||||||||
Kasikornbank PCL–NVDR | 5,134,800 | 25,327,655 | ||||||
Turkey–0.87% | ||||||||
Akbank T.A.S. | 6,690,671 | 14,834,013 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Shares | Value | |||||||
United Kingdom–20.73% | ||||||||
Aberdeen Asset Management PLC | 3,377,495 | $ | 10,736,501 | |||||
British American Tobacco PLC | 575,284 | 32,671,954 | ||||||
Compass Group PLC | 1,638,730 | 30,212,952 | ||||||
Informa PLC | 2,449,577 | 20,533,236 | ||||||
Kingfisher PLC | 3,450,990 | 14,864,870 | ||||||
Lloyds Banking Group PLC | 24,069,967 | 18,515,081 | ||||||
Next PLC | 316,752 | 19,390,771 | ||||||
RELX PLC | 2,858,294 | 50,844,559 | ||||||
Royal Dutch Shell PLC–Class B | 731,515 | 20,879,462 | ||||||
Sky PLC | 4,588,186 | 55,834,143 | ||||||
Smith & Nephew PLC | 1,089,204 | 16,231,617 | ||||||
Unilever N.V. | 536,614 | 22,052,521 | ||||||
WPP PLC | 1,845,531 | 41,313,747 | ||||||
354,081,414 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $1,284,865,476) |
| 1,596,937,092 |
Shares | Value | |||||||
Money Market Funds–6.47% |
| |||||||
Government & Agency Portfolio– Institutional Class, 0.43%(b) | 66,286,456 | $ | 66,286,456 | |||||
Treasury Portfolio–Institutional Class, 0.37%(b) | 44,190,971 | 44,190,971 | ||||||
Total Money Market Funds |
| 110,477,427 | ||||||
TOTAL INVESTMENTS–99.95% |
| 1,707,414,519 | ||||||
OTHER ASSETS LESS LIABILITIES–0.05% |
| 865,713 | ||||||
NET ASSETS–100.00% |
| $ | 1,708,280,232 |
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. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: | ||||
Investments, at value (Cost $1,284,865,476) | $ | 1,596,937,092 | ||
Investments in affiliated money market funds, at value and cost | 110,477,427 | |||
Total investments, at value (Cost $1,395,342,903) | 1,707,414,519 | |||
Foreign currencies, at value (Cost $1,269,773) | 1,258,103 | |||
Receivable for: | ||||
Investments sold | 450,028 | |||
Fund shares sold | 1,156,586 | |||
Dividends | 4,091,797 | |||
Investment for trustee deferred compensation and retirement plans | 242,593 | |||
Other assets | 190 | |||
Total assets | 1,714,613,816 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 1,568,533 | |||
Fund shares reacquired | 1,950,942 | |||
Accrued foreign taxes | 339,801 | |||
Accrued fees to affiliates | 2,061,530 | |||
Accrued trustees’ and officers’ fees and benefits | 811 | |||
Accrued other operating expenses | 136,910 | |||
Trustee deferred compensation and retirement plans | 275,057 | |||
Total liabilities | 6,333,584 | |||
Net assets applicable to shares outstanding | $ | 1,708,280,232 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,450,332,726 | ||
Undistributed net investment income | 12,559,820 | |||
Undistributed net realized gain (loss) | (66,502,074 | ) | ||
Net unrealized appreciation | 311,889,760 | |||
$ | 1,708,280,232 | |||
Net Assets: | ||||
Series I | $ | 540,460,268 | ||
Series II | $ | 1,167,819,964 | ||
Shares outstanding, no par value, |
| |||
Series I | 16,433,707 | |||
Series II | 35,994,881 | |||
Series I: | ||||
Net asset value per share | $ | 32.89 | ||
Series II: | ||||
Net asset value per share | $ | 32.44 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $3,430,293) | $ | 42,239,847 | ||
Dividends from affiliated money market funds | 500,322 | |||
Total investment income | 42,740,169 | |||
Expenses: | ||||
Advisory fees | 12,308,024 | |||
Administrative services fees | 3,769,014 | |||
Custodian fees | 424,310 | |||
Distribution fees — Series II | 2,941,772 | |||
Transfer agent fees | 122,216 | |||
Trustees’ and officers’ fees and benefits | 47,616 | |||
Reports to shareholders | 9,112 | |||
Professional services fees | 74,867 | |||
Other | 39,986 | |||
Total expenses | 19,736,917 | |||
Less: Fees waived | (185,919 | ) | ||
Net expenses | 19,550,998 | |||
Net investment income | 23,189,171 | |||
Realized and unrealized gain (loss) from: |
| |||
Net realized gain (loss) from: | ||||
Investment securities (net of foreign taxes of $680) | (1,007,064 | ) | ||
Foreign currencies | (166,907 | ) | ||
(1,173,971 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities (net of foreign taxes of $339,801) | (36,450,746 | ) | ||
Foreign currencies | (50,488 | ) | ||
(36,501,234 | ) | |||
Net realized and unrealized gain (loss) | (37,675,205 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (14,486,034 | ) |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: | ||||||||
Net investment income | $ | 23,189,171 | $ | 21,825,023 | ||||
Net realized gain (loss) | (1,173,971 | ) | 6,174,066 | |||||
Change in net unrealized appreciation (depreciation) | (36,501,234 | ) | (80,546,010 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (14,486,034 | ) | (52,546,921 | ) | ||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (7,627,878 | ) | (9,305,810 | ) | ||||
Series ll | (14,078,193 | ) | (15,698,757 | ) | ||||
Total distributions from net investment income | (21,706,071 | ) | (25,004,567 | ) | ||||
Share transactions–net: | ||||||||
Series l | (51,402,690 | ) | (22,289,286 | ) | ||||
Series ll | 24,291,791 | 144,406,516 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (27,110,899 | ) | 122,117,230 | |||||
Net increase (decrease) in net assets | (63,303,004 | ) | 44,565,742 | |||||
Net assets: | ||||||||
Beginning of year | 1,771,583,236 | 1,727,017,494 | ||||||
End of year (includes undistributed net investment income of $12,559,820 and $11,241,353, respectively) | $ | 1,708,280,232 | $ | 1,771,583,236 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services – Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. International Growth Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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 the 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, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017.
Invesco V.I. International Growth Fund
During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $185,919.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $381,256 for accounting and fund administrative services and was reimbursed $3,387,758 for fees paid to 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, 2016, 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, 2016, 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, 2016. 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, 2016, there were transfers from Level 1 to Level 2 of $141,696,084 and from Level 2 to Level 1 of $343,913,904, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 67,102,593 | $ | — | $ | 67,102,593 | ||||||||
Brazil | — | 27,111,127 | — | 27,111,127 | ||||||||||||
Canada | 163,701,201 | — | — | 163,701,201 | ||||||||||||
China | 14,270,130 | 33,760,760 | — | 48,030,890 | ||||||||||||
Denmark | 31,157,390 | 7,239,324 | — | 38,396,714 | ||||||||||||
France | 52,740,139 | 22,972,234 | — | 75,712,373 | ||||||||||||
Germany | 35,515,936 | 129,377,172 | — | 164,893,108 | ||||||||||||
Hong Kong | — | 66,557,975 | — | 66,557,975 | ||||||||||||
Israel | 34,954,316 | — | — | 34,954,316 | ||||||||||||
Japan | 57,031,724 | 72,446,031 | — | 129,477,755 | ||||||||||||
Mexico | 46,847,171 | — | — | 46,847,171 | ||||||||||||
Netherlands | — | 16,832,241 | — | 16,832,241 | ||||||||||||
Singapore | 40,878,063 | 15,033,543 | — | 55,911,606 | ||||||||||||
South Korea | — | 15,123,833 | — | 15,123,833 |
Invesco V.I. International Growth Fund
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Spain | $ | 23,780,873 | $ | — | $ | — | $ | 23,780,873 | ||||||||
Sweden | 33,794,775 | 31,375,684 | — | 65,170,459 | ||||||||||||
Switzerland | 87,441,783 | 34,617,861 | — | 122,059,644 | ||||||||||||
Taiwan | 41,030,131 | — | — | 41,030,131 | ||||||||||||
Thailand | — | 25,327,655 | — | 25,327,655 | ||||||||||||
Turkey | 14,834,013 | — | — | 14,834,013 | ||||||||||||
United Kingdom | 61,846,983 | 292,234,431 | — | 354,081,414 | ||||||||||||
Money Market Funds | 110,477,427 | — | — | 110,477,427 | ||||||||||||
Total Investments | $ | 850,302,055 | $ | 857,112,464 | $ | — | $ | 1,707,414,519 |
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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 21,706,071 | $ | 25,004,567 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 25,659,185 | ||
Net unrealized appreciation — investments | 276,546,829 | |||
Net unrealized appreciation (depreciation) — other investments | (181,856 | ) | ||
Temporary book/tax differences | (273,088 | ) | ||
Capital loss carryforward | (43,803,564 | ) | ||
Shares of beneficial interest | 1,450,332,726 | |||
Total net assets | $ | 1,708,280,232 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales and 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 has a capital loss carryforward as of December 31, 2016, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 6,001,009 | $ | — | $ | 6,001,009 | ||||||
December 31, 2018 | 37,802,555 | — | 37,802,555 | |||||||||
$ | 43,803,564 | $ | — | $ | 43,803,564 |
* | 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, 2016 was $296,544,856 and $350,204,962, 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 | $ | 335,356,135 | ||
Aggregate unrealized (depreciation) of investment securities | (58,809,306 | ) | ||
Net unrealized appreciation of investment securities | $ | 276,546,829 |
Cost of investments for tax purposes is $1,430,867,690.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of capital loss carryforward limitations, on December 31, 2016, undistributed net investment income was decreased by $164,633, undistributed net realized gain (loss) was increased by $2,563,483 and shares of beneficial interest was decreased by $2,398,850. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,604,909 | $ | 86,162,855 | 2,880,432 | $ | 101,462,241 | ||||||||||
Series II | 8,332,304 | 275,601,981 | 9,692,762 | 342,834,084 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 219,998 | 7,587,737 | 294,235 | 9,253,708 | ||||||||||||
Series II | 413,456 | 14,078,193 | 505,433 | 15,698,757 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,361,304 | ) | (145,153,282 | ) | (3,775,855 | ) | (133,005,235 | ) | ||||||||
Series II | (8,151,842 | ) | (265,388,383 | ) | (6,163,474 | ) | (214,126,325 | ) | ||||||||
Net increase (decrease) in share activity | (942,479 | ) | $ | (27,110,899 | ) | 3,433,533 | $ | 122,117,230 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 30% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. 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 12/31/16 | $ | 33.49 | $ | 0.50 | $ | (0.63 | ) | $ | (0.13 | ) | $ | (0.47 | ) | $ | 32.89 | (0.45 | )% | $ | 540,460 | 0.95 | %(d) | 0.96 | %(d) | 1.51 | %(d) | 18 | % | |||||||||||||||||||||
Year ended 12/31/15 | 34.87 | 0.48 | (1.33 | ) | (0.85 | ) | (0.53 | ) | 33.49 | (2.34 | ) | 601,760 | 1.00 | 1.01 | 1.35 | 22 | ||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 35.32 | 0.56 | (0.44 | ) | 0.12 | (0.57 | ) | 34.87 | 0.33 | 647,530 | 1.01 | 1.02 | 1.58 | 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 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 33.04 | 0.41 | (0.62 | ) | (0.21 | ) | (0.39 | ) | 32.44 | (0.70 | ) | 1,167,820 | 1.20 | (d) | 1.21 | (d) | 1.26 | (d) | 18 | |||||||||||||||||||||||||||||
Year ended 12/31/15 | 34.42 | 0.38 | (1.31 | ) | (0.93 | ) | (0.45 | ) | 33.04 | (2.61 | ) | 1,169,823 | 1.25 | 1.26 | 1.10 | 22 | ||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 34.88 | 0.47 | (0.43 | ) | 0.04 | (0.50 | ) | 34.42 | 0.09 | 1,079,488 | 1.26 | 1.27 | 1.33 | 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 |
(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 $563,723 and $1,176,709 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 the 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 the Invesco V.I. International Growth Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,002.10 | $ | 4.48 | $ | 1,020.66 | $ | 4.52 | 0.89 | % | ||||||||||||
Series II | 1,000.00 | 1,000.60 | 5.73 | 1,019.41 | 5.79 | 1.14 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. International Growth Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2016:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0 | % | ||
U.S. Treasury Obligations* | 0 | % | ||
Foreign Taxes per share | $0.0653 | |||
Foreign Source Income per share | $0.8703 |
* | 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
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
For the year ended December 31, 2016, Series I shares of Invesco V.I. Managed Volatility Fund (the Fund) underperformed the Russell 1000 Value Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 10.61 | % | |||
Series II Shares | 10.31 | ||||
Russell 1000 Value Index▼ (Broad Market Index) | 17.34 | ||||
Bloomberg Barclays U.S. Government/Credit Index▼ (Style-Specific Index) | 3.05 | ||||
Lipper VUF Mixed-Asset Target Allocation Growth Funds Index∎ (Peer Group Index) | 6.87 | ||||
Source(s): ▼FactSet Research Systems Inc.; ∎Lipper Inc. |
Market conditions and your Fund
Stocks began the year on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets sharply lower. Markets again recovered, and major US equity indexes hit record highs during the summer. The markets turned even higher after the surprise outcome of the US presidential election. This rally was led by financials, gaining on the belief that they might benefit from higher interest rates and lower taxes. Also in November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 – its only increase during the reporting period.
For the reporting period, most US equity market indexes delivered modest gains, with value stocks, as a group, out-
performing growth stocks by a large margin, regardless of market-cap. All sectors within the Russell 1000 Value Index had positive performance, with the materials, energy, telecommunication services, industrials and financials sectors posting returns of over 20% for the reporting period.
Strong stock selection in and an overweight allocation to the financials sector was the largest contributor to the Fund’s performance versus the Russell 1000 Value Index for the year. Specifically, banks and diversified financial services companies were the Fund’s top contributors; these included Bank of America, JP Morgan Chase, Comerica, Morgan Stanley and Citizens Financial Group. These companies benefited from the strong rally in financial stocks following the election results, as investor optimism on future interest rates and the economy fueled returns.
Stock selection in and an underweight allocation to the consumer staples sector also contributed to the Fund’s relative performance. Within this sector, ADM
and Sysco were key contributors. ADM moved higher throughout the year as expectations for improvement in grain shipment volumes increased. We sold our positions in ADM and Sysco, respectively, during the reporting period to lock in gains.
Having no exposure to the real estate sector also added to the Fund’s relative returns. Although the real estate sector posted positive returns for the year, it was a bottom-performing sector within the Russell 1000 Value Index. The Fund remained materially underweight within this sector because we believed it to be overvalued, as investors drove up stock prices in a quest for yield in a low interest rate environment.
Stock selection in the telecommunication services sector hurt the Fund’s performance versus the Russell 1000 Value Index. UK-based Vodafone Group was a large detractor from Fund performance within the sector. The company underperformed as its earnings expectations were lowered. In addition, not owning AT&T hurt Fund performance, as the stock performed well for the reporting period.
Weak stock selection in the health care sector detracted from the Fund’s relative returns. Much of the Fund’s underperformance within the sector was attributed to its pharmaceutical holdings, such as Eli Lilly, Novartis, and Teva Pharmaceutical Industries. Eli Lilly’s stock declined after it was reported that its Alzheimer’s drug would not be approved by the Food and Drug Administration. Teva’s stock declined after company management announced a delay in the acquisition of a generic drug maker. We sold our position in Teva during the reporting period.
Portfolio Composition | |||
By sector | % of total net assets |
Financials | 28.7% | |
Information Technology | 12.5 | |
Health Care | 11.1 | |
Energy | 10.3 | |
Consumer Discretionary | 8.4 | |
U.S. Treasury Securities | 6.4 | |
Industrials | 6.1 | |
Consumer Staples | 4.1 | |
Telecommunication Services | 2.2 | |
Materials | 2.1 | |
Utilities | 1.5 | |
Real Estate | 1.2 | |
Money Market Funds Plus Other Assets Less Liabilities | 5.4 |
Top 10 Equity Holdings* | |||
% of total net assets | |||
1. Citigroup Inc. | 3.4% | ||
2. JPMorgan Chase & Co. | 2.9 | ||
3. Bank of America Corp. | 2.7 | ||
4. Morgan Stanley | 2.0 | ||
5. Apache Corp. | 1.7 | ||
6. Citizens Financial Group, Inc. | 1.7 | ||
7. Devon Energy Corp. | 1.5 | ||
8. Baker Hughes Inc. | 1.4 | ||
9. Royal Dutch Shell PLC-Class A | 1.4 | ||
10. Walgreens Boots Alliance, Inc. | 1.4 |
Total Net Assets | $51.6 million | |
Total Number of Holdings* | 264 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. Managed Volatility Fund
An underweight allocation to the materials sector also hurt the Fund’s relative performance. The Fund had very little exposure to metals and mining companies that, as a group, posted outsized returns during the reporting period, as metal prices recovered from the prior year’s weakness.
During the reporting period, the Fund’s allocation to high grade bonds was a valuable source of income that helped to dampen overall portfolio volatility. However, these instruments detracted from the Fund’s performance versus the Russell 1000 Value Index, as bonds underperformed equities during the reporting period. Similarly, the Fund’s allocation to convertible securities posted double-digit returns on an absolute basis, but detracted from relative performance as convertibles underperformed the Russell 1000 Value Index.
We used currency forward contracts 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 positive impact on the Fund’s performance relative to the Russell 1000 Value Index for the reporting period, largely due to the strength of the US dollar compared to the foreign currencies in which the Fund’s non-US holdings were denominated.
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 negative impact on the Fund’s performance relative to the Russell 1000 Value Index for the reporting period.
During the year, we increased our exposure to the energy and materials sectors and reduced our exposure to the consumer staples and health care sectors. At the end of the reporting period, the Fund’s largest overweight allocations relative to the Russell 1000 Value Index were in the financials and consumer discretionary sectors, while the largest underweight allocations were in the real estate and utilities sectors.
Equity markets were positive during the reporting period, but had significant volatility at times as macroeconomic events generally overshadowed company fundamentals in investors’ minds. 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. 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 lead 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 the 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. |
Brian Jurkash Portfolio Manager, is manager of Invesco V.I. Managed Volatility Fund. He joined Invesco in 2000. Mr. Jurkash | ||
earned a BBA degree in finance from Stephen F. Austin State University and an MBA in finance from the University of Houston. |
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 Chief Investment Officer of Invesco Solutions, 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. |
Matthew Titus Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Managed Volatility Fund. He joined | ||
Invesco in 2016. Mr. Titus earned a bachelor’s degree in accounting and economics from Luther College in Decorah, Iowa, and an MBA from Ohio State University. |
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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (12/30/94) | 7.35 | % | |||
10 Years | 5.69 | ||||
5 Years | 8.41 | ||||
1 Year | 10.61 | ||||
Series II Shares | |||||
Inception (4/30/04) | 9.20 | % | |||
10 Years | 5.42 | ||||
5 Years | 8.14 | ||||
1 Year | 10.31 |
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. 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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, 2018. 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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Changing fixed income market conditions risk. The current 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, near or below zero. Increases 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 market values of convertible securities are affected by market interest rates, the risk of actual issuer default on interest or principal payments and the value of the underlying common stock into which the convertible security may be converted. Additionally, a convertible security is subject to the same types of market and issuer risks as apply to the underlying common stock. In addition, certain convertible securities are subject to involuntary conversions and may undergo principal write-downs upon the occurrence of certain triggering events, and, as a result, are subject to an increased risk of loss.
Debt securities risk. The prices of debt securities held by the Fund will be affected by changes in interest rates, the creditworthiness of the issuer and other factors. An increase in prevailing interest rates typically causes the value of existing debt securities to fall and often has a greater impact on longer-duration debt securities and higher quality debt securities. Falling interest rates will cause the Fund to reinvest the proceeds of debt securities that have been repaid by the issuer at lower interest rates. Falling interest rates may also reduce the Fund’s distributable income because interest payments on floating rate debt instruments held by the Fund will decline. The Fund could lose
money on investments in debt securities if the issuer or borrower fails to meet its obligations to make interest payments and/or to repay principal in a timely manner. Changes in an issuer’s financial strength, the market’s perception of such strength or in the credit rating of the issuer or the security may affect the value of debt securities. The Adviser’s credit analysis may fail to anticipate such changes, which could result in buying a debt security at an inopportune time or failing to sell a debt security in advance of a price decline or other credit event.
Depositary receipts risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. The Fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer.
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 adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. There is no guarantee that the portfolio manager’s stock selection process will produce lower volatility than the broader markets in which the Fund invests. In addition, the Fund’s investment strategy to seek lower volatility may cause the Fund to underperform the broader markets in which the Fund invests during market rallies. Such underperformance could be significant during sudden or significant market rallies. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the
Invesco V.I. Managed Volatility Fund
value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Preferred securities risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities. Preferred securities also may be subordinated to bonds or other debt instruments, subjecting them to a greater risk of non-payment, may be less liquid than many other securities, such as common stocks, and generally offer no voting rights with respect to the issuer.
Real estate investment trust (REIT)/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. Shares of real estate related companies, which tend to be small- and mid-cap companies, may be more volatile and less liquid.
Sector focus risk. The Fund may from time to time invest a significant amount of its assets (i.e. over 25%) in one market sector or group of related industries. In this event, the Fund’s performance will depend to a greater extent on the overall condition of the sector or group of industries and there is increased risk that the Fund will lose significant value if conditions adversely affect that sector or group of industries.
Short position risk. Because the Fund’s potential loss on a short position arises from increases in the value of the asset sold short, the Fund will incur a loss on a short position, which is theoretically unlimited, if the price of the asset sold short increases from the short sale price. The counterparty to a short position or other market factors may prevent the Fund from closing out a short position at a desirable time or price and may reduce or eliminate any gain or result in a loss. In a rising market, the Fund’s short positions will cause the Fund to underperform the overall market and its peers that do not engage in shorting. If the Fund holds both long and short positions, and both positions decline simultaneously, the short positions will not provide any buffer (hedge) from declines in value of the
Fund’s long positions. Certain types of short positions involve leverage, which may exaggerate any losses, potentially more than the actual cost of the investment, and will increase the volatility of the Fund’s returns.
Small- and mid-capitalization companies risks. Small- and mid-capitalization companies tend to be more vulnerable to changing market conditions, may have little or no operating history or track record of success, and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
Value investing style risk. A value investing style subjects the Fund 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.
Volatility management risk. The Adviser’s strategy for managing portfolio volatility may not produce the desired result and 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 Adviser uses a combination of proprietary and third-party systems and risk models to help it estimate the Fund’s expected volatility, which 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.
Warrants risk. Warrants may be significantly less valuable or worth lesson their expiration date and may also be postponed or terminated early, resulting in a partial or total loss. Warrants may also be illiquid.
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 loans that periodically pay interest.
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 Bloomberg Barclays U.S. Government/Credit Index is a broad-based benchmark that includes investment-grade, US dollar-denominated, fixed-rate Treasuries, government-related and corporate securities.
The Lipper VUF Mixed-Asset Target Allocation Growth Funds Index is an unmanaged index considered representative of mixed-asset target allocation 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. Managed Volatility Fund
Schedule of Investments(a)
December 31, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–65.13% |
| |||||||
Aerospace & Defense–0.93% | ||||||||
General Dynamics Corp. | 2,786 | $ | 481,031 | |||||
Apparel, Accessories & Luxury Goods–0.52% | ||||||||
Michael Kors Holdings Ltd.(b) | 6,191 | 266,089 | ||||||
Application Software–0.51% | ||||||||
Citrix Systems, Inc.(b) | 2,950 | 263,464 | ||||||
Asset Management & Custody Banks–1.81% | ||||||||
Northern Trust Corp. | 4,649 | 413,993 | ||||||
State Street Corp. | 6,711 | 521,579 | ||||||
935,572 | ||||||||
Automobile Manufacturers–0.77% | ||||||||
General Motors Co. | 11,356 | 395,643 | ||||||
Biotechnology–0.58% | ||||||||
Amgen Inc. | 2,046 | 299,146 | ||||||
Broadcasting–0.20% | ||||||||
CBS Corp.–Class B | 1,607 | 102,237 | ||||||
Building Products–0.60% | ||||||||
Johnson Controls International PLC | 7,585 | 312,426 | ||||||
Cable & Satellite–1.57% | ||||||||
Charter Communications, Inc.–Class A(b) | 1,068 | 307,498 | ||||||
Comcast Corp.–Class A | 7,255 | 500,958 | ||||||
808,456 | ||||||||
Communications Equipment–1.99% | ||||||||
Cisco Systems, Inc. | 17,711 | 535,227 | ||||||
Juniper Networks, Inc. | 17,517 | 495,030 | ||||||
1,030,257 | ||||||||
Construction Machinery & Heavy Trucks–0.88% | ||||||||
Caterpillar Inc. | 4,924 | 456,652 | ||||||
Data Processing & Outsourced Services–0.59% | ||||||||
PayPal Holdings, Inc.(b) | 7,689 | 303,485 | ||||||
Diversified Banks–9.92% | ||||||||
Bank of America Corp. | 63,628 | 1,406,179 | ||||||
Citigroup Inc. | 29,494 | 1,752,828 | ||||||
Comerica Inc. | 6,627 | 451,365 | ||||||
JPMorgan Chase & Co. | 17,514 | 1,511,283 | ||||||
5,121,655 | ||||||||
Diversified Metals & Mining–0.50% | ||||||||
BHP Billiton Ltd. (Australia) | 14,429 | 257,575 | ||||||
Drug Retail–1.36% | ||||||||
Walgreens Boots Alliance, Inc. | 8,487 | 702,384 |
Shares | Value | |||||||
Electric Utilities–0.85% | ||||||||
FirstEnergy Corp. | 5,498 | $ | 170,273 | |||||
PG&E Corp. | 4,445 | 270,123 | ||||||
440,396 | ||||||||
Fertilizers & Agricultural Chemicals–1.52% | ||||||||
Agrium Inc. (Canada) | 2,526 | 253,989 | ||||||
Mosaic Co. (The) | 18,026 | 528,703 | ||||||
782,692 | ||||||||
Financial Exchanges & Data–0.28% | ||||||||
CME Group Inc.–Class A | 1,269 | 146,379 | ||||||
Health Care Equipment–1.40% | ||||||||
Baxter International Inc. | 7,239 | 320,977 | ||||||
Medtronic PLC | 5,654 | 402,735 | ||||||
723,712 | ||||||||
Health Care Services–0.41% | ||||||||
Express Scripts Holding Co.(b) | 3,105 | 213,593 | ||||||
Home Improvement Retail–0.50% | ||||||||
Kingfisher PLC (United Kingdom) | 60,088 | 258,824 | ||||||
Hotels, Resorts & Cruise Lines–1.17% | ||||||||
Carnival Corp. | 11,657 | 606,863 | ||||||
Industrial Conglomerates–1.16% | ||||||||
General Electric Co. | 18,949 | 598,788 | ||||||
Industrial Machinery–0.69% | ||||||||
Ingersoll-Rand PLC | 4,770 | 357,941 | ||||||
Insurance Brokers–1.88% | ||||||||
Aon PLC | 3,830 | 427,160 | ||||||
Marsh & McLennan Cos., Inc. | 3,840 | 259,546 | ||||||
Willis Towers Watson PLC | 2,340 | 286,135 | ||||||
972,841 | ||||||||
Integrated Oil & Gas–3.37% | ||||||||
Exxon Mobil Corp. | 3,454 | 311,758 | ||||||
Occidental Petroleum Corp. | 4,658 | 331,790 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 25,883 | 713,372 | ||||||
TOTAL S.A. (France) | 7,563 | 386,037 | ||||||
1,742,957 | ||||||||
Integrated Telecommunication Services–0.67% | ||||||||
Orange S.A. (France) | 5,065 | 76,858 | ||||||
Verizon Communications Inc. | 5,081 | 271,224 | ||||||
348,082 | ||||||||
Internet Software & Services–0.80% | ||||||||
eBay Inc.(b) | 13,863 | 411,592 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Shares | Value | |||||||
Investment Banking & Brokerage–3.69% | ||||||||
Charles Schwab Corp. (The) | 10,166 | $ | 401,252 | |||||
Goldman Sachs Group, Inc. (The) | 1,956 | 468,364 | ||||||
Morgan Stanley | 24,539 | 1,036,773 | ||||||
1,906,389 | ||||||||
IT Consulting & Other Services–0.34% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 3,143 | 176,102 | ||||||
Managed Health Care–0.49% | ||||||||
Anthem, Inc. | 1,771 | 254,617 | ||||||
Movies & Entertainment–0.57% | ||||||||
Time Warner Inc. | 3,048 | 294,223 | ||||||
Oil & Gas Equipment & Services–1.40% | ||||||||
Baker Hughes Inc. | 11,102 | 721,297 | ||||||
Oil & Gas Exploration & Production–4.28% | ||||||||
Apache Corp. | 13,818 | 877,029 | ||||||
Canadian Natural Resources Ltd. (Canada) | 17,479 | 556,969 | ||||||
Devon Energy Corp. | 17,004 | 776,573 | ||||||
2,210,571 | ||||||||
Other Diversified Financial Services–0.50% | ||||||||
Voya Financial, Inc. | 6,553 | 257,009 | ||||||
Packaged Foods & Meats–0.74% | ||||||||
Mondelez International, Inc.–Class A | 8,649 | 383,410 | ||||||
Pharmaceuticals–4.19% | ||||||||
Eli Lilly and Co. | 3,005 | 221,018 | ||||||
Merck & Co., Inc. | 10,879 | 640,447 | ||||||
Novartis AG (Switzerland) | 5,061 | 368,262 | ||||||
Pfizer Inc. | 18,423 | 598,379 | ||||||
Sanofi (France) | 4,132 | 334,449 | ||||||
2,162,555 | ||||||||
Railroads–0.84% | ||||||||
CSX Corp. | 12,049 | 432,921 | ||||||
Regional Banks–5.26% | ||||||||
BB&T Corp. | 5,014 | 235,758 | ||||||
Citizens Financial Group, Inc. | 24,002 | 855,191 | ||||||
Fifth Third Bancorp | 23,000 | 620,310 | ||||||
First Horizon National Corp. | 16,597 | 332,106 | ||||||
PNC Financial Services Group, Inc. (The) | 5,764 | 674,158 | ||||||
2,717,523 | ||||||||
Semiconductor Equipment–0.68% | ||||||||
Applied Materials, Inc. | 10,807 | 348,742 | ||||||
Semiconductors–1.82% | ||||||||
Intel Corp. | 10,674 | 387,146 | ||||||
QUALCOMM, Inc. | 8,459 | 551,527 | ||||||
938,673 |
Shares | Value | |||||||
Systems Software–1.80% | ||||||||
Microsoft Corp. | 5,439 | $ | 337,979 | |||||
Oracle Corp. | 15,390 | 591,746 | ||||||
929,725 | ||||||||
Tobacco–0.66% | ||||||||
Philip Morris International Inc. | 3,698 | 338,330 | ||||||
Wireless Telecommunication Services–0.44% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 9,208 | 224,951 | ||||||
Total Common Stocks & Other Equity Interests |
| 33,637,770 | ||||||
Principal Amount | ||||||||
Bonds and Notes–22.92% |
| |||||||
Aerospace & Defense–0.07% | ||||||||
Northrop Grumman Corp., Sr. Unsec. Global Notes, 3.85%, 04/15/2045 | $ | 10,000 | 9,514 | |||||
Precision Castparts Corp., Sr. Unsec. Global Notes, 1.25%, 01/15/2018 | 25,000 | 24,971 | ||||||
34,485 | ||||||||
Air Freight & Logistics–0.01% | ||||||||
United Parcel Service, Inc., Sr. Unsec. Notes, 3.40%, 11/15/2046 | 4,000 | 3,700 | ||||||
Airlines–0.12% | ||||||||
American Airlines Pass Through Trust, Series 2014-1, Class A, Sr. Sec. First Lien Pass Through Ctfs., 3.70%, 04/01/2028 | 22,135 | 22,342 | ||||||
United Airlines Pass Through Trust, Series 2014-2, Class A, Sr. Sec. First Lien Pass Through Ctfs., 3.75%, 09/03/2026 | 28,270 | 28,499 | ||||||
Virgin Australia Pass Through Trust (Australia), Series 2013-1, Class A, Sec. Gtd. Pass Through Ctfs., 5.00%, 04/23/2025(c) | 12,086 | 12,426 | ||||||
63,267 | ||||||||
Apparel Retail–0.04% | ||||||||
Ross Stores, Inc., Sr. Unsec. Notes, 3.38%, 09/15/2024 | 19,000 | 19,102 | ||||||
Application Software–0.56% | ||||||||
Citrix Systems, Inc., Sr. Unsec. Conv. Bonds, 0.50%, 04/15/2019 | 206,000 | 239,475 | ||||||
Nuance Communications, Inc., Sr. Unsec. Conv. Bonds, 1.00%, 12/15/2022(d) | 55,000 | 49,947 | ||||||
289,422 | ||||||||
Asset Management & Custody Banks–0.57% | ||||||||
Apollo Management Holdings L.P., | ||||||||
Sr. Unsec. Gtd. Notes, | 40,000 | 39,846 | ||||||
4.40%, 05/27/2026(c) | 2,000 | 2,003 | ||||||
Blackstone Holdings Finance Co. LLC, Sr. Unsec. Gtd. Notes, 5.00%, 06/15/2044(c) | 150,000 | 148,305 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Asset Management & Custody Banks–(continued) | ||||||||
Brookfield Asset Management Inc. (Canada), Sr. Unsec. Notes, 4.00%, 01/15/2025 | $ | 25,000 | $ | 24,355 | ||||
KKR Group Finance Co. III LLC, Sr. Unsec. Gtd. Bonds, 5.13%, 06/01/2044(c) | 85,000 | 81,012 | ||||||
295,521 | ||||||||
Automobile Manufacturers–0.47% | ||||||||
Ford Motor Credit Co. LLC, Sr. Unsec. Global Notes, 4.13%, 08/04/2025 | 200,000 | 201,062 | ||||||
General Motors Co., Sr. Unsec. Global Notes, 6.60%, 04/01/2036 | 16,000 | 18,118 | ||||||
General Motors Financial Co., Inc., Sr. Unsec. Gtd. Global Notes, 5.25%, 03/01/2026 | 21,000 | 21,890 | ||||||
241,070 | ||||||||
Biotechnology–0.58% | ||||||||
AbbVie Inc., Sr. Unsec. Global Notes, 4.50%, 05/14/2035 | 38,000 | 37,471 | ||||||
BioMarin Pharmaceutical Inc., Sr. Unsec. Sub. Conv. Notes, 1.50%, 10/15/2020 | 117,000 | 137,695 | ||||||
Celgene Corp., Sr. Unsec. Global Notes, 4.63%, 05/15/2044 | 100,000 | 98,201 | ||||||
Gilead Sciences, Inc., Sr. Unsec. Global Notes, 4.40%, 12/01/2021 | 25,000 | 26,905 | ||||||
300,272 | ||||||||
Brewers–0.35% | ||||||||
Anheuser-Busch InBev Finance, Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, 2.65%, 02/01/2021 | 30,000 | 30,139 | ||||||
3.30%, 02/01/2023 | 25,000 | 25,462 | ||||||
4.70%, 02/01/2036 | 45,000 | 47,429 | ||||||
4.90%, 02/01/2046 | 47,000 | 50,973 | ||||||
Molson Coors Brewing Co., Sr. Unsec. Gtd. Global Notes, | 13,000 | 12,807 | ||||||
4.20%, 07/15/2046 | 16,000 | 14,965 | ||||||
181,775 | ||||||||
Broadcasting–0.74% | ||||||||
Liberty Media Corp., | ||||||||
Sr. Unsec. Conv. Deb., 2.25%, 10/05/2021(c)(d) | 55,000 | 58,231 | ||||||
REGS, Sr. Unsec. Conv. Notes, 1.38%, 10/15/2023(c) | 299,000 | 322,546 | ||||||
380,777 | ||||||||
Cable & Satellite–1.09% | ||||||||
Charter Communications Operating, | 60,000 | 62,989 | ||||||
Comcast Corp., Sr. Unsec. Gtd. Global Notes, 5.70%, 05/15/2018 | 150,000 | 158,350 | ||||||
Cox Communications, Inc., Sr. Unsec. Notes, 8.38%, 03/01/2039(c) | 150,000 | 186,826 |
Principal Amount | Value | |||||||
Cable & Satellite–(continued) | ||||||||
Dish Network Corp., Sr. Unsec. Conv. Notes, 3.38%, 08/15/2026(c) | $ | 136,000 | $ | 155,465 | ||||
563,630 | ||||||||
Communications Equipment–0.61% | ||||||||
Ciena Corp., Sr. Unsec. Conv. Notes, 4.00%, 12/15/2020(c) | 75,000 | 105,000 | ||||||
Finisar Corp., Sr. Unsec. Conv. Notes, 0.50%, 12/15/2021(c)(d) | 39,000 | 39,415 | ||||||
Viavi Solutions Inc., Sr. Unsec. Conv. Deb., 0.63%, 08/15/2018(d) | 167,000 | 173,471 | ||||||
317,886 | ||||||||
Construction & Engineering–0.04% | ||||||||
Valmont Industries, Inc., Sr. Unsec. Gtd. Global Notes, 5.25%, 10/01/2054 | 22,000 | 19,184 | ||||||
Construction Machinery & Heavy Trucks–0.14% | ||||||||
Caterpillar Financial Services Corp., Sr. Unsec. Notes, 1.75%, 03/24/2017 | 70,000 | 70,110 | ||||||
Consumer Finance–0.03% | ||||||||
American Express Co., Unsec. Sub. Global Notes, 3.63%, 12/05/2024 | 18,000 | 18,142 | ||||||
Data Processing & Outsourced Services–0.30% | ||||||||
Blackhawk Network Holdings, Inc., Sr. Unsec. Conv. Notes, 1.50%, 01/15/2022(c) | 119,000 | 122,570 | ||||||
Visa Inc., Sr. Unsec. Global Notes, 4.15%, 12/14/2035 | 30,000 | 31,381 | ||||||
153,951 | ||||||||
Diversified Banks–1.21% | ||||||||
Bank of America Corp., | ||||||||
Sr. Unsec. Medium-Term Global Notes, 3.50%, 04/19/2026 | 25,000 | 24,677 | ||||||
Sr. Unsec. Medium-Term Notes, 3.25%, 10/21/2027 | 10,000 | 9,562 | ||||||
Citigroup Inc., Unsec. Sub. Notes, 4.00%, 08/05/2024 | 60,000 | 60,233 | ||||||
4.75%, 05/18/2046 | 15,000 | 15,031 | ||||||
JPMorgan Chase & Co., | ||||||||
Sr. Unsec. Global Notes, 3.20%, 06/15/2026 | 15,000 | 14,623 | ||||||
Unsec. Sub. Global Notes, 4.25%, 10/01/2027 | 15,000 | 15,384 | ||||||
Series V, Jr. Unsec. Sub. Global Notes, 5.00%(e) | 150,000 | 150,375 | ||||||
Series Z, Jr. Unsec. Sub. Global Notes, 5.30%(e) | 40,000 | 41,000 | ||||||
U.S. Bancorp, Series W, Unsec. Sub. Medium-Term Notes, 3.10%, 04/27/2026 | 10,000 | 9,727 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
Wells Fargo & Co., | ||||||||
Sr. Unsec. Medium-Term Notes, 3.55%, 09/29/2025 | $ | 30,000 | $ | 29,877 | ||||
Sr. Unsec. Notes, 3.90%, 05/01/2045 | 60,000 | 56,640 | ||||||
Unsec. Sub. Medium-Term Notes, 4.10%, 06/03/2026 | 95,000 | 96,559 | ||||||
4.65%, 11/04/2044 | 100,000 | 99,202 | ||||||
622,890 | ||||||||
Diversified Chemicals–0.08% | ||||||||
Eastman Chemical Co., Sr. Unsec. Global Notes, 2.70%, 01/15/2020 | 43,000 | 43,150 | ||||||
Diversified REIT’s–0.03% | ||||||||
Spirit Realty, L.P., Sr. Unsec. Gtd. Notes, 4.45%, 09/15/2026(c) | 18,000 | 16,896 | ||||||
Drug Retail–0.17% | ||||||||
CVS Health Corp., Sr. Unsec. Global Bonds, 3.38%, 08/12/2024 | 20,000 | 20,053 | ||||||
Walgreens Boots Alliance Inc., Sr. Unsec. Global Notes, | ||||||||
3.30%, 11/18/2021 | 32,000 | 32,607 | ||||||
3.10%, 06/01/2023 | 11,000 | 10,921 | ||||||
4.50%, 11/18/2034 | 24,000 | 24,079 | ||||||
87,660 | ||||||||
Electrical Components & Equipment–0.18% | ||||||||
Eaton Corp., Sr. Unsec. Gtd. Global Notes, 1.50%, 11/02/2017 | 95,000 | 95,101 | ||||||
Environmental & Facilities Services–0.05% | ||||||||
Waste Management, Inc., Sr. Unsec. Gtd. Global Notes, 3.90%, 03/01/2035 | 25,000 | 24,829 | ||||||
Fertilizers & Agricultural Chemicals–0.03% | ||||||||
Monsanto Co., Sr. Unsec. Global Notes, 2.13%, 07/15/2019 | 15,000 | 14,966 | ||||||
General Merchandise Stores–0.04% | ||||||||
Dollar General Corp., Sr. Unsec. Global Notes, 3.25%, 04/15/2023 | 20,000 | 19,814 | ||||||
Health Care Equipment–1.02% | ||||||||
Becton, Dickinson and Co., | ||||||||
Sr. Unsec. Global Notes, 4.88%, 05/15/2044 | 170,000 | 178,239 | ||||||
Sr. Unsec. Notes, | 15,000 | 15,229 | ||||||
Medtronic, Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
3.15%, 03/15/2022 | 58,000 | 59,315 | ||||||
4.38%, 03/15/2035 | 20,000 | 21,141 | ||||||
NuVasive, Inc., Sr. Unsec. Conv. Notes, 2.25%, 03/15/2021(c) | 80,000 | 101,950 | ||||||
Wright Medical Group N.V., Sr. Unsec. Conv. Notes, 2.25%, 11/15/2021(c) | 39,000 | 48,823 | ||||||
Wright Medical Group, Inc., Sr. Unsec. Conv. Bonds, 2.00%, 02/15/2020 | 99,000 | 103,641 | ||||||
528,338 |
Principal Amount | Value | |||||||
Health Care Facilities–0.86% | ||||||||
Brookdale Senior Living Inc., Sr. Unsec. Conv. Notes, 2.75%, 06/15/2018 | $ | 173,000 | $ | 168,999 | ||||
HealthSouth Corp., Sr. Unsec. Sub. Conv. Notes, 2.00%, 12/01/2020(d) | 232,000 | 275,790 | ||||||
444,789 | ||||||||
Health Care REIT’s–0.05% | ||||||||
HCP, Inc., Sr. Unsec. Global Notes, 3.88%, 08/15/2024 | 25,000 | 24,853 | ||||||
Health Care Services–0.16% | ||||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Global Notes, 2.25%, 06/15/2019 | 30,000 | 30,009 | ||||||
Laboratory Corp. of America Holdings, | ||||||||
Sr. Unsec. Notes, | 33,000 | 33,170 | ||||||
4.70%, 02/01/2045 | 22,000 | 21,753 | ||||||
84,932 | ||||||||
Home Improvement Retail–0.05% | ||||||||
Home Depot, Inc. (The), Sr. Unsec. Global Notes, 2.00%, 04/01/2021 | 27,000 | 26,816 | ||||||
Housewares & Specialties–0.02% | ||||||||
Newell Brands Inc., Sr. Unsec. Global Notes, 5.50%, 04/01/2046 | 9,000 | 10,354 | ||||||
Hypermarkets & Super Centers–0.20% | ||||||||
Wal-Mart Stores, Inc., Sr. Unsec. Notes, 5.52%, 06/01/2017(f) | 100,000 | 101,562 | ||||||
Integrated Oil & Gas–0.28% | ||||||||
Chevron Corp., Sr. Unsec. Global Notes, 1.37%, 03/02/2018 | 77,000 | 77,288 | ||||||
Occidental Petroleum Corp., Sr. Unsec. Global Notes, 3.40%, 04/15/2026 | 15,000 | 15,113 | ||||||
Shell International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Notes, 4.00%, 05/10/2046 | 37,000 | 35,380 | ||||||
Suncor Energy Inc. (Canada), Sr. Unsec. Notes, 3.60%, 12/01/2024 | 18,000 | 18,329 | ||||||
146,110 | ||||||||
Integrated Telecommunication Services–1.06% | ||||||||
AT&T Inc., Sr. Unsec. Global Notes, | ||||||||
3.00%, 06/30/2022 | 28,000 | 27,486 | ||||||
3.40%, 05/15/2025 | 15,000 | 14,422 | ||||||
4.50%, 05/15/2035 | 25,000 | 24,201 | ||||||
5.15%, 03/15/2042 | 150,000 | 149,721 | ||||||
4.80%, 06/15/2044 | 40,000 | 37,995 | ||||||
Telefonica Emisiones S.A.U. (Spain), Sr. Unsec. Gtd. Global Notes, 7.05%, 06/20/2036 | 150,000 | 174,231 | ||||||
Verizon Communications Inc., Sr. Unsec. Global Notes, 4.40%, 11/01/2034 | 120,000 | 118,349 | ||||||
546,405 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Internet & Direct Marketing Retail–0.50% | ||||||||
Amazon.com, Inc., Sr. Unsec. Global Notes, 4.80%, 12/05/2034 | $ | 9,000 | $ | 9,905 | ||||
Ctrip.com International, Ltd. (China), Sr. Unsec. Conv. Notes, 1.25%, 09/15/2019(c)(d) | 113,000 | 109,327 | ||||||
Liberty Interactive LLC, Sr. Unsec. Conv. Deb., 1.75%, 10/05/2023(c)(d) | 85,000 | 91,800 | ||||||
QVC, Inc., Sr. Sec. Gtd. First Lien Global Notes, 5.45%, 08/15/2034 | 50,000 | 45,450 | ||||||
256,482 | ||||||||
Investment Banking & Brokerage–0.90% | ||||||||
Goldman Sachs Group, Inc. (The), Unsec. Sub. Notes, 4.25%, 10/21/2025 | 27,000 | 27,425 | ||||||
Jefferies Group LLC, Sr. Unsec. Conv. Deb., 3.88%, 11/01/2017(d) | 161,000 | 163,214 | ||||||
Lazard Group LLC, Sr. Unsec. Global Notes, 3.75%, 02/13/2025 | 62,000 | 60,683 | ||||||
Morgan Stanley, Sr. Unsec. Medium-Term Global Notes, | ||||||||
2.38%, 07/23/2019 | 175,000 | 175,595 | ||||||
4.00%, 07/23/2025 | 35,000 | 35,802 | ||||||
462,719 | ||||||||
Life & Health Insurance–0.27% | ||||||||
Jackson National Life Global Funding, Sr. Sec. Notes, 2.10%, 10/25/2021(c) | 10,000 | 9,758 | ||||||
Nationwide Financial Services Inc., Sr. Unsec. Notes, 5.30%, 11/18/2044(c) | 50,000 | 51,427 | ||||||
Prudential Financial, Inc., Series D, Sr. Unsec. Medium-Term Notes, 6.00%, 12/01/2017 | 55,000 | 57,161 | ||||||
Reliance Standard Life Global Funding II, Sr. Sec. First Lien Notes, 3.05%, 01/20/2021(c) | 20,000 | 20,171 | ||||||
138,517 | ||||||||
Managed Health Care–0.03% | ||||||||
Aetna Inc., Sr. Unsec. Global Notes, 4.38%, 06/15/2046 | 14,000 | 14,042 | ||||||
Movies & Entertainment–0.13% | ||||||||
Live Nation Entertainment, Inc., Sr. Unsec. Conv. Bonds, 2.50%, 05/15/2019 | 61,000 | 65,308 | ||||||
Multi-Line Insurance–0.82% | ||||||||
American Financial Group, Inc., Sr. Unsec. Notes, 9.88%, 06/15/2019 | 150,000 | 175,886 | ||||||
American International Group, Inc., Sr. Unsec. Global Notes, | ||||||||
2.30%, 07/16/2019 | 20,000 | 20,117 | ||||||
4.38%, 01/15/2055 | 40,000 | 36,902 | ||||||
Farmers Exchange Capital III, Unsec. Sub. Notes, 5.45%, 10/15/2054(c) | 70,000 | 69,034 | ||||||
New York Life Global Funding, Sec. Notes, 1.65%, 05/15/2017(c) | 120,000 | 120,300 | ||||||
422,239 |
Principal Amount | Value | |||||||
Multi-Utilities–0.38% | ||||||||
Enable Midstream Partners, LP, Sr. Unsec. Global Notes, 2.40%, 05/15/2019 | $ | 200,000 | $ | 196,578 | ||||
Office REIT’s–0.29% | ||||||||
Highwoods Realty L.P., Sr. Unsec. Notes, 3.20%, 06/15/2021 | 150,000 | 150,374 | ||||||
Oil & Gas Drilling–0.15% | ||||||||
Ensco Jersey Finance Ltd., Sr. Unsec. Gtd. Sub. Conv. Notes, 3.00%, 01/31/2024(c) | 73,000 | 75,464 | ||||||
Oil & Gas Equipment & Services–0.32% | ||||||||
Helix Energy Solutions Group, Inc., Sr. Unsec. Conv. Notes, 4.25%, 05/01/2022 | 40,000 | 41,525 | ||||||
Weatherford International Ltd., Sr. Unsec. Gtd. Conv. Notes, 5.88%, 07/01/2021 | 114,000 | 123,975 | ||||||
165,500 | ||||||||
Oil & Gas Exploration & Production–0.33% | ||||||||
Anadarko Petroleum Corp., Sr. Unsec. Notes, | ||||||||
4.85%, 03/15/2021 | 11,000 | 11,774 | ||||||
6.60%, 03/15/2046 | 18,000 | 22,290 | ||||||
Chesapeake Energy Corp., Sr. Unsec. Gtd. Conv. Notes, 5.50%, 09/15/2026(c) | 37,000 | 40,238 | ||||||
ConocoPhillips Co., Sr. Unsec. Gtd. Global Notes, | ||||||||
2.88%, 11/15/2021 | 46,000 | 46,522 | ||||||
4.15%, 11/15/2034 | 49,000 | 48,286 | ||||||
169,110 | ||||||||
Oil & Gas Storage & Transportation–0.15% | ||||||||
Enbridge Inc. (Canada), Sr. Unsec. Global Notes, 5.50%, 12/01/2046 | 16,000 | 17,240 | ||||||
Energy Transfer Partners, L.P., Sr. Unsec. Notes, 4.90%, 03/15/2035 | 19,000 | 17,923 | ||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Notes, 2.55%, 10/15/2019 | 20,000 | 20,324 | ||||||
Kinder Morgan Inc., Sr. Unsec. Gtd. Notes, 5.30%, 12/01/2034 | 23,000 | 23,544 | ||||||
79,031 | ||||||||
Other Diversified Financial Services–0.16% | ||||||||
Athene Global Funding, Sec. Notes, 2.88%, 10/23/2018(c) | 31,000 | 31,002 | ||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 2.35%, 10/15/2019(c) | 50,000 | 49,977 | ||||||
80,979 | ||||||||
Packaged Foods & Meats–0.52% | ||||||||
General Mills, Inc., Sr. Unsec. Global Notes, 2.20%, 10/21/2019 | 45,000 | 45,210 | ||||||
Kellogg Co., Sr. Unsec. Global Notes, 1.75%, 05/17/2017 | 125,000 | 125,167 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Packaged Foods & Meats–(continued) | ||||||||
Kraft Heinz Foods Co. (The), Sr. Unsec. Gtd. Global Notes, | ||||||||
2.25%, 06/05/2017 | $ | 30,000 | $ | 30,078 | ||||
1.60%, 06/30/2017 | 56,000 | 56,007 | ||||||
Mead Johnson Nutrition Co., Sr. Unsec. Global Notes, 4.13%, 11/15/2025 | 3,000 | 3,067 | ||||||
Tyson Foods, Inc., Sr. Unsec. Gtd. Global Bonds, 4.88%, 08/15/2034 | 11,000 | 11,305 | ||||||
270,834 | ||||||||
Pharmaceuticals–1.32% | ||||||||
Actavis Funding SCS, Sr. Unsec. Gtd. Global Notes, | ||||||||
1.85%, 03/01/2017 | 49,000 | 49,002 | ||||||
4.85%, 06/15/2044 | 150,000 | 149,660 | ||||||
Bayer US Finance LLC (Germany), Sr. Unsec. Gtd. Notes, 3.00%, 10/08/2021(c) | 200,000 | 201,239 | ||||||
GlaxoSmithKline Capital PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 1.50%, 05/08/2017 | 110,000 | 110,149 | ||||||
Jazz Investments I Ltd., Sr. Unsec. Gtd. Conv. Bonds, 1.88%, 08/15/2021 | 76,000 | 73,198 | ||||||
Medicines Co. (The), Sr. Unsec. Conv. Notes, 2.75%, 07/15/2023(c) | 37,000 | 35,774 | ||||||
Mylan N.V., Sr. Unsec. Gtd. Notes, | ||||||||
3.15%, 06/15/2021(c) | 17,000 | 16,678 | ||||||
5.25%, 06/15/2046(c) | 25,000 | 23,176 | ||||||
Teva Pharmaceutical Finance Netherlands III B.V. (Israel), Sr. Unsec. Gtd. Global Notes, | ||||||||
2.80%, 07/21/2023 | 14,000 | 13,180 | ||||||
4.10%, 10/01/2046 | 13,000 | 11,167 | ||||||
683,223 | ||||||||
Property & Casualty Insurance–0.38% | ||||||||
Allstate Corp. (The), Sr. Unsec. Bonds, 3.28%, 12/15/2026 | 10,000 | 10,038 | ||||||
Liberty Mutual Group Inc., Sr. Unsec. Gtd. Bonds, 4.85%, 08/01/2044(c) | 115,000 | 113,594 | ||||||
Old Republic International Corp., Sr. Unsec. Conv. Notes, 3.75%, 03/15/2018 | 59,000 | 74,119 | ||||||
197,751 | ||||||||
Railroads–0.05% | ||||||||
Union Pacific Corp., Sr. Unsec. Notes, 4.15%, 01/15/2045 | 25,000 | 25,196 | ||||||
Regional Banks–0.03% | ||||||||
Citizens Financial Group, Inc., Sr. Unsec. Global Notes, 2.38%, 07/28/2021 | 15,000 | 14,710 | ||||||
Renewable Electricity–0.29% | ||||||||
Oglethorpe Power Corp., Sr. Sec. First Mortgage Bonds, 4.55%, 06/01/2044 | 150,000 | 149,609 | ||||||
Research & Consulting Services–0.02% | ||||||||
Verisk Analytics, Inc., Sr. Unsec. Global Notes, 5.50%, 06/15/2045 | 10,000 | 10,592 |
Principal Amount | Value | |||||||
Retail REIT’s–0.29% | ||||||||
Realty Income Corp., Sr. Unsec. Notes, 2.00%, 01/31/2018 | $ | 150,000 | $ | 150,436 | ||||
Semiconductor Equipment–0.47% | ||||||||
Lam Research Corp., Series B, Sr. Unsec. Conv. Notes, 1.25%, 05/15/2018 | 139,000 | 244,553 | ||||||
Semiconductors–0.97% | ||||||||
Intel Corp., Sr. Unsec. Global Notes, 1.35%, 12/15/2017 | 30,000 | 30,054 | ||||||
Microchip Technology Inc., Sr. Unsec. Sub. Conv. Bonds, 1.63%, 02/15/2025 | 93,000 | 120,900 | ||||||
Micron Technology, Inc., Series G, Sr. Unsec. Conv. Global Bonds, 3.00%, 11/15/2028(d) | 238,000 | 237,554 | ||||||
ON Semiconductor Corp., Sr. Unsec. Gtd. Conv. Bonds, 1.00%, 12/01/2020 | 108,000 | 111,172 | ||||||
499,680 | ||||||||
Specialized Finance–0.42% | ||||||||
Air Lease Corp., Sr. Unsec. Global Notes, | ||||||||
2.63%, 09/04/2018 | 45,000 | 45,197 | ||||||
3.00%, 09/15/2023 | 24,000 | 22,852 | ||||||
4.25%, 09/15/2024 | 35,000 | 35,656 | ||||||
Aviation Capital Group Corp., | ||||||||
Sr. Unsec. Notes, | ||||||||
2.88%, 09/17/2018(c) | 35,000 | 35,392 | ||||||
4.88%, 10/01/2025(c) | 40,000 | 42,848 | ||||||
National Rural Utilities Cooperative Finance Corp. (The), Sr. Unsec. Medium-Term Notes, 0.95%, 04/24/2017 | 35,000 | 34,977 | ||||||
216,922 | ||||||||
Specialized REIT’s–0.51% | ||||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. First Lien Notes, 4.88%, 08/15/2040(c) | 178,000 | 189,768 | ||||||
EPR Properties, Sr. Unsec. Gtd. Global Notes, 4.75%, 12/15/2026 | 75,000 | 74,325 | ||||||
264,093 | ||||||||
Systems Software–0.40% | ||||||||
FireEye, Inc., | 51,000 | 47,366 | ||||||
Series B, Sr. Unsec. Conv. Bonds, 1.63%, 06/01/2022(d) | 51,000 | 46,187 | ||||||
Microsoft Corp., Sr. Unsec. Global Notes, 3.50%, 02/12/2035 | 37,000 | 35,402 | ||||||
Oracle Corp., Sr. Unsec. Global Notes, | ||||||||
1.90%, 09/15/2021 | 50,000 | 48,875 | ||||||
4.30%, 07/08/2034 | 30,000 | 30,981 | ||||||
208,811 | ||||||||
Technology Distributors–0.06% | ||||||||
Avnet, Inc., Sr. Unsec. Global Notes, 4.63%, 04/15/2026 | 30,000 | 29,160 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Technology Hardware, Storage & Peripherals–0.60% | ||||||||
Apple Inc., Sr. Unsec. Global Notes, 2.15%, 02/09/2022 | $ | 39,000 | $ | 38,205 | ||||
Diamond 1 Finance Corp./Diamond 2 Finance Corp., Sr. Sec. Gtd. First Lien Notes, 5.45%, 06/15/2023(c) | 26,000 | 27,674 | ||||||
NetApp, Inc., Sr. Unsec. Global Notes, 3.38%, 06/15/2021 | 25,000 | 25,315 | ||||||
SanDisk Corp., Sr. Unsec. Gtd. Conv. Bonds, 0.50%, 10/15/2020 | 140,000 | 127,939 | ||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. Global Bonds, | ||||||||
4.75%, 01/01/2025 | 65,000 | 61,628 | ||||||
5.75%, 12/01/2034 | 37,000 | 31,635 | ||||||
312,396 | ||||||||
Thrifts & Mortgage Finance–0.77% | ||||||||
MGIC Investment Corp., Sr. Unsec. Conv. Notes, | ||||||||
5.00%, 05/01/2017 | 173,000 | 177,001 | ||||||
2.00%, 04/01/2020 | 42,000 | 62,475 | ||||||
Radian Group Inc., Sr. Unsec. Conv. Notes, | ||||||||
3.00%, 11/15/2017 | 73,000 | 111,964 | ||||||
2.25%, 03/01/2019 | 28,000 | 46,182 | ||||||
397,622 | ||||||||
Tobacco–0.13% | ||||||||
Philip Morris International Inc., | ||||||||
Sr. Unsec. Global Bonds, | ||||||||
1.25%, 08/11/2017 | 11,000 | 11,008 | ||||||
Sr. Unsec. Global Notes, | ||||||||
1.63%, 03/20/2017 | 55,000 | 55,054 | ||||||
66,062 | ||||||||
Wireless Telecommunication Services–0.05% | ||||||||
Vodafone Group PLC (United Kingdom), Sr. Unsec. Global Notes, 1.63%, 03/20/2017 | 25,000 | 25,010 | ||||||
Total Bonds and Notes | 11,834,762 |
Principal Amount | Value | |||||||
U.S. Treasury Securities–6.41% |
| |||||||
U.S. Treasury Notes–6.39% | ||||||||
0.50%, 04/30/2017 | $ | 500,000 | $ | 499,991 | ||||
1.00%, 11/30/2018 | 2,403,000 | 2,395,089 | ||||||
1.38%, 12/15/2019 | 235,000 | 234,329 | ||||||
1.75%, 11/30/2021 | 7,900 | 7,834 | ||||||
2.13%, 11/30/2023 | 151,000 | 149,834 | ||||||
2.00%, 11/15/2026 | 13,700 | 13,162 | ||||||
3,300,239 | ||||||||
U.S. Treasury Bonds–0.02% | ||||||||
2.25%, 08/15/2046 | 10,400 | 8,723 | ||||||
Total U.S. Treasury Securities |
| 3,308,962 | ||||||
Shares | ||||||||
Preferred Stocks–0.18% |
| |||||||
Asset Management & Custody Banks–0.18% | ||||||||
AMG Capital Trust II, $2.58 Jr. Unsec. Gtd. Sub. Conv. Pfd. | 1,700 | 93,235 | ||||||
Money Market Funds–5.36% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(g) | 1,662,182 | 1,662,182 | ||||||
Treasury Portfolio–Institutional Class, 0.37%(g) | 1,108,122 | 1,108,122 | ||||||
Total Money Market Funds | 2,770,304 | |||||||
TOTAL INVESTMENTS–100.00% |
| 51,645,033 | ||||||
OTHER ASSETS LESS LIABILITIES–0.00% |
| 46 | ||||||
NET ASSETS–100.00% |
| $ | 51,645,079 |
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Conv. | – Convertible | |
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred |
REGS | – Regulation S | |
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, 2016 was $2,795,955, which represented 5.41% 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) | Step coupon bond. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. |
(g) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: | ||||
Investments, at value (Cost $43,566,490) | $ | 48,874,729 | ||
Investments in affiliated money market funds, at value and cost | 2,770,304 | |||
Total investments, at value (Cost $46,336,794) | 51,645,033 | |||
Foreign currencies, at value (Cost $38,827) | 38,961 | |||
Receivable for: | ||||
Investments sold | 21,632 | |||
Fund shares sold | 136,803 | |||
Dividends and interest | 157,819 | |||
Investment for trustee deferred compensation and retirement plans | 66,140 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 53,495 | |||
Other assets | 4,055 | |||
Total assets | 52,123,938 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 134,861 | |||
Fund shares reacquired | 191,539 | |||
Accrued fees to affiliates | 39,264 | |||
Accrued trustees’ and officers’ fees and benefits | 401 | |||
Accrued other operating expenses | 42,184 | |||
Trustee deferred compensation and retirement plans | 70,610 | |||
Total liabilities | 478,859 | |||
Net assets applicable to shares outstanding | $ | 51,645,079 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 47,284,084 | ||
Undistributed net investment income | 420,045 | |||
Undistributed net realized gain (loss) | (1,420,634 | ) | ||
Net unrealized appreciation | 5,361,584 | |||
$ | 51,645,079 | |||
Net Assets: | ||||
Series I | $ | 50,182,673 | ||
Series II | $ | 1,462,406 | ||
Shares outstanding, no par value, with an unlimited number of shares authorized: |
| |||
Series I | 4,192,616 | |||
Series II | 123,503 | |||
Series I: | ||||
Net asset value per share | $ | 11.97 | ||
Series II: | ||||
Net asset value per share | $ | 11.84 |
Investment income: | ||||
Dividends (net of foreign withholding taxes of $19,018) | $ | 808,928 | ||
Dividends from affiliated money market funds | 9,441 | |||
Interest | 385,025 | |||
Total investment income | 1,203,394 | |||
Expenses: | ||||
Advisory fees | 298,982 | |||
Administrative services fees | 144,209 | |||
Custodian fees | 17,167 | |||
Distribution fees — Series II | 3,545 | |||
Transfer agent fees | 21,877 | |||
Trustees’ and officers’ fees and benefits | 20,486 | |||
Reports to shareholders | 10,301 | |||
Professional services fees | 49,342 | |||
Other | 15,091 | |||
Total expenses | 581,000 | |||
Less: Fees waived | (3,446 | ) | ||
Net expenses | 577,554 | |||
Net investment income | 625,840 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 427,466 | |||
Foreign currencies | (835 | ) | ||
Forward foreign currency contracts | 147,944 | |||
Futures contracts | (1,760,993 | ) | ||
(1,186,418 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities | 5,440,719 | |||
Foreign currencies | 674 | |||
Forward foreign currency contracts | 24,605 | |||
Futures contracts | 224 | |||
5,466,222 | ||||
Net realized and unrealized gain | 4,279,804 | |||
Net increase in net assets resulting from operations | $ | 4,905,644 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: | ||||||||
Net investment income | $ | 625,840 | $ | 693,062 | ||||
Net realized gain (loss) | (1,186,418 | ) | 1,602,685 | |||||
Change in net unrealized appreciation (depreciation) | 5,466,222 | (3,511,913 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 4,905,644 | (1,216,166 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (906,262 | ) | (883,070 | ) | ||||
Series ll | (22,509 | ) | (18,185 | ) | ||||
Total distributions from net investment income | (928,771 | ) | (901,255 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (1,460,269 | ) | (22,008,256 | ) | ||||
Series ll | (42,846 | ) | (561,485 | ) | ||||
Total distributions from net realized gains | (1,503,115 | ) | (22,569,741 | ) | ||||
Share transactions–net: | ||||||||
Series l | (4,579,259 | ) | 5,715,114 | |||||
Series ll | (110,167 | ) | 321,994 | |||||
Net increase (decrease) in net assets resulting from share transactions | (4,689,426 | ) | 6,037,108 | |||||
Net increase (decrease) in net assets | (2,215,668 | ) | (18,650,054 | ) | ||||
Net assets: | ||||||||
Beginning of year | 53,860,747 | 72,510,801 | ||||||
End of year (includes undistributed net investment income of $420,045 and $779,551, respectively) | $ | 51,645,079 | $ | 53,860,747 |
Notes to Financial Statements
December 31, 2016
NOTE 1—Significant Accounting Policies
Invesco V.I. Managed Volatility 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 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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Managed Volatility Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. Managed Volatility Fund
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. 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 the 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 |
Invesco V.I. Managed Volatility 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. | 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 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $3,446.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $50,000 for accounting and fund administrative services and was reimbursed $94,209 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $82 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, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interests | $ | 31,945,104 | $ | 1,692,666 | $ | — | $ | 33,637,770 | ||||||||
Bonds and Notes | — | 11,834,762 | — | 11,834,762 | ||||||||||||
U.S. Treasury Securities | — | 3,308,962 | — | 3,308,962 | ||||||||||||
Preferred Stocks | — | 93,235 | — | 93,235 | ||||||||||||
Money Market Funds | 2,770,304 | — | — | 2,770,304 | ||||||||||||
34,715,408 | 16,929,625 | — | 51,645,033 | |||||||||||||
Forward Foreign Currency Contracts* | — | 53,495 | — | 53,495 | ||||||||||||
Total Investments | $ | 34,715,408 | $ | 16,983,120 | $ | — | $ | 51,698,528 |
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
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, 2016:
Value | ||||
Derivative Assets | Currency Risk | |||
Unrealized appreciation on forward foreign currency contracts outstanding | $ | 53,495 | ||
Derivatives not subject to master netting agreements | — | |||
Total derivative assets subject to master netting agreements | $ | 53,495 |
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement Date | Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | AUD | 142,481 | USD | 106,788 | $ | 102,765 | $ | 4,023 | |||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | CAD | 290,080 | USD | 221,202 | 216,077 | 5,125 | |||||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | CHF | 133,270 | USD | 132,152 | 131,082 | 1,070 | |||||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | EUR | 294,720 | USD | 314,280 | 310,569 | 3,711 | |||||||||||||||||||
01/20/17 | Bank of New York Mellon (The) | GBP | 350,898 | USD | 445,669 | 432,815 | 12,854 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | AUD | 142,347 | USD | 106,716 | 102,668 | 4,048 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | CAD | 290,136 | USD | 221,203 | 216,119 | 5,084 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | CHF | 133,191 | USD | 132,036 | 131,005 | 1,031 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | EUR | 295,111 | USD | 314,712 | 310,981 | 3,731 | |||||||||||||||||||
01/20/17 | State Street Bank and Trust Co. | GBP | 350,948 | USD | 445,695 | 432,877 | 12,818 | |||||||||||||||||||
Total open forward foreign currency contracts — currency risk | $ | 53,495 |
Currency Abbreviations:
AUD | – Australian Dollar | |
EUR | – Euro | |
CAD | – Canadian Dollar | |
GBP | – British Pound Sterling | |
CHF | – Swiss Franc | |
USD | – U.S. Dollar |
Invesco V.I. Managed Volatility Fund
Offsetting Assets and Liabilities
The table below reflects the Fund’s exposure to Counterparties subject to either an ISDA Master Agreement or other agreement for OTC derivative transactions as of December 31, 2016.
Financial Derivative Assets | Financial Derivative Liabilities | Net Value of Derivatives | Collateral (Received)/Pledged | Net Amount | ||||||||||||||||||||
Counterparty | Forward Foreign Currency Contracts | Forward Foreign Currency Contracts | Non-Cash | Cash | ||||||||||||||||||||
Bank of New York Mellon (The) | $ | 26,783 | $ | — | $ | 26,783 | $ | — | $ | — | $ | 26,783 | ||||||||||||
State Street Bank and Trust Co. | 26,712 | — | 26,712 | — | — | 26,712 | ||||||||||||||||||
Total | $ | 53,495 | $ | — | $ | 53,495 | $ | — | $ | — | $ | 53,495 |
Effect of Derivative Investments for the year ended December 31, 2016
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 | ||||||||||||
Currency Risk | Interest Rate Risk | Total | ||||||||||
Realized Gain (Loss): | ||||||||||||
Forward foreign currency contracts | $ | 147,944 | $ | — | $ | 147,944 | ||||||
Futures contracts | — | (1,760,993 | ) | (1,760,993 | ) | |||||||
Change in Net Unrealized Appreciation: | ||||||||||||
Forward foreign currency contracts | 24,605 | — | 24,605 | |||||||||
Futures contracts | — | 224 | 224 | |||||||||
Total | $ | 172,549 | $ | (1,760,769 | ) | $ | (1,588,220 | ) |
The table below summarizes the twelve months average notional value of forward foreign currency contracts and the five months average notional value of futures contracts outstanding during the period.
Forward Foreign Currency Contracts | Futures Contracts | |||||||
Average notional value | $ | 2,805,265 | $ | 9,372,226 |
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, 2016, the Fund engaged in securities purchases of $239,287.
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. Managed Volatility 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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 1,039,201 | $ | 2,074,591 | ||||
Long-term capital gain | 1,392,685 | 21,396,405 | ||||||
Total distributions | $ | 2,431,886 | $ | 23,470,996 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 594,535 | ||
Net unrealized appreciation — investments | 4,947,351 | |||
Net unrealized appreciation (depreciation) — other investments | (150 | ) | ||
Temporary book/tax differences | (68,450 | ) | ||
Capital loss carryforward | (1,112,291 | ) | ||
Shares of beneficial interest | 47,284,084 | |||
Total net assets | $ | 51,645,079 |
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 has a capital loss carryforward as of December 31, 2016, as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
Not subject to expiration | $ | 867,268 | $ | 245,023 | $ | 1,112,291 |
* | 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, 2016 was $9,586,189 and $19,009,304, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $34,227,608 and $33,775,430, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 6,181,167 | ||
Aggregate unrealized (depreciation) of investment securities | (1,233,816 | ) | ||
Net unrealized appreciation of investment securities | $ | 4,947,351 |
Cost of investments for tax purposes is $46,697,682.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of distributions, on December 31, 2016, undistributed net investment income was decreased by $56,575, undistributed net realized gain (loss) was increased by $56,575. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Managed Volatility Fund
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 300,423 | $ | 3,419,830 | 281,770 | $ | 4,951,536 | ||||||||||
Series II | 8,242 | 92,158 | 4,400 | 73,277 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 209,985 | 2,366,531 | 2,053,034 | 22,891,326 | ||||||||||||
Series II | 5,856 | 65,355 | 52,506 | 579,670 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (918,562 | ) | (10,365,620 | ) | (1,451,733 | ) | (22,127,748 | ) | ||||||||
Series II | (23,850 | ) | (267,680 | ) | (18,649 | ) | (330,953 | ) | ||||||||
Net increase (decrease) in share activity | (417,906 | ) | $ | (4,689,426 | ) | 921,328 | $ | 6,037,108 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 57% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
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 12/31/16 | $ | 11.38 | $ | 0.14 | $ | 1.03 | $ | 1.17 | $ | (0.22 | ) | $ | (0.36 | ) | $ | (0.58 | ) | $ | 11.97 | 10.61 | % | $ | 50,183 | 1.15 | %(d) | 1.16 | %(d) | 1.26 | %(d) | 92 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 19.02 | 0.18 | (0.74 | ) | (0.56 | ) | (0.27 | ) | (6.81 | ) | (7.08 | ) | 11.38 | (2.15 | ) | 52,360 | 1.08 | 1.10 | 1.07 | 117 | ||||||||||||||||||||||||||||||||||||
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 | 1.10 | 1.26 | 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 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 11.26 | 0.11 | 1.02 | 1.13 | (0.19 | ) | (0.36 | ) | (0.55 | ) | 11.84 | 10.31 | 1,462 | 1.40 | (d) | 1.41 | (d) | 1.01 | (d) | 92 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 18.88 | 0.13 | (0.72 | ) | (0.59 | ) | (0.22 | ) | (6.81 | ) | (7.03 | ) | 11.26 | (2.37 | ) | 1,500 | 1.33 | 1.35 | 0.82 | 117 | ||||||||||||||||||||||||||||||||||||
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 | 1.35 | 1.01 | 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 |
(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 $48,412 and $1,418 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 the 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 the Invesco V.I. Managed Volatility Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,114.00 | $ | 5.79 | $ | 1,019.66 | $ | 5.53 | 1.09 | % | ||||||||||||
Series II | 1,000.00 | 1,112.00 | 7.11 | 1,018.40 | 6.80 | 1.34 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. 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, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 1,392,685 | ||
Corporate Dividends Received Deduction* | 70.29 | % | ||
U.S. Treasury Obligations* | 2.25 | % |
* | 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
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
For the year ended December 31, 2016, Series I shares of Invesco V.I. Mid Cap
Core Equity Fund (the Fund) underperformed the Russell Midcap Index, the Fund’s style-specifc benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 13.43 | % | |||
Series II Shares | 13.16 | ||||
S&P 500 Index▼ (Broad Market Index) | 11.96 | ||||
Russell Midcap Index▼ (Style-Specific Index) | 13.80 | ||||
Lipper VUF Mid-Cap Core Funds Index◾ (Peer Group Index)
| 17.89 |
Source(s): ▼FactSet Research Systems Inc.; ◾Lipper Inc.
Market conditions and your Fund
During the year ended December 31, 2016, the US economy continued to expand. US gross domestic product (GDP) showed the US economy grew by 3.5% in the third quarter.1 However, annualized GDP is expected to be much lower. Employment data were mixed, with unemployment ending the year at 4.7%.2 Oil prices traded in a range from the high $20s to the low $50s during the reporting period.3
Major US stock market indexes posted gains for the reporting period, with most major market indexes hitting record highs; however, the markets were fairly volatile during the first half of the year. Stocks began calendar year 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets sharply lower. Markets again recovered, and major US equity indexes hit record highs during the summer. Following the surprise outcome of the US
presidential election, a stock market rally sent major equity indexes to new record highs. The rally was led by financials, gaining on the belief that they might benefit from reduced federal regulation. In November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 — its only increase during the reporting period.4
During the year, stock selection in the energy, industrials, information technology (IT) and materials sectors benefited Fund performance relative to the style-specific benchmark. The largest detractors from Fund performance included stock selection in the health care and real estate sectors.
One of the most significant contributors to Fund performance was First Republic Bank. The company experienced solid gains for the year, reporting strong operational execution and growth, as well as increases in its loans and deposit balances.
Within the strong-performing IT sector, Linear Technology was a contributor to Fund performance. The company’s stock price rose on the news of an acquisition
offer from ADI (not a Fund holding).
Specialty chemical company Albemarle was also a contributor to Fund performance. The company’s positive performance was attributed to better-than-expected earnings and an increase in its guidance for the year.
The largest detractor from Fund performance relative to the Russell Midcap Index was Endo International. The company struggled as the result of an investigation into its suspected price collusion with other generic pharmaceutical companies. We sold our holding during the reporting period.
Also detracting for the year was Hertz Global Holdings, which declined after the company reported disappointing earnings following the separation of its car rental and equipment rental businesses. We sold our holding during the reporting period.
Finally, the Fund’s conservative positioning and allocation to cash hampered Fund performance during the year. We have been quite active in deploying cash during periods of market volatility, and we remain focused on putting these assets back to work.
During the reporting period, our largest overweight position relative to the Russell Midcap Index was in the financials sector. The Fund also had a slight overweight position in the IT and materials sectors. The largest underweight positions were in the consumer discretionary, consumer staples, health care, real estate and utilities sectors.
As always, the Fund focuses on companies that provide an attractive return on invested capital, trade at attractive valuations and have management teams with a long-term perspective. In short, we seek to take advantage of the market’s volatile behavior and short-term focus. We believe our conservative approach
Portfolio Composition | |||||
By sector | % of total net assets |
Financials | 19.0 | % | |||
Information Technology | 17.5 | ||||
Consumer Discretionary | 11.0 | ||||
Energy | 8.5 | ||||
Industrials | 7.4 | ||||
Health Care | 7.1 | ||||
Materials | 6.4 | ||||
Real Estate | 3.5 | ||||
Utilities | 2.0 | ||||
Consumer Staples | 1.3 | ||||
Money Market Funds | |||||
Plus Other Assets Less Liabilities | 16.3 |
Top 10 Equity Holdings* | |||||||
% of total net assets |
1. | First Republic Bank | 4.2 | % | ||||
2. | Teradyne, Inc. | 3.1 | |||||
3. | Amphenol Corp.-Class A | 3.0 | |||||
4. | Progressive Corp. (The) | 2.8 | |||||
5. | Linear Technology Corp. | 2.8 | |||||
6. | St. James’s Place PLC | 2.5 | |||||
7. | Brown & Brown, Inc. | 2.4 | |||||
8. | Xilinx, Inc. | 2.2 | |||||
9. | Jack Henry & Associates, Inc. | 2.2 | |||||
10. | Packaging Corp. of America | 2.1 |
Total Net Assets
| $
| 325.6 million
|
| ||||
Total Number of Holdings* | 51 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. Mid Cap Core Equity Fund
should position the Fund to navigate the evolving economic backdrop.
We thank you for your continued investment in Invesco V.I. Mid Cap Core Equity Fund.
1 | Source: Bureau of Economic Analysis |
2 | Source: Bureau of Labor Statistics |
3 | Source: Thompson-Reuters |
4 | Source: US Federal Reserve |
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. 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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (9/10/01) | 7.28 | % | |||
10 Years | 5.88 | ||||
5 Years | 10.20 | ||||
1 Year | 13.43 | ||||
Series II Shares | |||||
Inception (9/10/01) | 7.02 | % | |||
10 Years | 5.61 | ||||
5 Years | 9.90 | ||||
1 Year | 13.16 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.93% and 1.18%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.95% and 1.20%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
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, 2018. 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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing
in the Fund
Cash/cash equivalents risk. In rising markets, holding cash or cash equivalents will negatively affect the Fund’s performance relative to its benchmark.
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.
Emerging markets securities risk.
Emerging markets (also referred to as developing markets) are generally subject to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In
addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Mid-capitalization companies risk. Mid-capitalization companies tend to be more vulnerable to changing market conditions and may have more limited product lines
and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities maybe more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell Midcap® Index is an unmanaged index considered representative of mid-cap stocks. The Russell Midcap Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Mid-Cap Core Funds Index is an unmanaged index considered representative of mid-cap core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) 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, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–83.68% |
| |||||||
Advertising–1.09% | ||||||||
Publicis Groupe S.A. (France) | 51,303 | $ | 3,539,633 | |||||
Apparel, Accessories & Luxury Goods–2.39% | ||||||||
Hanesbrands, Inc. | 148,983 | 3,213,563 | ||||||
PVH Corp. | 50,481 | 4,555,406 | ||||||
7,768,969 | ||||||||
Application Software–0.95% | ||||||||
Synopsys, Inc.(b) | 52,788 | 3,107,102 | ||||||
Asset Management & Custody Banks–1.31% | ||||||||
Northern Trust Corp. | 47,815 | 4,257,926 | ||||||
Automotive Retail–1.47% | ||||||||
Advance Auto Parts, Inc. | 28,290 | 4,784,405 | ||||||
Biotechnology–1.21% | ||||||||
United Therapeutics Corp.(b) | 27,548 | 3,951,210 | ||||||
Construction Machinery & Heavy Trucks–1.24% | ||||||||
Allison Transmission Holdings, Inc. | 119,693 | 4,032,457 | ||||||
Data Processing & Outsourced Services–2.21% | ||||||||
Jack Henry & Associates, Inc. | 81,053 | 7,195,885 | ||||||
Electronic Components–2.99% | ||||||||
Amphenol Corp.–Class A | 144,609 | 9,717,725 | ||||||
Electronic Equipment & Instruments–1.89% | ||||||||
FLIR Systems, Inc. | 170,442 | 6,168,296 | ||||||
Environmental & Facilities Services–1.79% | ||||||||
Republic Services, Inc. | 102,132 | 5,826,631 | ||||||
Financial Exchanges & Data–1.76% | ||||||||
Moody’s Corp. | 60,685 | 5,720,775 | ||||||
Health Care Distributors–1.11% | ||||||||
Cardinal Health, Inc. | 50,159 | 3,609,943 | ||||||
Health Care Equipment–1.97% | ||||||||
ResMed Inc. | 48,687 | 3,021,028 | ||||||
Wright Medical Group N.V.(b) | 148,197 | 3,405,567 | ||||||
6,426,595 | ||||||||
Health Care Facilities–0.32% | ||||||||
Tenet Healthcare Corp.(b) | 69,661 | 1,033,769 | ||||||
Home Furnishings–1.14% | ||||||||
Mohawk Industries, Inc.(b) | 18,648 | 3,723,633 | ||||||
Homebuilding–1.56% | ||||||||
D.R. Horton, Inc. | 185,872 | 5,079,882 | ||||||
Household Appliances–1.83% | ||||||||
Whirlpool Corp. | 32,729 | 5,949,150 |
Shares | Value | |||||||
Housewares & Specialties–1.48% | ||||||||
Newell Brands, Inc. | 108,173 | $ | 4,829,924 | |||||
Industrial Machinery–4.42% | ||||||||
Dover Corp. | 69,408 | 5,200,741 | ||||||
Nordson Corp. | 33,401 | 3,742,582 | ||||||
Stanley Black & Decker Inc. | 47,576 | 5,456,492 | ||||||
14,399,815 | ||||||||
Insurance Brokers–2.43% | ||||||||
Brown & Brown, Inc. | 176,413 | 7,913,887 | ||||||
IT Consulting & Other Services–1.33% | ||||||||
EPAM Systems, Inc.(b) | 67,518 | 4,342,083 | ||||||
Life & Health Insurance–4.48% | ||||||||
St. James’s Place PLC (United Kingdom) | 640,203 | 7,965,001 | ||||||
Torchmark Corp. | 89,864 | 6,628,368 | ||||||
14,593,369 | ||||||||
Life Sciences Tools & Services–1.63% | ||||||||
Agilent Technologies, Inc. | 116,560 | 5,310,474 | ||||||
Multi-Utilities–1.98% | ||||||||
CMS Energy Corp. | 78,024 | 3,247,359 | ||||||
WEC Energy Group, Inc. | 54,351 | 3,187,686 | ||||||
6,435,045 | ||||||||
Office REIT’s–1.76% | ||||||||
Boston Properties, Inc. | 45,539 | 5,727,895 | ||||||
Oil & Gas Equipment & Services–2.58% | ||||||||
Core Laboratories N.V. | 41,386 | 4,967,976 | ||||||
Tenaris S.A.–ADR (Luxembourg) | 96,347 | 3,440,551 | ||||||
8,408,527 | ||||||||
Oil & Gas Exploration & Production–5.95% | ||||||||
Concho Resources Inc.(b) | 35,273 | 4,677,200 | ||||||
Range Resources Corp. | 148,770 | 5,111,737 | ||||||
Seven Generations Energy Ltd.–Class A (Canada)(b) | 154,270 | 3,596,972 | ||||||
Vermilion Energy, Inc. (Canada) | 142,174 | 5,980,868 | ||||||
19,366,777 | ||||||||
Packaged Foods & Meats–1.27% | ||||||||
JM Smucker Co. (The) | 32,316 | 4,138,387 | ||||||
Paper Packaging–2.09% | ||||||||
Packaging Corp. of America | 80,297 | 6,810,791 | ||||||
Pharmaceuticals–0.89% | ||||||||
Perrigo Co. PLC | 34,839 | 2,899,650 | ||||||
Property & Casualty Insurance–4.86% | ||||||||
Arch Capital Group Ltd.(b) | 76,973 | 6,642,000 | ||||||
Progressive Corp. (The) | 258,144 | 9,164,112 | ||||||
15,806,112 |
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 | |||||||
Regional Banks–4.17% | ||||||||
First Republic Bank | 147,331 | $ | 13,575,078 | |||||
Retail REIT’s–1.72% | ||||||||
General Growth Properties, Inc. | 224,221 | 5,601,041 | ||||||
Semiconductor Equipment–3.08% | ||||||||
Teradyne, Inc. | 395,368 | 10,042,347 | ||||||
Semiconductors–5.04% | ||||||||
Linear Technology Corp. | 146,958 | 9,162,831 | ||||||
Xilinx, Inc. | 119,939 | 7,240,718 | ||||||
16,403,549 | ||||||||
Specialty Chemicals–4.29% | ||||||||
Albemarle Corp. | 38,925 | 3,350,664 | ||||||
International Flavors & Fragrances Inc. | 51,197 | 6,032,543 | ||||||
Koninklijke DSM N.V. (Netherlands) | 76,622 | 4,586,640 | ||||||
13,969,847 | ||||||||
Total Common Stocks & Other Equity Interests |
| 272,468,584 |
Shares | Value | |||||||
Money Market Funds–17.71% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(c) | 34,591,956 | $ | 34,591,956 | |||||
Treasury Portfolio–Institutional Class, 0.37%(c) | 23,061,304 | 23,061,304 | ||||||
Total Money Market Funds |
| 57,653,260 | ||||||
TOTAL INVESTMENTS–101.39% |
| 330,121,844 | ||||||
OTHER ASSETS LESS LIABILITIES–(1.39)% |
| (4,539,624 | ) | |||||
NET ASSETS–100.00% |
| $ | 325,582,220 |
Investment Abbreviations:
ADR | – American Depositary Receipt | |
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $196,652,713) | $ | 272,468,584 | ||
Investments in affiliated money market funds, at value and cost | 57,653,260 | |||
Total investments, at value (Cost $254,305,973) | 330,121,844 | |||
Foreign currencies, at value (Cost $28,925) | 35,596 | |||
Receivable for: | ||||
Fund shares sold | 134,434 | |||
Dividends | 401,695 | |||
Investment for trustee deferred compensation and retirement plans | 111,831 | |||
Total assets | 330,805,400 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 4,605,762 | |||
Fund shares reacquired | 128,832 | |||
Accrued fees to affiliates | 328,695 | |||
Accrued trustees’ and officers’ fees and benefits | 468 | |||
Accrued other operating expenses | 33,756 | |||
Trustee deferred compensation and retirement plans | 125,667 | |||
Total liabilities | 5,223,180 | |||
Net assets applicable to shares outstanding | $ | 325,582,220 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 241,767,254 | ||
Undistributed net investment income | 1,313,167 | |||
Undistributed net realized gain | 6,690,752 | |||
Net unrealized appreciation | 75,811,047 | |||
$ | 325,582,220 | |||
Net Assets: |
| |||
Series I | $ | 195,463,855 | ||
Series II | $ | 130,118,365 | ||
Shares outstanding, no par value, with an |
| |||
Series I | 15,188,050 | |||
Series II | 10,317,425 | |||
Series I: | ||||
Net asset value per share | $ | 12.87 | ||
Series II: | ||||
Net asset value per share | $ | 12.61 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $88,702) | $ | 4,773,162 | ||
Dividends from affiliated money market funds | 162,898 | |||
Total investment income | 4,936,060 | |||
Expenses: | ||||
Advisory fees | 2,312,439 | |||
Administrative services fees | 710,706 | |||
Custodian fees | 15,908 | |||
Distribution fees — Series II | 306,480 | |||
Transfer agent fees | 56,880 | |||
Trustees’ and officers’ fees and benefits | 25,446 | |||
Reports to shareholders | 10,451 | |||
Professional services fees | 52,066 | |||
Other | 11,479 | |||
Total expenses | 3,501,855 | |||
Less: Fees waived | (58,289 | ) | ||
Net expenses | 3,443,566 | |||
Net investment income | 1,492,494 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 6,875,972 | |||
Foreign currencies | 7,156 | |||
6,883,128 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 31,772,747 | |||
Foreign currencies | (4,850 | ) | ||
31,767,897 | ||||
Net realized and unrealized gain | 38,651,025 | |||
Net increase in net assets resulting from operations | $ | 40,143,519 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income | $ | 1,492,494 | $ | 292,761 | ||||
Net realized gain | 6,883,128 | 20,810,499 | ||||||
Change in net unrealized appreciation (depreciation) | 31,767,897 | (34,095,627 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 40,143,519 | (12,992,367 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (150,245 | ) | (774,992 | ) | ||||
Series ll | — | (130,328 | ) | |||||
Total distributions from net investment income | (150,245 | ) | (905,320 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (12,808,400 | ) | (20,812,280 | ) | ||||
Series ll | (8,160,367 | ) | (11,890,260 | ) | ||||
Total distributions from net realized gains | (20,968,767 | ) | (32,702,540 | ) | ||||
Share transactions–net: | ||||||||
Series l | (17,870,780 | ) | (23,442,519 | ) | ||||
Series ll | 4,467,820 | 7,145,332 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (13,402,960 | ) | (16,297,187 | ) | ||||
Net increase (decrease) in net assets | 5,621,547 | (62,897,414 | ) | |||||
Net assets: | ||||||||
Beginning of year | 319,960,673 | 382,858,087 | ||||||
End of year (includes undistributed net investment income of $1,313,167 and $35,124, respectively) | $ | 325,582,220 | $ | 319,960,673 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Mid Cap Core Equity Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. Mid Cap Core Equity Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. 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 the 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, 2016, the effective advisory fees incurred by the Fund was 0.725%.
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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
Invesco V.I. Mid Cap Core Equity Fund
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $58,289.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $78,360 for accounting and fund administrative services and was reimbursed $632,346 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $151 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, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interests | $ | 259,916,943 | $ | 12,551,641 | $ | — | $ | 272,468,584 | ||||||||
Money Market Funds | 57,653,260 | — | — | 57,653,260 | ||||||||||||
Total Investments | $ | 317,570,203 | $ | 12,551,641 | $ | — | $ | 330,121,844 |
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
Invesco V.I. Mid Cap Core Equity Fund
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, 2016, the Fund engaged in securities purchases of $2,168,614.
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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 4,117,708 | $ | 4,519,294 | ||||
Long-term capital gain | 17,001,304 | 29,088,566 | ||||||
Total distributions | $ | 21,119,012 | $ | 33,607,860 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 2,920,923 | ||
Undistributed long-term gain | 5,209,253 | |||
Net unrealized appreciation — investments | 75,814,024 | |||
Net unrealized appreciation (depreciation) — other investments | (4,824 | ) | ||
Temporary book/tax differences | (124,410 | ) | ||
Shares of beneficial interest | 241,767,254 | |||
Total net assets | $ | 325,582,220 |
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, 2016.
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, 2016 was $79,596,877 and $129,213,228, 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.
Invesco V.I. Mid Cap Core Equity Fund
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 84,445,959 | ||
Aggregate unrealized (depreciation) of investment securities | (8,631,935 | ) | ||
Net unrealized appreciation of investment securities | $ | 75,814,024 |
Cost of investments for tax purposes is $254,307,820.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of Real Estate Investment Trust distributions, on December 31, 2016, undistributed net investment income was decreased by $64,206 and undistributed net realized gain was increased by $64,206. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 690,232 | $ | 8,736,328 | 482,475 | $ | 6,548,148 | ||||||||||
Series II | 1,380,934 | 16,624,301 | 1,781,612 | 24,401,427 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 1,025,209 | 12,958,645 | 1,770,900 | 21,587,272 | ||||||||||||
Series II | 658,626 | 8,160,367 | 1,002,551 | 12,020,588 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,166,296 | ) | (39,565,753 | ) | (3,723,891 | ) | (51,577,939 | ) | ||||||||
Series II | (1,649,202 | ) | (20,316,848 | ) | (2,128,890 | ) | (29,276,683 | ) | ||||||||
Net increase (decrease) in share activity | (1,060,497 | ) | $ | (13,402,960 | ) | (815,243 | ) | $ | (16,297,187 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 57% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
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 12/31/16 | $ | 12.12 | $ | 0.07 | $ | 1.54 | $ | 1.61 | $ | (0.01 | ) | $ | (0.85 | ) | $ | (0.86 | ) | $ | 12.87 | 13.43 | % | $ | 195,464 | 0.98 | %(d) | 1.00 | %(d) | 0.57 | %(d) | 29 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 14.06 | 0.02 | (0.58 | ) | (0.56 | ) | (0.05 | ) | (1.33 | ) | (1.38 | ) | 12.12 | (4.03 | ) | 201,685 | 1.01 | 1.03 | 0.17 | 44 | ||||||||||||||||||||||||||||||||||||
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 | 1.04 | 0.29 | 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 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 11.91 | 0.04 | 1.51 | 1.55 | — | (0.85 | ) | (0.85 | ) | 12.61 | 13.16 | 130,118 | 1.23 | (d) | 1.25 | (d) | 0.32 | (d) | 29 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 13.84 | (0.01 | ) | (0.57 | ) | (0.58 | ) | (0.02 | ) | (1.33 | ) | (1.35 | ) | 11.91 | (4.28 | ) | 118,276 | 1.26 | 1.28 | (0.08 | ) | 44 | ||||||||||||||||||||||||||||||||||
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 | 1.29 | 0.04 | 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 |
(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 $196,365 and $122,592 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 the 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 the Invesco V.I. Mid Cap Core Equity Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,087.70 | $ | 5.35 | $ | 1,020.01 | $ | 5.18 | 1.02 | % | ||||||||||||
Series II | 1,000.00 | 1,086.00 | 6.66 | 1,018.75 | 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, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Mid Cap Core Equity Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 17,001,304 | ||
Corporate Dividends Received Deduction* | 86.65 | % | ||
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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
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, 2016, Series I shares of Invesco V.I. Mid Cap Growth Fund (the Fund) underperformed the Fund’s style-specific benchmark, the Russell Midcap Growth Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 0.76 | % | |||
Series II Shares | 0.57 | ||||
S&P 500 Index▼ (Broad Market Index) | 11.96 | ||||
Russell Midcap Growth Index▼ (Style-Specific Index) | 7.33 | ||||
Lipper VUF Mid-Cap Growth Funds Index∎ (Peer Group Index) | 4.48 |
Source(s): ▼FactSet Research Systems Inc.; ∎Lipper Inc.
Market conditions and your Fund
During the year ended December 31, 2016, the US economy continued to expand. US gross domestic product (GDP) showed the US economy grew by 3.5% in the third quarter.1 However, annualized GDP is expected to be much lower. Employment data were mixed, with unemployment ending the year at 4.7%.2 Oil prices traded in a range from the high $20s to the low $50s during the reporting period.3 Major US stock market indexes posted gains for the reporting period, with most major market indexes hitting record highs; however, the markets were fairly volatile during the first half of the year.
Stocks began 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets sharply lower. Markets again recovered, and major US equity indexes hit record highs during the summer. Following the surprise outcome of the US presidential election, a stock market rally sent major
US equity market indexes to new record highs. The rally was led by financials, gaining on the belief that they might benefit from reduced federal regulation. Also in November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 – its only increase during the reporting period.4
In this environment, the Fund produced a positive return but trailed its style-specific benchmark. The Fund significantly underperformed in the first five weeks of the year due to global macroeconomic concerns negatively affecting Fund holdings sensitive to interest rates. The Fund most notably underperformed in the information technology (IT), financials, health care and consumer discretionary sectors. Some of the Fund’s underperformance was offset by overweight exposure to the energy sector and favorable stock selection in the consumer staples sector.
The Fund outperformed its style-specific benchmark by the largest margin in the energy sector due to overweight allocation in the sector. Fund exposure to the oil, gas and consumable fuels industry was a leading contributor to relative
performance. Pioneer Natural Resources and Diamondback Energy are oil-focused, exploration and production holdings that outperformed due to an oil price rally during the year.
Stock selection in the consumer staples sector was also a contributor to performance relative to the Fund’s style-specific benchmark. Food and beverage company Whitewave Foods was acquired by Da-none (not a Fund holding) during the second quarter of the year and was the leading contributor within the sector. We sold our position in Whitewave Foods during the reporting period. Constellation Brands, an international alcohol beverage company, was also a contributor to Fund performance. The company saw strong beer growth during the reporting period, particularly with its Corona brand.
Fund exposure within the industrials sector also benefited performance relative to the Fund’s style-specific benchmark. Water heater company A.O. Smith demonstrated impressive operating results that exceeded investor expectations early in the reporting period. Industrial manufacturer Carlisle Companies and industrial lighting solutions company Acuity Brands were also notable contributors to relative performance.
On the negative side, stock selection in the IT sector was a notable detractor from performance relative to the Fund’s style-specific benchmark. Not owning visual computing company NVIDIA detracted the most from relative performance. Social networking platform LinkedIn was also a significant detractor; the company reported disappointing sales growth and expectations across several business lines early in the year. We eliminated the holding in the first quarter of the year because we felt management was not monetizing user data efficiently. Palo Alto Networks, an IT security company, shifted its business
Portfolio Composition | |||||
By sector | % of total net assets |
Information Technology | 25.0 | % | |||
Consumer Discretionary | 17.5 | ||||
Health Care | 15.4 | ||||
Industrials | 13.8 | ||||
Financials | 10.0 | ||||
Energy | 5.1 | ||||
Consumer Staples | 3.9 | ||||
Materials | 3.2 | ||||
Telecommunication Services | 2.8 | ||||
Real Estate | 2.4 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 0.9 |
Top 10 Equity Holdings* | |||
% of total net assets |
1. | NXP Semiconductors N.V. | 2.4 | % | ||||
2. | E*TRADE Financial Corp. | 2.1 | |||||
3. | Hologic, Inc. | 2.1 | |||||
4. | ServiceNow, Inc. | 2.0 | |||||
5. | Amphenol Corp.-Class A | 1.9 | |||||
6. | O’Reilly Automotive, Inc. | 1.9 | |||||
7. | Constellation Brands, Inc.-Class A | 1.9 | |||||
8. | Fidelity National Information Services, Inc. | 1.9 | |||||
9. | Electronic Arts Inc. | 1.7 | |||||
10. | KAR Auction Services Inc. | 1.7 |
Total Net Assets
| $
| 211.7 million
|
| |||||||
Total Number of Holdings* | 86 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. Mid Cap Growth Fund
from hardware to software and services, which resulted in a shift in its revenue accounting from income sheet to balance sheet. This reduction in revenue, combined with a relatively high valuation, led investors to punish the stock significantly in the first half of the year. Semiconductor company Cavium and cloud-based system-software company ServiceNow also detracted from Fund performance. We sold our position in Cavium during the reporting period.
Fund holdings within the financials sector also hurt performance relative to the Fund’s style-specific benchmark. The diversified financials group SVB Financial was a detractor from Fund performance early in the year due to market concerns about lower interest rates and declining valuations – creating concerns over credit, loan growth outlook, and gains on securities sales. MGIC Investment, a mortgage insurance company, was also a notable detractor from Fund performance within the sector. The company’s stock price fell in the first quarter of the year due to market concerns over pricing on new insurance. Additionally, asset manager WisdomTree Investments detracted from Fund performance as lower equity markets and weaker net flows at the start of the year hurt the company’s stock price. We sold our positions in both MGIC and Wisdom Tree during the reporting period.
The Fund also trailed its style-specific index within the health care sector. Fund holdings in the pharmaceuticals and bio-technology industries were significant detractors from Fund performance as political rhetoric around drug pricing and a new health care plan during the election hurt several health care companies. One of the leading detractors from Fund performance was Pacira Pharmaceuticals, a specialty pharma company, which underperformed early in the year
mostly due to industry-level concerns regarding pricing. Biotechnology company Alexion Pharmaceuticals also pulled back early in the year along with the broad biotechnology industry, although there were no significant fundamental issues with the company itself. We sold our position in Alexion during the reporting period.
During the reporting period, the Fund’s exposure to the IT sector increased, while its exposure to the consumer discretionary sector decreased. At the close of the reporting period, the financials and energy sectors were the largest overweight allocations relative to the style-specific index. The largest underweight allocations were in the consumer discretionary and
consumer staples sectors. Though we are optimistic that the prospects for the US consumer appear solid, we prudently balance the Fund between dynamic growth opportunities and more durable growth opportunities.
We thank you for your commitment to Invesco V.I. Mid Cap Growth Fund.
1 | Source: Bureau of Economic Analysis |
2 | Source: Bureau of Labor Statistics |
3 | Source: Thompson-Reuters |
4 | Source: US Federal Reserve |
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 lead 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. |
Elizabeth Bernstein Portfolio Manager, is manager of Invesco V.I. Mid Cap Growth Fund. She joined Invesco in 2012. Ms. Bernstein | ||
earned a BA degree in history, cum laude, from the University of Pennsylvania and an MBA from the University of Michigan – Ross School of Business with an emphasis in strategy and finance. |
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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
10 Years | 6.66 | % | |||
5 Years | 10.99 | ||||
1 Year | 0.76 | ||||
Series II Shares | |||||
Inception (9/25/00) | 0.51 | % | |||
10 Years | 6.53 | ||||
5 Years | 10.78 | ||||
1 Year | 0.57 |
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, prior to June 1, 2010, 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.
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 1.07% 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 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. Mid Cap Growth Fund
Invesco V.I. Mid Cap Growth Fund’s investment objective is to seek capital growth.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Emerging markets securities risk. Emerging markets (also referred to as developing markets) are generally subject to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Growth investing risk. Growth stocks tend to be more expensive relative to the issuing company’s earnings or assets compared with other types of stock. As a result, they tend to be more sensitive to changes in, or investors’ expectations of, the issuing company’s earnings and can be more volatile.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values,
liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Mid-capitalization companies risk. Mid-capitalization companies tend to be more vulnerable to changing market conditions and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
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, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.08% |
| |||||||
Aerospace & Defense–1.07% | ||||||||
Raytheon Co. | 15,929 | $ | 2,261,918 | |||||
Airlines–0.61% | ||||||||
Alaska Air Group, Inc. | 14,618 | 1,297,055 | ||||||
Alternative Carriers–1.24% | ||||||||
Zayo Group Holdings, Inc.(b) | 80,082 | 2,631,495 | ||||||
Apparel Retail–2.73% | ||||||||
American Eagle Outfitters, Inc. | 63,970 | 970,425 | ||||||
Burlington Stores, Inc.(b) | 37,774 | 3,201,346 | ||||||
Foot Locker, Inc. | 22,546 | 1,598,286 | ||||||
5,770,057 | ||||||||
Apparel, Accessories & Luxury Goods–0.38% | ||||||||
Under Armour, Inc.–Class A(b)(c) | 27,528 | 799,688 | ||||||
Application Software–4.73% | ||||||||
Cadence Design Systems, Inc.(b) | 116,806 | 2,945,847 | ||||||
Mobileye N.V.(b) | 50,620 | 1,929,634 | ||||||
SS&C Technologies Holdings, Inc. | 84,380 | 2,413,268 | ||||||
Tyler Technologies, Inc.(b) | 19,150 | 2,734,046 | ||||||
10,022,795 | ||||||||
Asset Management & Custody Banks–1.26% | ||||||||
Affiliated Managers Group, Inc.(b) | 18,427 | 2,677,443 | ||||||
Auto Parts & Equipment–0.00% | ||||||||
Gentherm Inc.(b) | 174 | 5,890 | ||||||
Automotive Retail–2.85% | ||||||||
Advance Auto Parts, Inc. | 12,331 | 2,085,419 | ||||||
O’Reilly Automotive, Inc.(b) | 14,194 | 3,951,751 | ||||||
6,037,170 | ||||||||
Biotechnology–2.32% | ||||||||
BioMarin Pharmaceutical Inc.(b) | 34,869 | 2,888,548 | ||||||
Neurocrine Biosciences, Inc.(b) | 52,147 | 2,018,089 | ||||||
4,906,637 | ||||||||
Building Products–4.79% | ||||||||
A.O. Smith Corp. | 56,030 | 2,653,021 | ||||||
Allegion PLC | 33,801 | 2,163,264 | ||||||
Masco Corp. | 76,348 | 2,414,124 | ||||||
Owens Corning | 56,299 | 2,902,776 | ||||||
10,133,185 | ||||||||
Casinos & Gaming–0.73% | ||||||||
Wynn Resorts Ltd. | 17,949 | 1,552,768 | ||||||
Communications Equipment–1.51% | ||||||||
F5 Networks, Inc.(b) | 16,729 | 2,421,021 | ||||||
Palo Alto Networks, Inc.(b) | 6,238 | 780,062 | ||||||
3,201,083 |
Shares | Value | |||||||
Construction Machinery & Heavy Trucks–0.52% | ||||||||
WABCO Holdings Inc.(b) | 10,277 | $ | 1,090,904 | |||||
Construction Materials–0.92% | ||||||||
Vulcan Materials Co. | 15,566 | 1,948,085 | ||||||
Consumer Electronics–0.69% | ||||||||
Harman International Industries, Inc. | 13,190 | 1,466,200 | ||||||
Data Processing & Outsourced Services–4.21% | ||||||||
Broadridge Financial Solutions, Inc. | 38,122 | 2,527,488 | ||||||
Fidelity National Information Services, Inc. | 52,009 | 3,933,961 | ||||||
Vantiv, Inc.–Class A(b) | 41,108 | 2,450,859 | ||||||
8,912,308 | ||||||||
Department Stores–0.70% | ||||||||
Nordstrom, Inc.(c) | 30,750 | 1,473,848 | ||||||
Distillers & Vintners–1.86% | ||||||||
Constellation Brands, Inc.–Class A | 25,707 | 3,941,140 | ||||||
Diversified Support Services–1.70% | ||||||||
KAR Auction Services, Inc. | 84,378 | 3,596,190 | ||||||
Electrical Components & Equipment–1.16% | ||||||||
Acuity Brands, Inc. | 10,647 | 2,457,966 | ||||||
Electronic Components–1.87% | ||||||||
Amphenol Corp.–Class A | 59,064 | 3,969,101 | ||||||
Electronic Manufacturing Services–0.82% | ||||||||
Flex Ltd.(b) | 120,940 | 1,737,908 | ||||||
Environmental & Facilities Services–0.89% | ||||||||
Republic Services, Inc. | 33,067 | 1,886,472 | ||||||
Financial Exchanges & Data–3.38% | ||||||||
CBOE Holdings Inc. | 27,851 | 2,057,910 | ||||||
Intercontinental Exchange, Inc. | 49,559 | 2,796,119 | ||||||
S&P Global Inc. | 21,372 | 2,298,345 | ||||||
7,152,374 | ||||||||
General Merchandise Stores–0.68% | ||||||||
Dollar Tree, Inc.(b) | 18,657 | 1,439,947 | ||||||
Health Care Equipment–5.41% | ||||||||
Boston Scientific Corp.(b) | 130,347 | 2,819,405 | ||||||
DexCom Inc.(b) | 32,871 | 1,962,399 | ||||||
Hologic, Inc.(b) | 108,349 | 4,346,962 | ||||||
Penumbra, Inc.(b) | 36,356 | 2,319,513 | ||||||
11,448,279 | ||||||||
Health Care Facilities–1.38% | ||||||||
VCA Inc.(b) | 42,604 | 2,924,765 | ||||||
Home Entertainment Software–1.70% | ||||||||
Electronic Arts Inc.(b) | 45,710 | 3,600,120 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Shares | Value | |||||||
Homebuilding–0.62% | ||||||||
D.R. Horton, Inc. | 47,823 | $ | 1,307,003 | |||||
Housewares & Specialties–1.32% | ||||||||
Newell Brands, Inc. | 62,570 | 2,793,750 | ||||||
Industrial Conglomerates–1.10% | ||||||||
Carlisle Cos. Inc. | 21,030 | 2,319,399 | ||||||
Industrial Machinery–1.41% | ||||||||
Stanley Black & Decker Inc. | 26,122 | 2,995,932 | ||||||
Integrated Telecommunication Services–1.57% | ||||||||
SBA Communications Corp.–Class A(b) | 32,226 | 3,327,657 | ||||||
Internet Software & Services–1.37% | ||||||||
CoStar Group Inc.(b) | 15,407 | 2,904,065 | ||||||
Investment Banking & Brokerage–2.70% | ||||||||
E*TRADE Financial Corp.(b) | 125,886 | 4,361,950 | ||||||
Stifel Financial Corp.(b) | 27,141 | 1,355,693 | ||||||
5,717,643 | ||||||||
IT Consulting & Other Services–1.14% | ||||||||
Gartner, Inc.(b) | 23,797 | 2,405,163 | ||||||
Leisure Products–1.48% | ||||||||
Brunswick Corp. | 57,491 | 3,135,559 | ||||||
Life Sciences Tools & Services–4.11% | ||||||||
INC Research Holdings, Inc.–Class A(b) | 62,798 | 3,303,175 | ||||||
Patheon N.V.(b) | 81,464 | 2,338,831 | ||||||
VWR Corp.(b) | 122,193 | 3,058,491 | ||||||
8,700,497 | ||||||||
Managed Health Care–1.66% | ||||||||
Centene Corp.(b) | 62,049 | 3,506,389 | ||||||
Metal & Glass Containers–1.05% | ||||||||
Berry Plastics Group Inc.(b) | 45,451 | 2,214,827 | ||||||
Movies & Entertainment–1.48% | ||||||||
Cinemark Holdings, Inc. | 81,893 | 3,141,415 | ||||||
Oil & Gas Exploration & Production–4.00% | ||||||||
Concho Resources Inc.(b) | 17,547 | 2,326,732 | ||||||
Diamondback Energy Inc.(b) | 35,457 | 3,583,285 | ||||||
Pioneer Natural Resources Co. | 14,173 | 2,552,132 | ||||||
8,462,149 | ||||||||
Oil & Gas Storage & Transportation–1.05% | ||||||||
Cheniere Energy, Inc.(b) | 53,705 | 2,224,998 | ||||||
Packaged Foods & Meats–1.57% | ||||||||
Pinnacle Foods Inc. | 62,334 | 3,331,752 | ||||||
Pharmaceuticals–0.52% | ||||||||
Pacira Pharmaceuticals, Inc.(b) | 33,829 | 1,092,677 | ||||||
Property & Casualty Insurance–0.97% | ||||||||
Progressive Corp. (The) | 57,604 | 2,044,942 |
Shares | Value | |||||||
Regional Banks–1.66% | ||||||||
SVB Financial Group(b) | 7,377 | $ | 1,266,336 | |||||
Zions Bancorp. | 52,056 | 2,240,490 | ||||||
3,506,826 | ||||||||
Restaurants–2.28% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 4,918 | 1,855,660 | ||||||
Domino’s Pizza, Inc. | 18,710 | 2,979,380 | ||||||
4,835,040 | ||||||||
Semiconductors–5.70% | ||||||||
Cirrus Logic, Inc.(b) | 26,638 | 1,506,113 | ||||||
Microsemi Corp.(b) | 58,101 | 3,135,711 | ||||||
NXP Semiconductors N.V. (Netherlands)(b) | 52,115 | 5,107,791 | ||||||
Qorvo, Inc.(b) | 43,991 | 2,319,645 | ||||||
12,069,260 | ||||||||
Soft Drinks–0.51% | ||||||||
Monster Beverage Corp.(b) | 24,385 | 1,081,231 | ||||||
Specialized REIT’s–2.43% | ||||||||
CubeSmart | 69,130 | 1,850,610 | ||||||
Equinix, Inc. | 9,219 | 3,294,963 | ||||||
5,145,573 | ||||||||
Specialty Chemicals–1.23% | ||||||||
Sherwin-Williams Co. (The) | 9,728 | 2,614,303 | ||||||
Specialty Stores–1.54% | ||||||||
Tractor Supply Co. | 21,254 | 1,611,266 | ||||||
Ulta Salon, Cosmetics & Fragrance, Inc.(b) | 6,437 | 1,641,049 | ||||||
3,252,315 | ||||||||
Systems Software–1.97% | ||||||||
ServiceNow, Inc.(b) | 56,217 | 4,179,172 | ||||||
Trading Companies & Distributors–0.53% | ||||||||
W.W. Grainger, Inc. | 4,857 | 1,128,038 | ||||||
Total Common Stocks & Other Equity Interests |
| 209,780,366 | ||||||
Money Market Funds–1.03% |
| |||||||
Government & Agency Portfolio– Institutional Class, 0.43%(d) | 1,127,322 | 1,127,322 | ||||||
Treasury Portfolio–Institutional | 1,043,542 | 1,043,542 | ||||||
Total Money Market Funds |
| 2,170,864 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.11% |
| 211,951,230 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Shares | Value | |||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–0.82% | ||||||||
Government & Agency Portfolio–Institutional Class, 0.43% | 1,744,455 | $ | 1,744,455 | |||||
TOTAL INVESTMENTS–100.93% |
| 213,695,685 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.93)% |
| (1,969,430 | ) | |||||
NET ASSETS–100.00% |
| $ | 211,726,255 |
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, 2016. |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
(e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Statement of Assets and Liabilities
December 31, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $169,996,226)* | $ | 209,780,366 | ||
Investments in affiliated money market funds, at value and cost | 3,915,319 | |||
Total investments, at value (Cost $173,911,545) | 213,695,685 | |||
Cash | 44,916 | |||
Receivable for: | ||||
Investments sold | 625,834 | |||
Fund shares sold | 70,874 | |||
Dividends | 120,168 | |||
Investment for trustee deferred compensation and retirement plans | 113,830 | |||
Other assets | 7,635 | |||
Total assets | 214,678,942 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 685,277 | |||
Fund shares reacquired | 102,635 | |||
Collateral upon return of securities loaned | 1,744,455 | |||
Accrued fees to affiliates | 265,035 | |||
Accrued trustees’ and officers’ fees and benefits | 2,647 | |||
Accrued other operating expenses | 27,911 | |||
Trustee deferred compensation and retirement plans | 124,727 | |||
Total liabilities | 2,952,687 | |||
Net assets applicable to shares outstanding | $ | 211,726,255 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 158,981,412 | ||
Undistributed net investment income (loss) | (122,052 | ) | ||
Undistributed net realized gain | 13,082,755 | |||
Net unrealized appreciation | 39,784,140 | |||
$ | 211,726,255 | |||
Net Assets: |
| |||
Series I | $ | 97,444,031 | ||
Series II | $ | 114,282,224 | ||
Shares outstanding, no par value, with an |
| |||
Series I | 19,927,082 | |||
Series II | 23,678,347 | |||
Series I: | ||||
Net asset value per share | $ | 4.89 | ||
Series II: | ||||
Net asset value per share | $ | 4.83 |
* | At December 31, 2016, securities with an aggregate value of $1,704,039 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $484) | $ | 1,425,335 | ||
Dividends from affiliated money market funds (includes securities lending income of $23,035) | 43,624 | |||
Other income | 56,024 | |||
Total investment income | 1,524,983 | |||
Expenses: | ||||
Advisory fees | 1,785,185 | |||
Administrative services fees | 523,677 | |||
Distribution fees — Series II | 347,141 | |||
Transfer agent fees | 60,662 | |||
Trustees’ and officers’ fees and benefits | 25,879 | |||
Reports to shareholders | 8,005 | |||
Professional services fees | 41,485 | |||
Other | 9,339 | |||
Total expenses | 2,801,373 | |||
Less: Fees waived | (7,791 | ) | ||
Net expenses | 2,793,582 | |||
Net investment income (loss) | (1,268,599 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(44,689)) | 13,767,777 | |||
Change in net unrealized appreciation (depreciation) of investment securities | (12,121,567 | ) | ||
Net realized and unrealized gain | 1,646,210 | |||
Net increase in net assets resulting from operations | $ | 377,611 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (1,268,599 | ) | $ | (1,340,723 | ) | ||
Net realized gain | 13,767,777 | 27,134,624 | ||||||
Change in net unrealized appreciation (depreciation) | (12,121,567 | ) | (22,951,719 | ) | ||||
Net increase in net assets resulting from operations | 377,611 | 2,842,182 | ||||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (10,165,462 | ) | (8,511,702 | ) | ||||
Series ll | (14,237,965 | ) | (12,748,108 | ) | ||||
Total distributions from net realized gains | (24,403,427 | ) | (21,259,810 | ) | ||||
Share transactions–net: | ||||||||
Series l | 3,417,783 | 4,687,810 | ||||||
Series ll | (29,982,096 | ) | 7,356,724 | |||||
Net increase (decrease) in net assets resulting from share transactions | (26,564,313 | ) | 12,044,534 | |||||
Net increase (decrease) in net assets | (50,590,129 | ) | (6,373,094 | ) | ||||
Net assets: | ||||||||
Beginning of year | 262,316,384 | 268,689,478 | ||||||
End of year (includes undistributed net investment income (loss) of $(122,052) and $(124,407), respectively) | $ | 211,726,255 | $ | 262,316,384 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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 asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. The Fund bears the risk of loss with respect to the investment of collateral. 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. When loaning securities, the Fund retains certain benefits of owning the securities, including the economic equivalent of dividends or interest generated by the security. 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. The securities loaned are subject to termination at the option of the borrower or the Fund. Upon termination, the borrower will return to the Fund the securities loaned and the Fund will return the collateral. 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 and the securities may lose value during the delay which could result in potential losses to the Fund. Some of these losses may be indemnified by the lending agent. 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, are included in Dividends from affiliated money market funds on the Statement of Operations. The aggregate value of securities out on loan, if any, is shown as a footnote on the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $500 million | 0.75% | |||
Next $500 million | 0.70% | |||
Over $1 billion | 0.65% |
For the year ended December 31, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $7,791.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable
Invesco V.I. Mid Cap Growth Fund
product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $59,746 for accounting and fund administrative services and was reimbursed $463,931 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $720 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, 2016, 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, 2016, the Fund engaged in securities sales of $430,430, which resulted in net realized gains (losses) of $(44,689).
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, 2016 and 2015:
2016 | 2015 | |||||||
Long-term capital gain | $ | 24,403,427 | $ | 21,259,810 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed long-term gain | $ | 14,275,136 | ||
Net unrealized appreciation — investments | 38,591,758 | |||
Temporary book/tax differences | (122,051 | ) | ||
Shares of beneficial interest | 158,981,412 | |||
Total net assets | $ | 211,726,255 |
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, 2016.
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, 2016 was $140,823,006 and $189,538,305, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 44,965,745 | ||
Aggregate unrealized (depreciation) of investment securities | (6,373,987 | ) | ||
Net unrealized appreciation of investment securities | $ | 38,591,758 |
Cost of investments for tax purposes is $175,103,927.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of net operating losses and capital loss carryforward limitations, on December 31, 2016, undistributed net investment income (loss) was increased by $1,270,954, undistributed net realized gain was increased by $56,256 and shares of beneficial interest was decreased by $1,327,210. 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, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,420,749 | $ | 17,586,771 | 3,619,346 | $ | 21,736,576 | ||||||||||
Series II | 4,122,162 | 21,135,860 | 6,398,975 | 37,748,394 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 2,033,092 | 10,165,462 | 1,612,065 | 8,511,702 | ||||||||||||
Series II | 2,882,179 | 14,237,965 | 2,437,497 | 12,748,108 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,780,869 | ) | (24,334,450 | ) | (4,381,375 | ) | (25,560,468 | ) | ||||||||
Series II | (13,091,408 | ) | (65,355,921 | ) | (7,323,786 | ) | (43,139,778 | ) | ||||||||
Net increase (decrease) in share activity | (5,414,095 | ) | $ | (26,564,313 | ) | 2,362,722 | $ | 12,044,534 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 61% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 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 12/31/16 | $ | 5.38 | $ | (0.02 | ) | $ | 0.07 | $ | 0.05 | $ | — | $ | (0.54 | ) | $ | (0.54 | ) | $ | 4.89 | 0.76 | % | $ | 97,444 | 1.03 | %(d) | 1.03 | %(d) | (0.39 | )%(d) | 60 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 5.78 | (0.02 | ) | 0.08 | 0.06 | — | (0.46 | ) | (0.46 | ) | 5.38 | 1.21 | 103,632 | 1.07 | 1.07 | (0.33 | ) | 62 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 5.35 | (0.02 | ) | 0.45 | 0.43 | — | — | — | 5.78 | 8.04 | 106,390 | 1.07 | 1.07 | (0.36 | ) | 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 | ||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 5.33 | (0.03 | ) | 0.07 | 0.04 | — | (0.54 | ) | (0.54 | ) | 4.83 | 0.57 | 114,282 | 1.28 | (d) | 1.28 | (d) | (0.64 | )(d) | 60 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 5.74 | (0.03 | ) | 0.08 | 0.05 | — | (0.46 | ) | (0.46 | ) | 5.33 | 1.04 | 158,684 | 1.32 | 1.32 | (0.58 | ) | 62 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 5.33 | (0.03 | ) | 0.44 | 0.41 | — | — | — | 5.74 | 7.69 | 162,299 | 1.32 | 1.32 | (0.61 | ) | 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 |
(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 $99,168 and $138,856 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 significant dividend are $0.01 and 0.28% and $0.00 and 0.03% for Series I and Series II shares, respectively. |
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 the 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 the Invesco V.I. Mid Cap Growth Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,030.50 | $ | 5.00 | $ | 1,020.21 | $ | 4.98 | 0.98 | % | ||||||||||||
Series II | 1,000.00 | 1,030.90 | 6.28 | 1,018.95 | 6.24 | 1.23 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Mid Cap 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, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 24,403,427 | ||
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. 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
| ||||
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, 2016, Series I shares of Invesco V.I. S&P 500 Index Fund (the Fund) underperformed the Fund’s broad market/style-specific index, the S&P 500 Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 11.45 | % | |||
Series II Shares | 11.20 | ||||
S&P 500 Index▼ (Broad Market/Style-Specific Index) | 11.96 | ||||
Lipper VUF S&P 500 Funds Index∎ (Peer Group Index) | 11.62 |
Source(s): ▼FactSet Research Systems Inc., ∎Lipper Inc.
Market conditions and your Fund
During the year ended December 31, 2016, the US economy continued to expand. US gross domestic product (GDP) showed the US economy grew by 3.5% in the third quarter.1 However, annualized GDP is expected to be much lower. Employment data were mixed, with unemployment ending the year at 4.7%.2 Oil prices traded in a range from the high $20s to the low $50s during the reporting period.3 Major US stock market indexes posted gains for the reporting period, with most major market indexes hitting record highs; however, the markets were fairly volatile during the first half of the year.
Stocks began calendar year 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets sharply lower. Markets again recovered, and major US equity indexes hit record highs during the summer. Following the surprise outcome of the US presidential election, a stock
market rally sent major US equity market indexes to new record highs. The rally was led by financials, gaining on the belief that they might benefit from reduced federal regulation. Also in November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 – its only increase during the reporting period.4
Invesco V.I. S&P 500 Index Fund invests in stocks in approximately the same proportion as they are represented in the S&P 500 Index. During the reporting period, the sectors that contributed the most to overall Fund performance were information technology, financials, industrials and energy. Health care was the lone sector to generate a negative return and to detract from Fund performance.
One of the largest contributors to the Fund’s performance for the reporting period was Exxon Mobil. The company benefited from a rise in oil prices over the year. Also, AT&T, a telecommunications company, added to absolute performance as its stock benefited from the purchase of satellite TV broadcaster DirecTV Group (not a Fund holding).
Additionally, Apple benefited from the successful launch of the iPhone 7.
The health care sector was hit hard during the reporting period. Pharmaceutical company Allergan detracted from absolute Fund returns as the company suffered from the termination of its merger agreement with Pfizer. Other holdings in the sector that hampered Fund results were Gilead Sciences, Alexion Pharmaceuticals and CVS Health.
Please note, the Fund’s strategy is principally implemented through equity investments, but may also use S&P 500 futures contracts, which are derivative instruments used to gain exposure to the equity market. During the reporting period, the Fund invested in S&P 500 futures contracts, which generated a positive return and which contributed to Fund performance. Derivatives can be a cost-effective way to gain exposure to asset classes. However, derivatives may amplify traditional investment risks through the creation of leverage and may be less liquid than traditional securities.
We welcome new investors who joined the Fund during the year and thank you for your investment in Invesco V.I. S&P 500 Index Fund.
1 | Source: Bureau of Economic Analysis |
2 | Source: Bureau of Labor Statistics |
3 | Source: Thompson-Reuters |
4 | Source: US Federal Reserve |
Portfolio Composition | |||||
By sector | % of total net assets |
Information Technology | 20.7 | % | |||
Financials | 14.7 | ||||
Health Care | 13.5 | ||||
Consumer Discretionary | 12.0 | ||||
Industrials | 10.2 | ||||
Consumer Staples | 9.3 | ||||
Energy | 7.5 | ||||
Utilities | 3.2 | ||||
Real Estate | 2.9 | ||||
Materials | 2.8 | ||||
Telecommunication Services | 2.6 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 0.6 |
Top 10 Equity Holdings* | |||||
% of total net assets |
1. Apple Inc. | 3.2 | % | |||
2. Microsoft Corp. | 2.5 | ||||
3. Exxon Mobil Corp. | 1.9 | ||||
4. Johnson & Johnson | 1.6 | ||||
5. Berkshire Hathaway Inc.-Class B | 1.6 | ||||
6. JPMorgan Chase & Co. | 1.6 | ||||
7. Amazon.com, Inc. | 1.5 | ||||
8. General Electric Co. | 1.4 | ||||
9. Facebook Inc.-Class A | 1.4 | ||||
10. AT&T Inc. | 1.4 |
Total Net Assets | $ | 87.0 million | |||
Total Number of Holdings* | 506 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. S&P 500 Index Fund
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Anthony Munchak Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. S&P 500 Index Fund. He | ||
joined Invesco in 2000. Mr. Munchak earned a BS and an MS in finance from Boston College and an MBA from Bentley College. | ||
Glen Murphy Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. S&P 500 Index Fund. He | ||
joined Invesco in 1995. Mr. Murphy earned a BA from the University of Massachusetts at Amherst and an MS in finance from Boston College. | ||
Francis Orlando Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. S&P 500 Index Fund. He | ||
joined Invesco in 1987. Mr. Orlando earned a 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 Index Fund. He | ||
joined Invesco in 2000. Mr. Tsai earned a BS in mechanical engineering from National Taiwan University, an MS in mechanical engineering from the University of Michigan and an MS in computer science from Wayne State University. |
Anne Unflat Portfolio Manager, is manager of Invesco V.I. S&P 500 Index Fund. She joined Invesco in 1988. Ms. Unflat earned | ||
a BA in economics from Queens College and an MBA in finance from St. John’s University. | ||
Donna Chapman Wilson Portfolio Manager and Director of Portfolio Management, is manager of | ||
Invesco V.I. S&P 500 Index Fund. She joined Invesco in 1997. Ms. Chapman Wilson earned a BA in economics from Hampton University and an MBA in finance from the Wharton School of the University of Pennsylvania. |
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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (5/18/98) | 5.50 | % | |||
10 Years | 6.66 | ||||
5 Years | 14.25 | ||||
1 Year | 11.45 | ||||
Series II Shares | |||||
Inception (6/5/00) | 4.02 | % | |||
10 Years | 6.39 | ||||
5 Years | 13.98 | ||||
1 Year | 11.20 |
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, prior to June 1, 2010, 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. S&P 500 Index Fund
Invesco V.I. S&P 500 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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. The Fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer.
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.
Emerging markets securities risk. Emerging markets (also referred to as developing markets) are generally subject
to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Indexing risk. The Fund is operated as a passively managed index fund and, therefore, the adverse performance of a particular security necessarily will not result in the elimination of the security from the Fund’s portfolio. Ordinarily, the Adviser will not sell the Fund’s portfolio securities except to reflect additions or deletions of the securities that comprise the Index, or as may be necessary to raise cash to pay Fund shareholders who sell Fund shares. As such, the Fund will be negatively affected by declines in the securities represented by the Index. Also, there is no guarantee that the Adviser will be able to correlate the Fund’s performance with that of the Index.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
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, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.40% |
| |||||||
Advertising–0.15% | ||||||||
Interpublic Group of Cos., Inc. (The) | 1,793 | $ | 41,974 | |||||
Omnicom Group Inc. | 1,057 | 89,961 | ||||||
131,935 | ||||||||
Aerospace & Defense–2.20% | ||||||||
Arconic Inc. | 1,938 | 35,930 | ||||||
Boeing Co. (The) | 2,579 | 401,499 | ||||||
General Dynamics Corp. | 1,283 | 221,523 | ||||||
L-3 Communications Holdings, Inc. | 345 | 52,478 | ||||||
Lockheed Martin Corp. | 1,132 | 282,932 | ||||||
Northrop Grumman Corp. | 791 | 183,971 | ||||||
Raytheon Co. | 1,319 | 187,298 | ||||||
Rockwell Collins, Inc. | 581 | 53,894 | ||||||
Textron Inc. | 1,205 | 58,515 | ||||||
TransDigm Group, Inc. | 223 | 55,518 | ||||||
United Technologies Corp. | 3,441 | 377,202 | ||||||
1,910,760 | ||||||||
Agricultural & Farm Machinery–0.15% | ||||||||
Deere & Co. | 1,293 | 133,231 | ||||||
Agricultural Products–0.14% | ||||||||
Archer-Daniels-Midland Co. | 2,603 | 118,827 | ||||||
Air Freight & Logistics–0.75% | ||||||||
C.H. Robinson Worldwide, Inc. | 638 | 46,740 | ||||||
Expeditors International of Washington, Inc. | 809 | 42,845 | ||||||
FedEx Corp. | 1,098 | 204,448 | ||||||
United Parcel Service, Inc.–Class B | 3,093 | 354,581 | ||||||
648,614 | ||||||||
Airlines–0.64% | ||||||||
Alaska Air Group, Inc. | 550 | 48,802 | ||||||
American Airlines Group Inc. | 2,328 | 108,694 | ||||||
Delta Air Lines, Inc. | 3,309 | 162,770 | ||||||
Southwest Airlines Co. | 2,775 | 138,306 | ||||||
United Continental Holdings Inc.(b) | 1,297 | 94,525 | ||||||
553,097 | ||||||||
Alternative Carriers–0.08% | ||||||||
Level 3 Communications, Inc.(b) | 1,302 | 73,381 | ||||||
Apparel Retail–0.56% | ||||||||
Foot Locker, Inc. | 605 | 42,889 | ||||||
Gap, Inc. (The) | 953 | 21,385 | ||||||
L Brands, Inc. | 1,074 | 70,712 | ||||||
Ross Stores, Inc. | 1,774 | 116,374 | ||||||
TJX Cos., Inc. (The) | 2,939 | 220,807 | ||||||
Urban Outfitters, Inc.(b) | 401 | 11,421 | ||||||
483,588 |
Shares | Value | |||||||
Apparel, Accessories & Luxury Goods–0.33% | ||||||||
Coach, Inc. | 1,247 | $ | 43,670 | |||||
Hanesbrands, Inc. | 1,690 | 36,453 | ||||||
Michael Kors Holdings Ltd.(b) | 755 | 32,450 | ||||||
PVH Corp. | 358 | 32,306 | ||||||
Ralph Lauren Corp. | 252 | 22,761 | ||||||
Under Armour, Inc.–Class A(b) | 820 | 23,821 | ||||||
Under Armour, Inc.–Class C(b) | 824 | 20,740 | ||||||
VF Corp. | 1,485 | 79,225 | ||||||
291,426 | ||||||||
Application Software–0.78% | ||||||||
Adobe Systems Inc.(b) | 2,225 | 229,064 | ||||||
Autodesk, Inc.(b) | 873 | 64,611 | ||||||
Citrix Systems, Inc.(b) | 696 | 62,160 | ||||||
Intuit Inc. | 1,096 | 125,612 | ||||||
salesforce.com, inc.(b) | 2,868 | 196,343 | ||||||
677,790 | ||||||||
Asset Management & Custody Banks–1.10% | ||||||||
Affiliated Managers Group, Inc.(b) | 246 | 35,744 | ||||||
Ameriprise Financial, Inc. | 709 | 78,656 | ||||||
Bank of New York Mellon Corp. (The) | 4,752 | 225,150 | ||||||
BlackRock, Inc. | 545 | 207,394 | ||||||
Franklin Resources, Inc. | 1,572 | 62,220 | ||||||
Invesco Ltd.(c) | 1,834 | 55,643 | ||||||
Northern Trust Corp. | 952 | 84,776 | ||||||
State Street Corp. | 1,640 | 127,461 | ||||||
T. Rowe Price Group Inc. | 1,093 | 82,259 | ||||||
959,303 | ||||||||
Auto Parts & Equipment–0.13% | ||||||||
BorgWarner, Inc. | 900 | 35,496 | ||||||
Delphi Automotive PLC | 1,220 | 82,167 | ||||||
117,663 | ||||||||
Automobile Manufacturers–0.49% | ||||||||
Ford Motor Co. | 17,587 | 213,330 | ||||||
General Motors Co. | 6,234 | 217,193 | ||||||
430,523 | ||||||||
Automotive Retail–0.40% | ||||||||
Advance Auto Parts, Inc. | 329 | 55,640 | ||||||
AutoNation, Inc.(b) | 309 | 15,033 | ||||||
AutoZone, Inc.(b) | 130 | 102,673 | ||||||
CarMax, Inc.(b) | 856 | 55,118 | ||||||
O’Reilly Automotive, Inc.(b) | 424 | 118,046 | ||||||
346,510 | ||||||||
Biotechnology–2.73% | ||||||||
AbbVie Inc. | 7,289 | 456,437 | ||||||
Alexion Pharmaceuticals, Inc.(b) | 1,003 | 122,717 |
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) | ||||||||
Amgen Inc. | 3,343 | $ | 488,780 | |||||
Biogen Inc.(b) | 980 | 277,908 | ||||||
Celgene Corp.(b) | 3,484 | 403,273 | ||||||
Gilead Sciences, Inc. | 5,906 | 422,929 | ||||||
Regeneron Pharmaceuticals, Inc.(b) | 339 | 124,444 | ||||||
Vertex Pharmaceuticals Inc.(b) | 1,108 | 81,626 | ||||||
2,378,114 | ||||||||
Brewers–0.09% | ||||||||
Molson Coors Brewing Co.–Class B | 823 | 80,086 | ||||||
Broadcasting–0.24% | ||||||||
CBS Corp.–Class B | 1,761 | 112,035 | ||||||
Discovery Communications, Inc.–Class A(b) | 674 | 18,474 | ||||||
Discovery Communications, Inc.–Class C(b) | 991 | 26,539 | ||||||
Scripps Networks Interactive Inc.–Class A | 425 | 30,332 | ||||||
TEGNA Inc. | 931 | 19,914 | ||||||
207,294 | ||||||||
Building Products–0.33% | ||||||||
Allegion PLC | 428 | 27,392 | ||||||
Fortune Brands Home & Security, Inc. | 688 | 36,780 | ||||||
Johnson Controls International PLC | 4,224 | 173,987 | ||||||
Masco Corp. | 1,477 | 46,703 | ||||||
284,862 | ||||||||
Cable & Satellite–1.17% | ||||||||
Charter Communications, Inc.–Class A(b) | 973 | 280,146 | ||||||
Comcast Corp.–Class A | 10,712 | 739,664 | ||||||
1,019,810 | ||||||||
Casinos & Gaming–0.04% | ||||||||
Wynn Resorts Ltd. | 355 | 30,711 | ||||||
Commodity Chemicals–0.15% | ||||||||
Lyondell Chemical Co.–Class A | 1,501 | 128,756 | ||||||
Communications Equipment–1.02% | ||||||||
Cisco Systems, Inc. | 22,512 | 680,313 | ||||||
F5 Networks, Inc.(b) | 296 | 42,837 | ||||||
Harris Corp. | 555 | 56,871 | ||||||
Juniper Networks, Inc. | 1,687 | 47,674 | ||||||
Motorola Solutions, Inc. | 745 | 61,753 | ||||||
889,448 | ||||||||
Computer & Electronics Retail–0.06% | ||||||||
Best Buy Co., Inc. | 1,234 | 52,655 | ||||||
Construction & Engineering–0.10% | ||||||||
Fluor Corp. | 622 | 32,667 | ||||||
Jacobs Engineering Group, Inc.(b) | 543 | 30,951 | ||||||
Quanta Services, Inc.(b) | 675 | 23,524 | ||||||
87,142 | ||||||||
Construction Machinery & Heavy Trucks–0.50% | ||||||||
Caterpillar Inc. | 2,629 | 243,814 | ||||||
Cummins Inc. | 693 | 94,712 |
Shares | Value | |||||||
Construction Machinery & Heavy Trucks–(continued) | ||||||||
PACCAR Inc. | 1,568 | $ | 100,195 | |||||
438,721 | ||||||||
Construction Materials–0.16% | ||||||||
Martin Marietta Materials, Inc. | 283 | 62,693 | ||||||
Vulcan Materials Co. | 595 | 74,464 | ||||||
137,157 | ||||||||
Consumer Electronics–0.07% | ||||||||
Garmin Ltd. | 515 | 24,972 | ||||||
Harman International Industries, Inc. | 312 | 34,682 | ||||||
59,654 | ||||||||
Consumer Finance–0.83% | ||||||||
American Express Co. | 3,455 | 255,946 | ||||||
Capital One Financial Corp. | 2,162 | 188,613 | ||||||
Discover Financial Services | 1,772 | 127,744 | ||||||
Navient Corp. | 1,379 | 22,657 | ||||||
Synchrony Financial | 3,545 | 128,577 | ||||||
723,537 | ||||||||
Copper–0.09% | ||||||||
Freeport-McMoRan Inc.(b) | 5,630 | 74,260 | ||||||
Data Processing & Outsourced Services–2.33% | ||||||||
Alliance Data Systems Corp. | 261 | 59,638 | ||||||
Automatic Data Processing, Inc. | 2,027 | 208,335 | ||||||
Fidelity National Information Services, Inc. | 1,467 | 110,964 | ||||||
Fiserv, Inc.(b) | 983 | 104,473 | ||||||
Global Payments Inc. | 687 | 47,685 | ||||||
Mastercard Inc.–Class A | 4,278 | 441,703 | ||||||
Paychex, Inc. | 1,436 | 87,424 | ||||||
PayPal Holdings, Inc.(b) | 5,023 | 198,258 | ||||||
Total System Services, Inc. | 740 | 36,282 | ||||||
Visa Inc.–Class A | 8,394 | 654,900 | ||||||
Western Union Co. (The) | 2,154 | 46,785 | ||||||
Xerox Corp. | 3,809 | 33,253 | ||||||
2,029,700 | ||||||||
Department Stores–0.13% | ||||||||
Kohl’s Corp. | 803 | 39,652 | ||||||
Macy’s, Inc. | 1,379 | 49,382 | ||||||
Nordstrom, Inc. | 519 | 24,876 | ||||||
113,910 | ||||||||
Distillers & Vintners–0.18% | ||||||||
Brown-Forman Corp.–Class B | 815 | 36,610 | ||||||
Constellation Brands, Inc.–Class A | 797 | 122,188 | ||||||
158,798 | ||||||||
Distributors–0.12% | ||||||||
Genuine Parts Co. | 666 | 63,630 | ||||||
LKQ Corp.(b) | 1,373 | 42,082 | ||||||
105,712 |
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 Banks–5.39% | ||||||||
Bank of America Corp. | 45,421 | $ | 1,003,804 | |||||
Citigroup Inc. | 12,809 | 761,239 | ||||||
Comerica Inc. | 777 | 52,921 | ||||||
JPMorgan Chase & Co. | 16,083 | 1,387,802 | ||||||
U.S. Bancorp | 7,181 | 368,888 | ||||||
Wells Fargo & Co. | 20,325 | 1,120,111 | ||||||
4,694,765 | ||||||||
Diversified Chemicals–0.72% | ||||||||
Dow Chemical Co. (The) | 5,043 | 288,560 | ||||||
E. I. du Pont de Nemours and Co. | 3,912 | 287,141 | ||||||
Eastman Chemical Co. | 660 | 49,639 | ||||||
625,340 | ||||||||
Diversified Support Services–0.05% | ||||||||
Cintas Corp. | 382 | 44,144 | ||||||
Drug Retail–0.80% | ||||||||
CVS Health Corp. | 4,792 | 378,137 | ||||||
Walgreens Boots Alliance, Inc. | 3,846 | 318,295 | ||||||
696,432 | ||||||||
Electric Utilities–1.96% | ||||||||
Alliant Energy Corp. | 1,016 | 38,496 | ||||||
American Electric Power Co., Inc. | 2,200 | 138,512 | ||||||
Duke Energy Corp. | 3,083 | 239,302 | ||||||
Edison International | 1,458 | 104,961 | ||||||
Entergy Corp. | 800 | 58,776 | ||||||
Eversource Energy | 1,418 | 78,316 | ||||||
Exelon Corp. | 4,129 | 146,538 | ||||||
FirstEnergy Corp. | 1,902 | 58,905 | ||||||
NextEra Energy, Inc. | 2,099 | 250,747 | ||||||
PG&E Corp. | 2,272 | 138,069 | ||||||
Pinnacle West Capital Corp. | 497 | 38,781 | ||||||
PPL Corp. | 3,034 | 103,308 | ||||||
Southern Co. (The) | 4,404 | 216,633 | ||||||
Xcel Energy, Inc. | 2,261 | 92,023 | ||||||
1,703,367 | ||||||||
Electrical Components & Equipment–0.54% | ||||||||
Acuity Brands, Inc. | 196 | 45,249 | ||||||
AMETEK, Inc. | 1,039 | 50,495 | ||||||
Eaton Corp. PLC | 2,028 | 136,059 | ||||||
Emerson Electric Co. | 2,880 | 160,560 | ||||||
Rockwell Automation, Inc. | 578 | 77,683 | ||||||
470,046 | ||||||||
Electronic Components–0.23% | ||||||||
Amphenol Corp.–Class A | 1,380 | 92,736 | ||||||
Corning Inc. | 4,257 | 103,317 | ||||||
196,053 | ||||||||
Electronic Equipment & Instruments–0.03% | ||||||||
FLIR Systems, Inc. | 614 | 22,221 |
Shares | Value | |||||||
Electronic Manufacturing Services–0.13% | ||||||||
TE Connectivity Ltd. | 1,591 | $ | 110,224 | |||||
Environmental & Facilities Services–0.25% | ||||||||
Republic Services, Inc. | 1,042 | 59,446 | ||||||
Stericycle, Inc.(b) | 380 | 29,275 | ||||||
Waste Management, Inc. | 1,821 | 129,127 | ||||||
217,848 | ||||||||
Fertilizers & Agricultural Chemicals–0.37% | ||||||||
CF Industries Holdings, Inc. | 1,042 | 32,802 | ||||||
FMC Corp. | 598 | 33,823 | ||||||
Monsanto Co. | 1,958 | 206,001 | ||||||
Mosaic Co. (The) | 1,559 | 45,726 | ||||||
318,352 | ||||||||
Financial Exchanges & Data–0.64% | ||||||||
CME Group Inc.–Class A | 1,524 | 175,793 | ||||||
Intercontinental Exchange, Inc. | 2,660 | 150,077 | ||||||
Moody’s Corp. | 748 | 70,514 | ||||||
Nasdaq, Inc. | 510 | 34,231 | ||||||
S&P Global Inc. | 1,164 | 125,177 | ||||||
555,792 | ||||||||
Food Distributors–0.14% | ||||||||
Sysco Corp. | 2,261 | 125,192 | ||||||
Food Retail–0.22% | ||||||||
Kroger Co. (The) | 4,246 | 146,529 | ||||||
Whole Foods Market, Inc. | 1,426 | 43,864 | ||||||
190,393 | ||||||||
Footwear–0.35% | ||||||||
NIKE, Inc.–Class B | 6,005 | 305,234 | ||||||
General Merchandise Stores–0.40% | ||||||||
Dollar General Corp. | 1,142 | 84,588 | ||||||
Dollar Tree, Inc.(b) | 1,054 | 81,362 | ||||||
Target Corp. | 2,524 | 182,309 | ||||||
348,259 | ||||||||
Gold–0.09% | ||||||||
Newmont Mining Corp. | 2,366 | 80,610 | ||||||
Health Care Distributors–0.43% | ||||||||
AmerisourceBergen Corp. | 751 | 58,721 | ||||||
Cardinal Health, Inc. | 1,425 | 102,557 | ||||||
Henry Schein, Inc.(b) | 365 | 55,374 | ||||||
McKesson Corp. | 1,016 | 142,697 | ||||||
Patterson Cos. Inc. | 372 | 15,263 | ||||||
374,612 | ||||||||
Health Care Equipment–2.31% | ||||||||
Abbott Laboratories | 6,617 | 254,159 | ||||||
Baxter International Inc. | 2,185 | 96,883 | ||||||
Becton, Dickinson and Co. | 952 | 157,604 | ||||||
Boston Scientific Corp.(b) | 6,090 | 131,727 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Health Care Equipment–(continued) | ||||||||
C.R. Bard, Inc. | 328 | $ | 73,689 | |||||
Danaher Corp. | 2,735 | 212,892 | ||||||
Edwards Lifesciences Corp.(b) | 952 | 89,202 | ||||||
Hologic, Inc.(b) | 1,240 | 49,749 | ||||||
Intuitive Surgical, Inc.(b) | 172 | 109,077 | ||||||
Medtronic PLC | 6,171 | 439,560 | ||||||
St. Jude Medical, Inc. | 1,274 | 102,162 | ||||||
Stryker Corp. | 1,389 | 166,416 | ||||||
Varian Medical Systems, Inc.(b) | 417 | 37,438 | ||||||
Zimmer Biomet Holdings, Inc. | 894 | 92,261 | ||||||
2,012,819 | ||||||||
Health Care Facilities–0.16% | ||||||||
HCA Holdings, Inc.(b) | 1,321 | 97,780 | ||||||
Universal Health Services, Inc.–Class B | 402 | 42,765 | ||||||
140,545 | ||||||||
Health Care REIT’s–0.31% | ||||||||
HCP, Inc. | 2,071 | 61,550 | ||||||
Ventas, Inc. | 1,590 | 99,407 | ||||||
Welltower Inc. | 1,628 | 108,962 | ||||||
269,919 | ||||||||
Health Care Services–0.44% | ||||||||
DaVita Inc.(b) | 708 | 45,453 | ||||||
Envision Healthcare Corp.(b) | 525 | 33,227 | ||||||
Express Scripts Holding Co.(b) | 2,771 | 190,617 | ||||||
Laboratory Corp. of America Holdings(b) | 457 | 58,670 | ||||||
Quest Diagnostics Inc. | 621 | 57,070 | ||||||
385,037 | ||||||||
Health Care Supplies–0.11% | ||||||||
Cooper Cos., Inc. (The) | 218 | 38,135 | ||||||
DENTSPLY SIRONA Inc. | 1,042 | 60,154 | ||||||
98,289 | ||||||||
Health Care Technology–0.07% | ||||||||
Cerner Corp.(b) | 1,344 | 63,665 | ||||||
Home Entertainment Software–0.25% | ||||||||
Activision Blizzard, Inc. | 3,053 | 110,244 | ||||||
Electronic Arts Inc.(b) | 1,345 | 105,932 | ||||||
216,176 | ||||||||
Home Furnishings–0.10% | ||||||||
Leggett & Platt, Inc. | 597 | 29,181 | ||||||
Mohawk Industries, Inc.(b) | 281 | 56,110 | ||||||
85,291 | ||||||||
Home Improvement Retail–1.16% | ||||||||
Home Depot, Inc. (The) | 5,475 | 734,088 | ||||||
Lowe’s Cos., Inc. | 3,914 | 278,364 | ||||||
1,012,452 |
Shares | Value | |||||||
Homebuilding–0.12% | ||||||||
D.R. Horton, Inc. | 1,516 | $ | 41,432 | |||||
Lennar Corp.–Class A | 883 | 37,907 | ||||||
PulteGroup Inc. | 1,343 | 24,685 | ||||||
104,024 | ||||||||
Homefurnishing Retail–0.03% | ||||||||
Bed Bath & Beyond Inc. | 690 | 28,042 | ||||||
Hotel and Resort REIT’s–0.07% | ||||||||
Host Hotels & Resorts Inc. | 3,322 | 62,586 | ||||||
Hotels, Resorts & Cruise Lines–0.36% | ||||||||
Carnival Corp. | 1,884 | 98,081 | ||||||
Marriott International Inc.–Class A | 1,431 | 118,315 | ||||||
Royal Caribbean Cruises Ltd. | 751 | 61,612 | ||||||
Wyndham Worldwide Corp. | 491 | 37,498 | ||||||
315,506 | ||||||||
Household Appliances–0.07% | ||||||||
Whirlpool Corp. | 337 | 61,256 | ||||||
Household Products–1.81% | ||||||||
Church & Dwight Co., Inc. | 1,152 | 50,907 | ||||||
Clorox Co. (The) | 579 | 69,492 | ||||||
Colgate-Palmolive Co. | 3,989 | 261,040 | ||||||
Kimberly-Clark Corp. | 1,609 | 183,619 | ||||||
Procter & Gamble Co. (The) | 12,028 | 1,011,314 | ||||||
1,576,372 | ||||||||
Housewares & Specialties–0.11% | ||||||||
Newell Brands, Inc. | 2,151 | 96,042 | ||||||
Human Resource & Employment Services–0.03% | ||||||||
Robert Half International, Inc. | 582 | 28,390 | ||||||
Hypermarkets & Super Centers–0.90% | ||||||||
Costco Wholesale Corp. | 1,960 | 313,816 | ||||||
Wal-Mart Stores, Inc. | 6,768 | 467,804 | ||||||
781,620 | ||||||||
Independent Power Producers & Energy Traders–0.06% | ||||||||
AES Corp. (The) | 2,949 | 34,267 | ||||||
NRG Energy, Inc. | 1,450 | 17,777 | ||||||
52,044 | ||||||||
Industrial Conglomerates–2.55% | ||||||||
3M Co. | 2,704 | 482,854 | ||||||
General Electric Co.(d) | 39,763 | 1,256,511 | ||||||
Honeywell International Inc. | 3,425 | 396,786 | ||||||
Roper Technologies, Inc. | 453 | 82,935 | ||||||
2,219,086 | ||||||||
Industrial Gases–0.33% | ||||||||
Air Products and Chemicals, Inc. | 976 | 140,369 | ||||||
Praxair, Inc. | 1,275 | 149,417 | ||||||
289,786 |
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 | |||||||
Industrial Machinery–0.80% | ||||||||
Dover Corp. | 694 | $ | 52,001 | |||||
Flowserve Corp. | 583 | 28,013 | ||||||
Fortive Corp. | 1,344 | 72,079 | ||||||
Illinois Tool Works Inc. | 1,419 | 173,771 | ||||||
Ingersoll-Rand PLC | 1,153 | 86,521 | ||||||
Parker-Hannifin Corp. | 598 | 83,720 | ||||||
Pentair PLC (United Kingdom) | 745 | 41,772 | ||||||
Snap-on Inc. | 259 | 44,359 | ||||||
Stanley Black & Decker Inc. | 672 | 77,072 | ||||||
Xylem, Inc. | 801 | 39,665 | ||||||
698,973 | ||||||||
Industrial REIT’s–0.14% | ||||||||
Prologis, Inc. | 2,375 | 125,376 | ||||||
Insurance Brokers–0.46% | ||||||||
Aon PLC | 1,187 | 132,386 | ||||||
Arthur J. Gallagher & Co. | 791 | 41,100 | ||||||
Marsh & McLennan Cos., Inc. | 2,318 | 156,674 | ||||||
Willis Towers Watson PLC | 580 | 70,922 | ||||||
401,082 | ||||||||
Integrated Oil & Gas–3.36% | ||||||||
Chevron Corp. | 8,485 | 998,684 | ||||||
Exxon Mobil Corp. | 18,638 | 1,682,266 | ||||||
Occidental Petroleum Corp. | 3,434 | 244,604 | ||||||
2,925,554 | ||||||||
Integrated Telecommunication Services–2.56% | ||||||||
AT&T Inc. | 27,603 | 1,173,956 | ||||||
CenturyLink Inc. | 2,421 | 57,571 | ||||||
Frontier Communications Corp. | 5,249 | 17,742 | ||||||
Verizon Communications Inc. | 18,324 | 978,135 | ||||||
2,227,404 | ||||||||
Internet & Direct Marketing Retail–2.27% | ||||||||
Amazon.com, Inc.(b) | 1,772 | 1,328,770 | ||||||
Expedia, Inc. | 538 | 60,945 | ||||||
Netflix Inc.(b) | 1,928 | 238,686 | ||||||
Priceline Group Inc. (The)(b) | 222 | 325,465 | ||||||
TripAdvisor Inc.(b) | 511 | 23,695 | ||||||
1,977,561 | ||||||||
Internet Software & Services–4.21% | ||||||||
Akamai Technologies, Inc.(b) | 781 | 52,077 | ||||||
Alphabet Inc.–Class A(b) | 1,330 | 1,053,959 | ||||||
Alphabet Inc.–Class C(b) | 1,333 | 1,028,836 | ||||||
eBay Inc.(b) | 4,699 | 139,513 | ||||||
Facebook Inc.–Class A(b) | 10,521 | 1,210,441 | ||||||
VeriSign, Inc.(b) | 415 | 31,569 | ||||||
Yahoo! Inc.(b) | 3,918 | 151,509 | ||||||
3,667,904 |
Shares | Value | |||||||
Investment Banking & Brokerage–1.07% | ||||||||
Charles Schwab Corp. (The) | 5,422 | $ | 214,006 | |||||
E*TRADE Financial Corp.(b) | 1,230 | 42,620 | ||||||
Goldman Sachs Group, Inc. (The) | 1,661 | 397,727 | ||||||
Morgan Stanley | 6,481 | 273,822 | ||||||
928,175 | ||||||||
IT Consulting & Other Services–1.33% | ||||||||
Accenture PLC–Class A | 2,785 | 326,207 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 2,715 | 152,122 | ||||||
CSRA Inc. | 650 | 20,696 | ||||||
International Business Machines Corp. | 3,892 | 646,033 | ||||||
Teradata Corp.(b) | 583 | 15,840 | ||||||
1,160,898 | ||||||||
Leisure Products–0.09% | ||||||||
Hasbro, Inc. | 504 | 39,206 | ||||||
Mattel, Inc. | 1,524 | 41,986 | ||||||
81,192 | ||||||||
Life & Health Insurance–0.94% | ||||||||
Aflac, Inc. | 1,824 | 126,950 | ||||||
Lincoln National Corp. | 1,027 | 68,059 | ||||||
MetLife, Inc. | 4,939 | 266,163 | ||||||
Principal Financial Group, Inc. | 1,196 | 69,201 | ||||||
Prudential Financial, Inc. | 1,932 | 201,044 | ||||||
Torchmark Corp. | 498 | 36,732 | ||||||
Unum Group | 1,049 | 46,083 | ||||||
814,232 | ||||||||
Life Sciences Tools & Services–0.60% | ||||||||
Agilent Technologies, Inc. | 1,457 | 66,381 | ||||||
Illumina, Inc.(b) | 655 | 83,866 | ||||||
Mettler-Toledo International Inc.(b) | 118 | 49,390 | ||||||
PerkinElmer, Inc. | 489 | 25,501 | ||||||
Thermo Fisher Scientific, Inc. | 1,775 | 250,453 | ||||||
Waters Corp.(b) | 360 | 48,380 | ||||||
523,971 | ||||||||
Managed Health Care–1.59% | ||||||||
Aetna Inc. | 1,570 | 194,696 | ||||||
Anthem, Inc. | 1,177 | 169,217 | ||||||
Centene Corp.(b) | 763 | 43,117 | ||||||
Cigna Corp. | 1,147 | 152,999 | ||||||
Humana Inc. | 666 | 135,884 | ||||||
UnitedHealth Group Inc. | 4,278 | 684,651 | ||||||
1,380,564 | ||||||||
Metal & Glass Containers–0.07% | ||||||||
Ball Corp. | 779 | 58,480 | ||||||
Motorcycle Manufacturers–0.05% | ||||||||
Harley-Davidson, Inc. | 799 | 46,614 | ||||||
Movies & Entertainment–1.46% | ||||||||
Time Warner Inc. | 3,466 | 334,573 | ||||||
Twenty-First Century Fox, Inc.–Class A | 4,762 | 133,527 |
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 | |||||||
Movies & Entertainment–(continued) | ||||||||
Twenty-First Century Fox, Inc.–Class B | 2,173 | $ | 59,214 | |||||
Viacom Inc.–Class B | 1,554 | 54,545 | ||||||
Walt Disney Co. (The) | 6,580 | 685,768 | ||||||
1,267,627 | ||||||||
Multi-Line Insurance–0.52% | ||||||||
American International Group, Inc. | 4,385 | 286,385 | ||||||
Assurant, Inc. | 255 | 23,679 | ||||||
Hartford Financial Services Group, Inc. (The) | 1,697 | 80,862 | ||||||
Loews Corp. | 1,236 | 57,882 | ||||||
448,808 | ||||||||
Multi-Sector Holdings–1.64% | ||||||||
Berkshire Hathaway Inc.–Class B(b) | 8,535 | 1,391,034 | ||||||
Leucadia National Corp. | 1,423 | 33,085 | ||||||
1,424,119 | ||||||||
Multi-Utilities–1.06% | ||||||||
Ameren Corp. | 1,085 | 56,919 | ||||||
CenterPoint Energy, Inc. | 1,915 | 47,186 | ||||||
CMS Energy Corp. | 1,248 | 51,942 | ||||||
Consolidated Edison, Inc. | 1,361 | 100,278 | ||||||
Dominion Resources, Inc. | 2,816 | 215,677 | ||||||
DTE Energy Co. | 802 | 79,005 | ||||||
NiSource Inc. | 1,425 | 31,550 | ||||||
Public Service Enterprise Group Inc. | 2,251 | 98,774 | ||||||
SCANA Corp. | 639 | 46,826 | ||||||
Sempra Energy | 1,117 | 112,415 | ||||||
WEC Energy Group, Inc. | 1,411 | 82,755 | ||||||
923,327 | ||||||||
Office REIT’s–0.25% | ||||||||
Boston Properties, Inc. | 687 | 86,411 | ||||||
SL Green Realty Corp. | 448 | 48,182 | ||||||
Vornado Realty Trust | 768 | 80,156 | ||||||
214,749 | ||||||||
Office Services & Supplies–0.01% | ||||||||
Pitney Bowes Inc. | 817 | 12,410 | ||||||
Oil & Gas Drilling–0.07% | ||||||||
Helmerich & Payne, Inc. | 483 | 37,384 | ||||||
Transocean Ltd.(b) | 1,749 | 25,780 | ||||||
63,164 | ||||||||
Oil & Gas Equipment & Services–1.10% | ||||||||
Baker Hughes Inc. | 1,900 | 123,443 | ||||||
FMC Technologies, Inc.(b) | 1,009 | 35,850 | ||||||
Halliburton Co. | 3,885 | 210,140 | ||||||
National Oilwell Varco Inc. | 1,690 | 63,273 | ||||||
Schlumberger Ltd. | 6,253 | 524,939 | ||||||
957,645 | ||||||||
Oil & Gas Exploration & Production–1.91% | ||||||||
Anadarko Petroleum Corp. | 2,512 | 175,162 | ||||||
Apache Corp. | 1,698 | 107,772 |
Shares | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Cabot Oil & Gas Corp. | 2,061 | $ | 48,145 | |||||
Chesapeake Energy Corp.(b) | 3,335 | 23,412 | ||||||
Cimarex Energy Co. | 424 | 57,622 | ||||||
Concho Resources Inc.(b) | 655 | 86,853 | ||||||
ConocoPhillips | 5,568 | 279,180 | ||||||
Devon Energy Corp. | 2,335 | 106,639 | ||||||
EOG Resources, Inc. | 2,591 | 261,950 | ||||||
EQT Corp. | 772 | 50,489 | ||||||
Hess Corp. | 1,203 | 74,935 | ||||||
Marathon Oil Corp. | 3,791 | 65,622 | ||||||
Murphy Oil Corp. | 751 | 23,379 | ||||||
Newfield Exploration Co.(b) | 888 | 35,964 | ||||||
Noble Energy, Inc. | 1,922 | 73,151 | ||||||
Pioneer Natural Resources Co. | 758 | 136,493 | ||||||
Range Resources Corp. | 840 | 28,862 | ||||||
Southwestern Energy Co.(b) | 2,203 | 23,836 | ||||||
1,659,466 | ||||||||
Oil & Gas Refining & Marketing–0.55% | ||||||||
Marathon Petroleum Corp. | 2,362 | 118,927 | ||||||
Phillips 66 | 1,988 | 171,783 | ||||||
Tesoro Corp. | 531 | 46,436 | ||||||
Valero Energy Corp. | 2,034 | 138,963 | ||||||
476,109 | ||||||||
Oil & Gas Storage & Transportation–0.52% | ||||||||
Kinder Morgan Inc. | 8,592 | 177,940 | ||||||
ONEOK, Inc. | 941 | 54,023 | ||||||
Spectra Energy Corp. | 3,137 | 128,899 | ||||||
Williams Cos., Inc. (The) | 3,057 | 95,195 | ||||||
456,057 | ||||||||
Packaged Foods & Meats–1.47% | ||||||||
Campbell Soup Co. | 869 | 52,548 | ||||||
Conagra Brands, Inc. | 1,866 | 73,786 | ||||||
General Mills, Inc. | 2,671 | 164,988 | ||||||
Hershey Co. (The) | 627 | 64,851 | ||||||
Hormel Foods Corp. | 1,208 | 42,050 | ||||||
JM Smucker Co. (The) | 520 | 66,591 | ||||||
Kellogg Co. | 1,127 | 83,071 | ||||||
Kraft Heinz Co. (The) | 2,680 | 234,018 | ||||||
McCormick & Co., Inc. | 514 | 47,972 | ||||||
Mead Johnson Nutrition Co. | 825 | 58,377 | ||||||
Mondelez International, Inc.–Class A | 6,961 | 308,581 | ||||||
Tyson Foods, Inc.–Class A | 1,305 | 80,492 | ||||||
1,277,325 | ||||||||
Paper Packaging–0.26% | ||||||||
Avery Dennison Corp. | 397 | 27,877 | ||||||
International Paper Co. | 1,840 | 97,630 | ||||||
Sealed Air Corp. | 879 | 39,854 | ||||||
WestRock Co. | 1,124 | 57,066 | ||||||
222,427 |
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 | |||||||
Personal Products–0.13% | ||||||||
Coty, Inc.–Class A | 2,098 | $ | 38,415 | |||||
Estee Lauder Cos. Inc. (The)–Class A | 988 | 75,572 | ||||||
113,987 | ||||||||
Pharmaceuticals–5.09% | ||||||||
Allergan PLC(b) | 1,685 | 353,867 | ||||||
Bristol-Myers Squibb Co. | 7,512 | 439,001 | ||||||
Eli Lilly and Co. | 4,366 | 321,119 | ||||||
Endo International PLC(b) | 904 | 14,889 | ||||||
Johnson & Johnson | 12,228 | 1,408,788 | ||||||
Mallinckrodt PLC(b) | 481 | 23,964 | ||||||
Merck & Co., Inc. | 12,390 | 729,399 | ||||||
Mylan N.V.(b) | 2,047 | 78,093 | ||||||
Perrigo Co. PLC | 640 | 53,267 | ||||||
Pfizer Inc. | 27,281 | 886,087 | ||||||
Zoetis Inc. | 2,210 | 118,301 | ||||||
4,426,775 | ||||||||
Property & Casualty Insurance–0.86% | ||||||||
Allstate Corp. (The) | 1,662 | 123,187 | ||||||
Chubb Ltd. | 2,091 | 276,263 | ||||||
Cincinnati Financial Corp. | 669 | 50,677 | ||||||
Progressive Corp. (The) | 2,603 | 92,406 | ||||||
Travelers Cos., Inc. (The) | 1,276 | 156,208 | ||||||
XL Group Ltd. (Ireland) | 1,229 | 45,793 | ||||||
744,534 | ||||||||
Publishing–0.03% | ||||||||
News Corp.–Class A | 1,703 | 19,516 | ||||||
News Corp.–Class B | 543 | 6,408 | ||||||
25,924 | ||||||||
Railroads–0.83% | ||||||||
CSX Corp. | 4,233 | 152,091 | ||||||
Kansas City Southern | 482 | 40,898 | ||||||
Norfolk Southern Corp. | 1,312 | 141,788 | ||||||
Union Pacific Corp. | 3,703 | 383,927 | ||||||
718,704 | ||||||||
Real Estate Services–0.05% | ||||||||
CBRE Group, Inc.–Class A(b) | 1,336 | 42,071 | ||||||
Regional Banks–1.30% | ||||||||
BB&T Corp. | 3,645 | 171,388 | ||||||
Citizens Financial Group, Inc. | 2,324 | 82,804 | ||||||
Fifth Third Bancorp | 3,396 | 91,590 | ||||||
Huntington Bancshares Inc. | 4,858 | 64,223 | ||||||
KeyCorp | 4,843 | 88,482 | ||||||
M&T Bank Corp. | 701 | 109,657 | ||||||
People’s United Financial Inc. | 1,385 | 26,814 | ||||||
PNC Financial Services Group, Inc. (The) | 2,194 | 256,610 | ||||||
Regions Financial Corp. | 5,517 | 79,224 | ||||||
SunTrust Banks, Inc. | 2,205 | 120,944 | ||||||
Zions Bancorp. | 917 | 39,468 | ||||||
1,131,204 |
Shares | Value | |||||||
Research & Consulting Services–0.23% | ||||||||
Dun & Bradstreet Corp. (The) | 167 | $ | 20,260 | |||||
Equifax Inc. | 533 | 63,017 | ||||||
Nielsen Holdings PLC | 1,503 | 63,051 | ||||||
Verisk Analytics, Inc.–Class A(b) | 702 | 56,981 | ||||||
203,309 | ||||||||
Residential REIT’s–0.47% | ||||||||
Apartment Investment & Management Co.–Class A | 700 | 31,815 | ||||||
AvalonBay Communities, Inc. | 614 | 108,770 | ||||||
Equity Residential | 1,636 | 105,293 | ||||||
Essex Property Trust, Inc. | 292 | 67,890 | ||||||
Mid-America Apartment Communities, Inc. | 508 | 49,744 | ||||||
UDR, Inc. | 1,194 | 43,557 | ||||||
407,069 | ||||||||
Restaurants–1.16% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 130 | 49,052 | ||||||
Darden Restaurants, Inc. | 564 | 41,014 | ||||||
McDonald’s Corp. | 3,732 | 454,259 | ||||||
Starbucks Corp. | 6,541 | 363,156 | ||||||
Yum! Brands, Inc. | 1,560 | 98,795 | ||||||
1,006,276 | ||||||||
Retail REIT’s–0.59% | ||||||||
Federal Realty Investment Trust | 317 | 45,049 | ||||||
General Growth Properties, Inc. | 2,609 | 65,173 | ||||||
Kimco Realty Corp. | 1,910 | 48,055 | ||||||
Macerich Co. (The) | 539 | 38,183 | ||||||
Realty Income Corp. | 1,156 | 66,447 | ||||||
Simon Property Group, Inc. | 1,411 | 250,692 | ||||||
513,599 | ||||||||
Semiconductor Equipment–0.33% | ||||||||
Applied Materials, Inc. | 4,837 | 156,090 | ||||||
KLA-Tencor Corp. | 697 | 54,840 | ||||||
Lam Research Corp. | 731 | 77,289 | ||||||
288,219 | ||||||||
Semiconductors–3.00% | ||||||||
Analog Devices, Inc. | 1,375 | 99,853 | ||||||
Broadcom Ltd. (Singapore) | 1,785 | 315,535 | ||||||
First Solar, Inc.(b) | 343 | 11,007 | ||||||
Intel Corp. | 21,301 | 772,587 | ||||||
Linear Technology Corp. | 1,072 | 66,839 | ||||||
Microchip Technology Inc. | 962 | 61,712 | ||||||
Micron Technology, Inc.(b) | 4,647 | 101,862 | ||||||
NVIDIA Corp. | 2,421 | 258,418 | ||||||
Qorvo, Inc.(b) | 572 | 30,162 | ||||||
QUALCOMM, Inc. | 6,637 | 432,732 | ||||||
Skyworks Solutions, Inc. | 838 | 62,565 | ||||||
Texas Instruments Inc. | 4,490 | 327,635 | ||||||
Xilinx, Inc. | 1,133 | 68,399 | ||||||
2,609,306 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Soft Drinks–1.78% | ||||||||
Coca-Cola Co. (The) | 17,447 | $ | 723,353 | |||||
Dr Pepper Snapple Group, Inc. | 829 | 75,165 | ||||||
Monster Beverage Corp.(b) | 1,812 | 80,344 | ||||||
PepsiCo, Inc. | 6,441 | 673,922 | ||||||
1,552,784 | ||||||||
Specialized Consumer Services–0.03% | ||||||||
H&R Block, Inc. | 961 | 22,093 | ||||||
Specialized REIT’s–0.98% | ||||||||
American Tower Corp. | 1,904 | 201,215 | ||||||
Crown Castle International Corp. | 1,613 | 139,960 | ||||||
Digital Realty Trust, Inc. | 713 | 70,059 | ||||||
Equinix, Inc. | 320 | 114,371 | ||||||
Extra Space Storage Inc. | 562 | 43,409 | ||||||
Iron Mountain Inc. | 1,095 | 35,566 | ||||||
Public Storage | 667 | 149,074 | ||||||
Weyerhaeuser Co. | 3,350 | 100,802 | ||||||
854,456 | ||||||||
Specialty Chemicals–0.50% | ||||||||
Albemarle Corp. | 502 | 43,212 | ||||||
Ecolab Inc. | 1,173 | 137,499 | ||||||
International Flavors & Fragrances Inc. | 356 | 41,948 | ||||||
PPG Industries, Inc. | 1,191 | 112,859 | ||||||
Sherwin-Williams Co. (The) | 362 | 97,284 | ||||||
432,802 | ||||||||
Specialty Stores–0.24% | ||||||||
Signet Jewelers Ltd. | 312 | 29,409 | ||||||
Staples, Inc. | 2,911 | 26,345 | ||||||
Tiffany & Co. | 480 | 37,166 | ||||||
Tractor Supply Co. | 597 | 45,259 | ||||||
Ulta Salon, Cosmetics & Fragrance, Inc.(b) | 262 | 66,794 | ||||||
204,973 | ||||||||
Steel–0.10% | ||||||||
Nucor Corp. | 1,424 | 84,756 | ||||||
Systems Software–3.28% | ||||||||
CA, Inc. | 1,405 | 44,637 | ||||||
Microsoft Corp. | 34,950 | 2,171,793 | ||||||
Oracle Corp. | 13,470 | 517,921 | ||||||
Red Hat, Inc.(b) | 810 | 56,457 | ||||||
Symantec Corp. | 2,801 | 66,916 | ||||||
2,857,724 |
Shares | Value | |||||||
Technology Hardware, Storage & Peripherals–3.73% | ||||||||
Apple Inc. | 23,967 | $ | 2,775,858 | |||||
Hewlett Packard Enterprise Co. | 7,488 | 173,272 | ||||||
HP Inc. | 7,657 | 113,630 | ||||||
NetApp, Inc. | 1,246 | 43,946 | ||||||
Seagate Technology PLC | 1,315 | 50,194 | ||||||
Western Digital Corp. | 1,271 | 86,365 | ||||||
3,243,265 | ||||||||
Tires & Rubber–0.04% | ||||||||
Goodyear Tire & Rubber Co. (The) | 1,173 | 36,211 | ||||||
Tobacco–1.65% | ||||||||
Altria Group, Inc. | 8,745 | 591,337 | ||||||
Philip Morris International Inc. | 6,972 | 637,868 | ||||||
Reynolds American Inc. | 3,704 | 207,572 | ||||||
1,436,777 | ||||||||
Trading Companies & Distributors–0.18% | ||||||||
Fastenal Co. | 1,292 | 60,698 | ||||||
United Rentals, Inc.(b) | 385 | 40,648 | ||||||
W.W. Grainger, Inc. | 248 | 57,598 | ||||||
158,944 | ||||||||
Trucking–0.06% | ||||||||
J.B. Hunt Transport Services, Inc. | 393 | 38,149 | ||||||
Ryder System, Inc. | 248 | 18,461 | ||||||
56,610 | ||||||||
Water Utilities–0.07% | ||||||||
American Water Works Co., Inc. | 795 | 57,526 | ||||||
Total Common Stocks & Other Equity Interests |
| 86,505,917 | ||||||
Money Market Funds–0.75% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(e) | 389,350 | 389,350 | ||||||
Treasury Portfolio–Institutional Class, 0.37%(e) | 259,567 | 259,567 | ||||||
Total Money Market Funds | 648,917 | |||||||
TOTAL INVESTMENTS–100.15% |
| 87,154,834 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.15)% |
| (130,067 | ) | |||||
NET ASSETS–100.00% |
| $ | 87,024,767 |
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. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $31,592,268) | $ | 86,450,274 | ||
Investments in affiliates, at value (Cost $693,266) | 704,560 | |||
Total investments, at value (Cost $32,285,534) | 87,154,834 | |||
Receivable for: | ||||
Investments sold | 12 | |||
Fund shares sold | 1,937 | |||
Dividends | 110,469 | |||
Investment for trustee deferred compensation and retirement plans | 30,428 | |||
Other assets | 553 | |||
Total assets | 87,298,233 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 119,583 | |||
Variation margin — futures | 2,670 | |||
Accrued fees to affiliates | 81,563 | |||
Accrued trustees’ and officers’ fees and benefits | 410 | |||
Accrued other operating expenses | 31,572 | |||
Trustee deferred compensation and retirement plans | 37,668 | |||
Total liabilities | 273,466 | |||
Net assets applicable to shares outstanding | $ | 87,024,767 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 26,983,248 | ||
Undistributed net investment income | 1,320,667 | |||
Undistributed net realized gain | 3,856,499 | |||
Net unrealized appreciation | 54,864,353 | |||
$ | 87,024,767 | |||
Net Assets: |
| |||
Series I | $ | 34,812,413 | ||
Series II | $ | 52,212,354 | ||
Shares outstanding, no par value, |
| |||
Series I | 2,074,827 | |||
Series II | 3,128,005 | |||
Series I: | ||||
Net asset value per share | $ | 16.78 | ||
Series II: | ||||
Net asset value per share | $ | 16.69 |
Investment income: |
| |||
Dividends | $ | 1,951,562 | ||
Dividends from affiliates | 7,024 | |||
Total investment income | 1,958,586 | |||
Expenses: | ||||
Advisory fees | 105,710 | |||
Administrative services fees | 146,382 | |||
Custodian fees | 11,787 | |||
Distribution fees — Series II | 134,334 | |||
Transfer agent fees | 4,349 | |||
Trustees’ and officers’ fees and benefits | 20,647 | |||
Licensing Fees | 17,373 | |||
Reports to shareholders | 8,617 | |||
Professional services fees | 34,453 | |||
Other | 9,114 | |||
Total expenses | 492,766 | |||
Less: Fees waived | (1,884 | ) | ||
Net expenses | 490,882 | |||
Net investment income | 1,467,704 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 7,367,120 | |||
Futures contracts | 25,905 | |||
7,393,025 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 274,857 | |||
Futures contracts | 3,543 | |||
278,400 | ||||
Net realized and unrealized gain | 7,671,425 | |||
Net increase in net assets resulting from operations | $ | 9,139,129 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income | $ | 1,467,704 | $ | 1,460,671 | ||||
Net realized gain | 7,393,025 | 6,973,678 | ||||||
Change in net unrealized appreciation (depreciation) | 278,400 | (7,733,614 | ) | |||||
Net increase in net assets resulting from operations | 9,139,129 | 700,735 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (593,221 | ) | (638,662 | ) | ||||
Series ll | (788,172 | ) | (862,269 | ) | ||||
Total distributions from net investment income | (1,381,393 | ) | (1,500,931 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (2,594,662 | ) | (3,192,162 | ) | ||||
Series ll | (4,107,826 | ) | (5,107,570 | ) | ||||
Total distributions from net realized gains | (6,702,488 | ) | (8,299,732 | ) | ||||
Share transactions–net: | ||||||||
Series l | (1,302,813 | ) | 1,353,111 | |||||
Series ll | (6,582,220 | ) | 249,473 | |||||
Net increase (decrease) in net assets resulting from share transactions | (7,885,033 | ) | 1,602,584 | |||||
Net increase (decrease) in net assets | (6,829,785 | ) | (7,497,344 | ) | ||||
Net assets: | ||||||||
Beginning of year | 93,854,552 | 101,351,896 | ||||||
End of year (includes undistributed net investment income of $1,320,667 and $1,310,966, respectively) | $ | 87,024,767 | $ | 93,854,552 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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. S&P 500 Index Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. S&P 500 Index 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 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, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $1,884.
Invesco V.I. S&P 500 Index Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $50,000 for accounting and fund administrative services and was reimbursed $96,382 for fees paid to 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, 2016, 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, 2016, 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, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interests | $ | 86,505,917 | $ | — | $ | — | $ | 86,505,917 | ||||||||
Money Market Funds | 648,917 | — | — | 648,917 | ||||||||||||
87,154,834 | — | — | 87,154,834 | |||||||||||||
Futures Contracts* | (4,947 | ) | — | — | (4,947 | ) | ||||||||||
Total Investments | $ | 87,149,887 | $ | — | $ | — | $ | 87,149,887 |
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund may enter into an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”) under which a Fund may trade OTC derivatives. An OTC transaction entered into under an ISDA Master Agreement typically involves a collateral posting arrangement, payment netting provisions and close-out netting provisions. These netting provisions allow for reduction of credit risk through netting of contractual obligations. The enforceability of the netting provisions of the ISDA Master Agreement depends on the governing law of the ISDA Master Agreement, among other factors.
For financial reporting purposes, the Fund does not offset OTC derivative assets or liabilities that are subject to ISDA Master Agreements in the Statement of Assets and Liabilities.
Invesco V.I. S&P 500 Index Fund
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, 2016:
Value | ||||
Derivative Liabilities | Equity Risk | |||
Unrealized depreciation on futures contracts — Exchange-Traded(a) | $ | (4,947 | ) | |
Derivatives not subject to master netting agreements | 4,947 | |||
Total derivative liabilities subject to master netting agreements | $ | — |
(a) | Includes cumulative appreciation (depreciation) on futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
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 | 6 | March-2017 | $ | 670,860 | $ | (4,947 | ) |
Effect of Derivative Investments for the year ended December 31, 2016
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 | ||||
Equity Risk | ||||
Realized Gain: | ||||
Futures contracts | $ | 25,905 | ||
Change in Net Unrealized Appreciation: | ||||
Futures contracts | 3,543 | |||
Total | $ | 29,448 |
The table below summarizes the average notional value of futures contracts outstanding during the period.
Futures Contracts | ||||
Average notional value | $ | 1,146,366 |
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, 2016.
Value 12/31/15 | Purchases at Cost | Proceeds from Sales | Change in Unrealized Appreciation (Depreciation) | Realized Gain | Value 12/31/16 | Dividend Income | ||||||||||||||||||||||
Invesco Ltd. | $ | 72,551 | $ | — | $ | (9,565 | ) | $ | (8,335 | ) | $ | 992 | $ | 55,643 | $ | 2,203 |
NOTE 6—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. S&P 500 Index Fund
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 1,381,393 | $ | 1,500,931 | ||||
Long-term capital gain | 6,702,488 | 8,299,732 | ||||||
Total distributions | $ | 8,083,881 | $ | 9,800,663 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 1,434,630 | ||
Undistributed long-term gain | 6,530,839 | |||
Net unrealized appreciation — investments | 52,112,780 | |||
Temporary book/tax differences | (36,730 | ) | ||
Shares of beneficial interest | 26,983,248 | |||
Total net assets | $ | 87,024,767 |
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, 2016.
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, 2016 was $3,390,387 and $15,346,294, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 53,023,302 | ||
Aggregate unrealized (depreciation) of investment securities | (910,522 | ) | ||
Net unrealized appreciation of investment securities | $ | 52,112,780 |
Cost of investments for tax purposes is $35,042,054.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of real estate investment trust adjustments and corporate actions, on December 31, 2016, undistributed net investment income was decreased by $76,610 and undistributed net realized gain was increased by $76,610. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. S&P 500 Index Fund
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 48,001 | $ | 796,342 | 198,942 | $ | 3,658,032 | ||||||||||
Series II | 177,111 | 2,959,359 | 829,156 | 14,909,372 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 196,239 | 3,186,916 | 245,490 | 3,829,645 | ||||||||||||
Series II | 302,783 | 4,895,999 | 384,407 | 5,969,839 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (316,145 | ) | (5,286,071 | ) | (332,597 | ) | (6,134,566 | ) | ||||||||
Series II | (884,680 | ) | (14,437,578 | ) | (1,135,870 | ) | (20,629,738 | ) | ||||||||
Net increase (decrease) in share activity | (476,691 | ) | $ | (7,885,033 | ) | 189,528 | $ | 1,602,584 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 91% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
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 12/31/16 | $ | 16.58 | $ | 0.30 | $ | 1.55 | $ | 1.85 | $ | (0.31 | ) | $ | (1.34 | ) | $ | (1.65 | ) | $ | 16.78 | 11.45 | % | $ | 34,812 | 0.41 | %(d) | 0.41 | %(d) | 1.81 | %(d) | 4 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 18.52 | 0.30 | (0.24 | ) | 0.06 | (0.33 | ) | (1.67 | ) | (2.00 | ) | 16.58 | 1.03 | 35,586 | 0.41 | 0.41 | 1.66 | 7 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 16.66 | 0.28 | 1.92 | 2.20 | (0.34 | ) | — | (0.34 | ) | 18.52 | 13.32 | 37,685 | 0.41 | 0.41 | 1.62 | 3 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 12.89 | 0.24 | 3.84 | 4.08 | (0.31 | ) | — | (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 | ) | — | (0.26 | ) | 12.89 | 15.77 | 32,634 | 0.33 | 0.39 | 1.97 | 4 | ||||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 16.49 | 0.26 | 1.54 | 1.80 | (0.26 | ) | (1.34 | ) | (1.60 | ) | 16.69 | 11.20 | 52,212 | 0.66 | (d) | 0.66 | (d) | 1.56 | (d) | 4 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 18.43 | 0.25 | (0.24 | ) | 0.01 | (0.28 | ) | (1.67 | ) | (1.95 | ) | 16.49 | 0.72 | 58,268 | 0.66 | 0.66 | 1.41 | 7 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 16.58 | 0.24 | 1.90 | 2.14 | (0.29 | ) | — | (0.29 | ) | 18.43 | 13.02 | 63,667 | 0.66 | 0.66 | 1.37 | 3 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 12.83 | 0.20 | 3.82 | 4.02 | (0.27 | ) | — | (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 | ) | — | (0.23 | ) | 12.83 | 15.52 | 64,657 | 0.58 | 0.64 | 1.72 | 4 |
(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 $34,342 and $53,733 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 the 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 the Invesco V.I. S&P 500 Index Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,075.60 | $ | 2.19 | $ | 1,023.03 | $ | 2.14 | 0.42 | % | ||||||||||||
Series II | 1,000.00 | 1,074.20 | 3.49 | 1,021.77 | 3.40 | 0.67 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. S&P 500 Index Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 6,702,488 | ||
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. 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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, 2016 | |||
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Invesco V.I. Small Cap Equity Fund
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VISCE-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, 2016, Series I shares of Invesco V.I. Small Cap Equity Fund (the Fund) underperformed the Fund’s style-specific index, the Russell 2000 Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 12.06 | % | |||
Series II Shares | 11.84 | ||||
S&P 500 Index▼ (Broad Market Index) | 11.96 | ||||
Russell 2000 Index▼ (Style-Specific Index) | 21.31 | ||||
Lipper VUF Small-Cap Core Funds Index∎ (Peer Group Index) | 22.53 | ||||
Source(s): ▼FactSet Research Systems Inc.; ∎Lipper Inc. |
Market conditions and your Fund
During the year ended December 31, 2016, the US economy continued to expand. US gross domestic product (GDP) showed the US economy grew by 3.5% in the third quarter.1 However, annualized GDP is expected to be much lower. Employment data were mixed, with unemployment ending the year at 4.7%.2 Oil prices traded in a range from the high $20s to the low $50s during the reporting period.3 Major US stock market indexes posted gains for the reporting period, with most major market indexes hitting record highs; however, the markets were fairly volatile during the first half of the year.
Stocks began 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets sharply lower. Markets again recovered, and major US equity indexes hit record highs during the summer. Following the surprise outcome of the US presidential
election, a stock market rally sent major US equity market indexes to new record highs. The rally was led by financials, gaining on the belief that they might benefit from reduced federal regulation. Also in November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 – its only increase during the reporting period.4
Within this environment, the Fund posted a solid positive return, yet underperformed the Russell 2000 Index. The Fund outperformed its style-specific benchmark in the health care sector, but these contributions were offset by underperformance in other areas including the financials, real estate, consumer discretionary and information technology (IT) sectors.
The Fund’s outperformance in the health care sector was due to underweight allocation and favorable stock selection in the sector. Relative performance within the health care sector benefited from two of the Fund’s holdings that were acquired early in the year. Life sciences tools and services company Affymetrix and health care equipment
and supplies company Alere both separately announced that they were being acquired for premiums of more than 50%. We sold our positions in both Affymetrix and Alere during the reporting period to lock in gains. The Fund also benefited from an underweight allocation in the weak-performing biotechnology stocks.
On an absolute basis, the Fund had positive returns in the utilities sector due to stock selection during the reporting period. UGI, a gas utilities company, contributed to Fund performance and was the Fund’s lone holding within the sector.
In contrast, the Fund trailed its style-specific index by the widest margin in the financials sector. Fund performance was impacted by stock selection in and overweight exposure to interest rate-sensitive stocks. Holdings sensitive to interest rates sold off aggressively at the start of the year due to concerns about a possible Chinese currency devaluation, followed by Brexit concerns in the middle of the year. Holdings that detracted due to Brexit included Jones Lang Lasalle and Evercore Partners, which were also negatively impacted by foreign exchange headwinds. East West Bancorp was also a detractor from the Fund’s relative performance as its expenses related to regulatory compliance exceeded management’s guidance. We sold our positions in Jones Lang Lasalle, Evercore Partners and East West Bancorp before the end of the reporting period.
In the real estate sector, stock selection and an underweight allocation in real estate investment trusts (REITs) also detracted from relative performance. As the outlook for further interest rate hikes during 2016 dimmed in the first half of the reporting period, high-dividend-yielding stocks and REITs significantly outperformed the Fund’s style-specific bench-
Portfolio Composition | |||
By sector | % of total net assets |
Information Technology | 21.0% | |
Industrials | 19.6 | |
Financials | 16.0 | |
Consumer Discretionary | 11.5 | |
Health Care | 11.1 | |
Energy | 6.6 | |
Materials | 6.0 | |
Real Estate | 2.8 | |
Consumer Staples | 2.2 | |
Utilities | 1.3 | |
Telecommunication Services | 1.1 | |
Money Market Funds Plus Other Assets Less Liabilities | 0.8 |
Top 10 Equity Holdings* | |||
% of total net assets | |||
1. E*TRADE Financial Corp. | 1.8% | ||
2. Microsemi Corp. | 1.6 | ||
3. Old Dominion Freight Line, Inc. | 1.5 | ||
4. Pinnacle Foods Inc. | 1.5 | ||
5. Coherent, Inc. | 1.5 | ||
6. Take-Two Interactive Software, Inc. | 1.5 | ||
7. RSP Permian Inc. | 1.4 | ||
8. Graphic Packaging Holding Co. | 1.4 | ||
9. Webster Financial Corp. | 1.4 | ||
10. Sensient Technologies Corp. | 1.4 |
Total Net Assets | $310.6 million |
Total Number of Holdings* | 98 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. Small Cap Equity Fund
mark. Fund holding Kennedy Wilson Holdings, a global real estate company, was a notable detractor from Fund performance during the reporting period. Kennedy Wilson Holdings has significant exposure to Kennedy Wilson Europe, which primarily invests in the UK commercial real estate, and the company’s shares declined significantly after the Brexit vote. By the end of the year, the stock had recouped most of its losses.
Additionally, within the consumer discretionary sector, stock selection detracted from performance relative to the Fund’s style-specific benchmark. GNC Holdings was one of the leading detractors from Fund performance during the year. The supplements retailer was hurt by lower sales and a change in management, and we sold the holding during the reporting period. Specialty clothing retailer American Eagle Outfitters was also a detractor from relative performance. The company’s stock price fell after fourth quarter guidance came in below consensus expectations. Consumer products company Helen of Troy also detracted from Fund performance due to decelerating organic sales in its beauty products segment and greater-than-expected foreign exchange headwinds. The company made a strategic decision during the reporting period to rationalize its lower-margin beauty products, which may be a headwind for organic sales growth, but could help expand profit margins.
Stock selection in the IT sector detracted from performance relative to the Fund’s style-specific benchmark. High-end software developer Luxoft Holdings detracted from Fund performance due to Brexit concerns and slowing growth in its European markets. Network security and storage solutions provider Barracuda Networks also detracted from Fund performance due to competition from cloud service providers. Television set-top box maker Arris International detracted from Fund performance as well due to continued capital spending delays at cable and satellite providers. We sold our positions in both Barracuda Networks and Arris International during the reporting period.
All changes to positioning are based on our bottom-up stock selection process. Our portfolio construction process acts as a risk management tool and ensures the portfolio is aligned with small-cap market sector exposure within modest over- and underweight allocations relative to the Fund’s style-specific benchmark. Our long-term investment horizon is intended to lead to relatively low turnover. During the reporting period, our ex-
posure to the industrials and energy sectors increased noticeably, while our exposure to the financials, real estate and health care sectors decreased. The financials, real estate and utilities sectors were the Fund’s largest underweight allocations relative to the Fund’s style-specific benchmark, while the industrials, IT and energy sectors were the Fund’s largest overweight allocations at the end of the reporting period.
Thank you for your commitment to Invesco V.I. Small Cap Equity Fund and for sharing our long-term investment horizon.
1 | Source: Bureau of Economic Analysis |
2 | Source: Bureau of Labor Statistics |
3 | Source: Thompson-Reuters |
4 | Source: US Federal Reserve |
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. |
Davis Paddock Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Small Cap Equity Fund. He | ||
joined Invesco in 2001. Mr. Paddock earned a BA and an MBA from The University of Texas at Austin. |
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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee
comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (8/29/03) | 8.59 | % | |||
10 Years | 6.62 | ||||
5 Years | 11.15 | ||||
1 Year | 12.06 | ||||
Series II Shares | |||||
Inception (8/29/03) | 8.34 | % | |||
10 Years | 6.35 | ||||
5 Years | 10.89 | ||||
1 Year | 11.84 |
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 0.95% and 1.20%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. Small Cap Equity Fund
Invesco V.I. Small Cap Equity Fund’s investment objective is long-term growth of capital.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | 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 adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Sector focus risk. The Fund may from time to time invest a significant amount of its assets (i.e. over 25%) in one market sector or group of related industries. In this event, the Fund’s performance will depend to a greater extent on the overall condition of the sector or group of industries and there is increased risk that the Fund will lose significant value if conditions adversely affect that sector or group of industries.
Small- and mid-capitalization companies risks. Small- and mid-capitalization companies tend to be more vulnerable to changing market conditions, may have little or no operating history or track record of success, and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
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, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.23% |
| |||||||
Aerospace & Defense–1.89% | ||||||||
BWX Technologies, Inc. | 78,391 | $ | 3,112,123 | |||||
Orbital ATK, Inc. | 31,344 | 2,749,809 | ||||||
5,861,932 | ||||||||
Air Freight & Logistics–0.95% | ||||||||
Forward Air Corp. | 62,154 | 2,944,856 | ||||||
Alternative Carriers–1.09% | ||||||||
Iridium Communications Inc.(b)(c) | 353,423 | 3,392,861 | ||||||
Apparel Retail–0.83% | ||||||||
American Eagle Outfitters, Inc. | 170,341 | 2,584,073 | ||||||
Apparel, Accessories & Luxury Goods–0.92% | ||||||||
Columbia Sportswear Co. | 49,296 | 2,873,957 | ||||||
Application Software–3.46% | ||||||||
Blackbaud, Inc. | 52,176 | 3,339,264 | ||||||
MicroStrategy Inc.–Class A(c) | 14,711 | 2,903,951 | ||||||
SS&C Technologies Holdings, Inc. | 88,421 | 2,528,841 | ||||||
Verint Systems Inc.(c) | 55,995 | 1,973,824 | ||||||
10,745,880 | ||||||||
Auto Parts & Equipment–1.06% | ||||||||
Visteon Corp. | 40,851 | 3,281,969 | ||||||
Biotechnology–1.38% | ||||||||
Neurocrine Biosciences, Inc.(c) | 62,308 | 2,411,320 | ||||||
Retrophin, Inc.(c) | 98,609 | 1,866,668 | ||||||
4,277,988 | ||||||||
Building Products–2.13% | ||||||||
Apogee Enterprises, Inc. | 65,430 | 3,504,431 | ||||||
Trex Co., Inc.(c) | 48,455 | 3,120,502 | ||||||
6,624,933 | ||||||||
Casinos & Gaming–1.11% | ||||||||
Boyd Gaming Corp.(c) | 170,353 | 3,436,020 | ||||||
Construction & Engineering–1.66% | ||||||||
Dycom Industries, Inc.(c) | 32,675 | 2,623,476 | ||||||
Primoris Services Corp. | 110,895 | 2,526,188 | ||||||
5,149,664 | ||||||||
Construction Materials–1.20% | ||||||||
Eagle Materials Inc. | 37,983 | 3,742,465 | ||||||
Data Processing & Outsourced Services–2.83% | ||||||||
Euronet Worldwide, Inc.(c) | 34,982 | 2,533,747 | ||||||
Genpact Ltd.(c) | 109,033 | 2,653,863 | ||||||
Jack Henry & Associates, Inc. | 40,436 | 3,589,908 | ||||||
8,777,518 | ||||||||
Diversified Support Services–0.80% | ||||||||
Mobile Mini, Inc. | 82,666 | 2,500,646 |
Shares | Value | |||||||
Electrical Components & Equipment–2.14% | ||||||||
EnerSys | 43,452 | $ | 3,393,601 | |||||
Generac Holdings, Inc.(c) | 79,645 | 3,244,737 | ||||||
6,638,338 | ||||||||
Electronic Components–0.97% | ||||||||
Belden Inc. | 40,309 | 3,013,904 | ||||||
Electronic Equipment & Instruments–3.76% | ||||||||
Coherent, Inc.(c) | 33,349 | 4,581,652 | ||||||
FLIR Systems, Inc. | 87,566 | 3,169,014 | ||||||
Zebra Technologies Corp.–Class A(c) | 45,909 | 3,937,156 | ||||||
11,687,822 | ||||||||
Environmental & Facilities Services–3.02% | ||||||||
ABM Industries Inc. | 77,270 | 3,155,707 | ||||||
Team, Inc.(c) | 70,685 | 2,774,386 | ||||||
Waste Connections, Inc. (Canada) | 43,915 | 3,451,280 | ||||||
9,381,373 | ||||||||
Gas Utilities–1.32% | ||||||||
UGI Corp. | 88,913 | 4,097,111 | ||||||
Health Care Equipment–4.20% | ||||||||
Analogic Corp. | 39,313 | 3,261,014 | ||||||
Hill-Rom Holdings, Inc. | 70,216 | 3,941,926 | ||||||
Nevro Corp.(c) | 34,745 | 2,524,572 | ||||||
Wright Medical Group N.V.(c) | 144,384 | 3,317,944 | ||||||
13,045,456 | ||||||||
Health Care Facilities–0.58% | ||||||||
Acadia Healthcare Co., Inc.(c) | 54,527 | 1,804,844 | ||||||
Health Care REIT’s–0.87% | ||||||||
Healthcare Trust of America, Inc.–Class A | 93,382 | 2,718,350 | ||||||
Health Care Technology–0.84% | ||||||||
HMS Holdings Corp.(c) | 143,967 | 2,614,441 | ||||||
Home Entertainment Software–1.47% | ||||||||
Take-Two Interactive Software, Inc.(c) | 92,380 | 4,553,410 | ||||||
Home Furnishings–1.09% | ||||||||
La-Z-Boy Inc. | 108,691 | 3,374,856 | ||||||
Homebuilding–0.65% | ||||||||
Beazer Homes USA, Inc.(c) | 150,745 | 2,004,908 | ||||||
Household Appliances–1.06% | ||||||||
Helen of Troy Ltd.(c) | 38,861 | 3,281,811 | ||||||
Industrial Machinery–3.58% | ||||||||
Albany International Corp.–Class A | 88,160 | 4,081,808 | ||||||
SPX Corp.(c) | 166,051 | 3,938,729 | ||||||
Watts Water Technologies, Inc.–Class A | 47,794 | 3,116,169 | ||||||
11,136,706 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Investment Banking & Brokerage–1.76% | ||||||||
E*TRADE Financial Corp.(c) | 157,694 | $ | 5,464,097 | |||||
IT Consulting & Other Services–0.70% | ||||||||
Luxoft Holding, Inc.(c) | 38,688 | 2,174,266 | ||||||
Life & Health Insurance–1.07% | ||||||||
CNO Financial Group, Inc. | 174,438 | 3,340,488 | ||||||
Life Sciences Tools & Services–1.94% | ||||||||
Bio-Techne Corp. | 29,133 | 2,995,746 | ||||||
Cambrex Corp.(c) | 55,987 | 3,020,499 | ||||||
6,016,245 | ||||||||
Managed Health Care–0.00% | ||||||||
HealthEquity, Inc.(c) | 11 | 446 | ||||||
Multi-Line Insurance–1.88% | ||||||||
American Financial Group, Inc. | 42,808 | 3,772,241 | ||||||
Horace Mann Educators Corp. | 48,003 | 2,054,528 | ||||||
5,826,769 | ||||||||
Office Services & Supplies–0.65% | ||||||||
Pitney Bowes Inc. | 133,609 | 2,029,521 | ||||||
Oil & Gas Equipment & Services–2.00% | ||||||||
Forum Energy Technologies Inc.(c) | 157,103 | 3,456,266 | ||||||
Superior Energy Services, Inc. | 163,817 | 2,765,231 | ||||||
6,221,497 | ||||||||
Oil & Gas Exploration & Production–4.61% | ||||||||
Energen Corp. | 63,560 | 3,665,505 | ||||||
Newfield Exploration Co.(c) | 81,366 | 3,295,323 | ||||||
Parsley Energy, Inc.–Class A(c) | 84,415 | 2,974,785 | ||||||
RSP Permian Inc.(c) | 98,328 | 4,387,395 | ||||||
14,323,008 | ||||||||
Packaged Foods & Meats–2.21% | ||||||||
Pinnacle Foods Inc. | 87,337 | 4,668,163 | ||||||
TreeHouse Foods, Inc.(c) | 30,395 | 2,194,215 | ||||||
6,862,378 | ||||||||
Paper Packaging–1.41% | ||||||||
Graphic Packaging Holding Co. | 350,219 | 4,370,733 | ||||||
Pharmaceuticals–2.14% | ||||||||
Impax Laboratories, Inc.(c) | 80,048 | 1,060,636 | ||||||
Phibro Animal Health Corp.–Class A | 88,080 | 2,580,744 | ||||||
Supernus Pharmaceuticals Inc.(c) | 118,793 | 2,999,523 | ||||||
6,640,903 | ||||||||
Property & Casualty Insurance–1.14% | ||||||||
Hanover Insurance Group Inc. (The) | 39,057 | 3,554,578 | ||||||
Real Estate Operating Companies–0.82% | ||||||||
Kennedy-Wilson Holdings Inc. | 123,728 | 2,536,424 | ||||||
Regional Banks–10.11% | ||||||||
Bank of the Ozarks, Inc. | 74,192 | 3,901,757 | ||||||
BankUnited, Inc. | 85,238 | 3,212,620 |
Shares | Value | |||||||
Regional Banks–(continued) | ||||||||
Great Western Bancorp, Inc. | 97,423 | $ | 4,246,669 | |||||
IBERIABANK Corp. | 47,403 | 3,970,001 | ||||||
Pinnacle Financial Partners, Inc. | 54,711 | 3,791,472 | ||||||
Synovus Financial Corp. | 95,599 | 3,927,207 | ||||||
Webster Financial Corp. | 80,274 | 4,357,273 | ||||||
Western Alliance Bancorp(c) | 82,065 | 3,997,386 | ||||||
31,404,385 | ||||||||
Restaurants–2.08% | ||||||||
Panera Bread Co.–Class A (c) | 13,704 | 2,810,553 | ||||||
Papa John’s International, Inc. | 42,625 | 3,647,848 | ||||||
6,458,401 | ||||||||
Semiconductor Equipment–2.35% | ||||||||
Entegris Inc.(c) | 219,102 | 3,921,926 | ||||||
Tessera Holding Corp. | 76,578 | 3,384,747 | ||||||
7,306,673 | ||||||||
Semiconductors–4.05% | ||||||||
Cirrus Logic, Inc.(c) | 37,937 | 2,144,958 | ||||||
MACOM Technology Solutions | 84,133 | 3,893,675 | ||||||
Microsemi Corp.(c) | 90,974 | 4,909,867 | ||||||
Power Integrations, Inc. | 23,842 | 1,617,680 | ||||||
12,566,180 | ||||||||
Specialized Consumer Services–1.00% | ||||||||
ServiceMaster Global Holdings, Inc.(c) | 82,602 | 3,111,617 | ||||||
Specialized REIT’s–1.09% | ||||||||
CubeSmart | 125,980 | 3,372,485 | ||||||
Specialty Chemicals–3.43% | ||||||||
Minerals Technologies Inc. | 46,881 | 3,621,557 | ||||||
PolyOne Corp. | 85,736 | 2,746,981 | ||||||
Sensient Technologies Corp. | 54,606 | 4,290,940 | ||||||
10,659,478 | ||||||||
Specialty Stores–1.70% | ||||||||
Michaels Cos., Inc. (The)(c) | 140,431 | 2,871,814 | ||||||
Sally Beauty Holdings, Inc.(c) | 91,501 | 2,417,456 | ||||||
5,289,270 | ||||||||
Technology Distributors–0.98% | ||||||||
Tech Data Corp.(c) | 36,022 | 3,050,343 | ||||||
Technology Hardware, Storage & Peripherals–0.48% | ||||||||
Cray, Inc.(c) | 71,719 | 1,484,583 | ||||||
Trucking–2.77% | ||||||||
Celadon Group, Inc. | 130,256 | 931,330 | ||||||
Old Dominion Freight Line, Inc.(c) | 54,623 | 4,686,107 | ||||||
Swift Transportation Co.(c) | 122,035 | 2,972,773 | ||||||
8,590,210 | ||||||||
Total Common Stocks & Other Equity Interests |
| 308,203,070 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Money Market Funds–1.06% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(d) | 1,972,499 | $ | 1,972,499 | |||||
Treasury Portfolio–Institutional Class, 0.37%(d) | 1,314,999 | 1,314,999 | ||||||
Total Money Market Funds | 3,287,498 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.29% |
| 311,490,568 |
Shares | Value | |||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–0.87% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43% (Cost $2,712,114)(d)(e) | 2,712,114 | $ | 2,712,114 | |||||
TOTAL INVESTMENTS–101.16% |
| 314,202,682 | ||||||
OTHER ASSETS LESS LIABILITIES–(1.16)% |
| (3,592,794 | ) | |||||
NET ASSETS–100.00% |
| $ | 310,609,888 |
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) | All or a portion of this security was out on loan at December 31, 2016. |
(c) | Non-income producing security. |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
(e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Statement of Assets and Liabilities
December 31, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $251,547,126)* | $ | 308,203,070 | ||
Investments in affiliated money market funds, at value and cost | 5,999,612 | |||
Total investments, at value (Cost $257,546,738) | 314,202,682 | |||
Receivable for: | ||||
Fund shares sold | 145,475 | |||
Dividends | 220,616 | |||
Investment for trustee deferred compensation and retirement plans | 72,375 | |||
Total assets | 314,641,148 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 488,364 | |||
Fund shares reacquired | 399,881 | |||
Collateral upon return of securities loaned | 2,712,114 | |||
Accrued fees to affiliates | 318,603 | |||
Accrued trustees’ and officers’ fees and benefits | 170 | |||
Accrued other operating expenses | 30,058 | |||
Trustee deferred compensation and retirement plans | 82,070 | |||
Total liabilities | 4,031,260 | |||
Net assets applicable to shares outstanding | $ | 310,609,888 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 240,587,551 | ||
Undistributed net investment income (loss) | (80,448 | ) | ||
Undistributed net realized gain | 13,446,841 | |||
Net unrealized appreciation | 56,655,944 | |||
$ | 310,609,888 | |||
Net Assets: |
| |||
Series I | $ | 161,726,689 | ||
Series II | $ | 148,883,199 | ||
Shares outstanding, no par value, |
| |||
Series I | 8,797,154 | |||
Series II | 8,470,566 | |||
Series I: | ||||
Net asset value per share | $ | 18.38 | ||
Series II: | ||||
Net asset value per share | $ | 17.58 |
* | At December 31, 2016, securities with an aggregate value of $2,650,670 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $2,104) | $ | 3,010,946 | ||
Dividends from affiliated money market funds (includes securities lending income of $70,135) | 94,426 | |||
Total investment income | 3,105,372 | |||
Expenses: | ||||
Advisory fees | 2,183,405 | |||
Administrative services fees | 646,219 | |||
Custodian fees | 17,539 | |||
Distribution fees — Series II | 338,603 | |||
Transfer agent fees | 48,076 | |||
Trustees’ and officers’ fees and benefits | 24,533 | |||
Reports to shareholders | 8,445 | |||
Professional services fees | 45,242 | |||
Other | 9,357 | |||
Total expenses | 3,321,419 | |||
Less: Fees waived | (8,724 | ) | ||
Net expenses | 3,312,695 | |||
Net investment income (loss) | (207,323 | ) | ||
Realized and unrealized gain from: | ||||
Net realized gain from investment securities | 13,816,268 | |||
Change in net unrealized appreciation of investment securities | 20,760,134 | |||
Net realized and unrealized gain | 34,576,402 | |||
Net increase in net assets resulting from operations | $ | 34,369,079 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (207,323 | ) | $ | (307,179 | ) | ||
Net realized gain | 13,816,268 | 22,151,222 | ||||||
Change in net unrealized appreciation (depreciation) | 20,760,134 | (39,686,407 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 34,369,079 | (17,842,364 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (11,226,305 | ) | (36,411,380 | ) | ||||
Series ll | (10,517,748 | ) | (27,998,152 | ) | ||||
Total distributions from net realized gains | (21,744,053 | ) | (64,409,532 | ) | ||||
Share transactions–net: | ||||||||
Series l | (11,957,409 | ) | 8,405,839 | |||||
Series ll | 14,920,964 | 19,398,854 | ||||||
Net increase in net assets resulting from share transactions | 2,963,555 | 27,804,693 | ||||||
Net increase (decrease) in net assets | 15,588,581 | (54,447,203 | ) | |||||
Net assets: | ||||||||
Beginning of year | 295,021,307 | 349,468,510 | ||||||
End of year (includes undistributed net investment income (loss) of $(80,448) and $(70,038), respectively) | $ | 310,609,888 | $ | 295,021,307 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued
Invesco V.I. Small Cap Equity Fund
at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service.
Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. Small Cap 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. The Fund bears the risk of loss with respect to the investment of collateral. 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. When loaning securities, the Fund retains certain benefits of owning the securities, including the economic equivalent of dividends or interest generated by the security. 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. The securities loaned are subject to termination at the option of the borrower or the Fund. Upon termination, the borrower will return to the Fund the securities loaned and the Fund will return the collateral. 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 and the securities may lose value during the delay which could result in potential losses to the Fund. Some of these losses may be indemnified by the lending agent. 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, are included in Dividends from affiliated money market funds on the Statement of Operations. The aggregate value of securities out on loan, if any, is shown as a footnote on the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||||||
First $250 million | 0 | .745% | ||||||
Next $250 million | 0 | .73% | ||||||
Next $500 million | 0 | .715% | ||||||
Next $1.5 billion | 0 | .70% | ||||||
Next $2.5 billion | 0 | .685% | ||||||
Next $2.5 billion | 0 | .67% | ||||||
Next $2.5 billion | 0 | .655% | ||||||
Over $10 billion | 0 | .64% |
For the year ended December 31, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $8,724.
Invesco V.I. Small Cap Equity Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $72,611 for accounting and fund administrative services and was reimbursed $573,608 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $1,327 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, 2016, 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, 2016, the Fund engaged in securities purchases of $2,796,403.
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. Small Cap Equity Fund
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 1,089,693 | $ | — | ||||
Long-term capital gain | 20,654,360 | 64,409,532 | ||||||
Total distributions | $ | 21,744,053 | $ | 64,409,532 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed long-term gain | $ | 13,581,000 | ||
Net unrealized appreciation — investments | 56,521,785 | |||
Temporary book/tax differences | (80,448 | ) | ||
Shares of beneficial interest | 240,587,551 | |||
Total net assets | $ | 310,609,888 |
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, 2016.
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, 2016 was $107,506,671 and $126,098,858, 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 | $ | 72,511,823 | ||
Aggregate unrealized (depreciation) of investment securities | (15,990,038 | ) | ||
Net unrealized appreciation of investment securities | $ | 56,521,785 |
Cost of investments for tax purposes is $257,680,897.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of Real Estate Investment Trusts and net operating losses, on December 31, 2016, undistributed net investment income (loss) was increased by $196,913, undistributed net realized gain was decreased by $104,888 and shares of beneficial interest was decreased by $92,025. 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, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,273,851 | $ | 21,861,494 | 1,161,619 | $ | 25,722,497 | ||||||||||
Series II | 1,640,615 | 27,600,516 | 1,002,522 | 22,174,509 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 639,312 | 11,226,305 | 2,050,190 | 36,411,380 | ||||||||||||
Series II | 626,056 | 10,517,748 | 1,638,277 | 27,998,152 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,550,489 | ) | (45,045,208 | ) | (2,406,303 | ) | (53,728,038 | ) | ||||||||
Series II | (1,379,733 | ) | (23,197,300 | ) | (1,391,179 | ) | (30,773,807 | ) | ||||||||
Net increase in share activity | 249,612 | $ | 2,963,555 | 2,055,126 | $ | 27,804,693 |
(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 12/31/16 | $ | 17.64 | $ | 0.01 | $ | 2.06 | $ | 2.07 | $ | — | $ | (1.33 | ) | $ | (1.33 | ) | $ | 18.38 | 12.06 | % | $ | 161,727 | 1.01 | %(d) | 1.01 | %(d) | 0.04 | %(d) | 37 | % | ||||||||||||||||||||||||||
Year ended 12/31/15 | 23.64 | 0.00 | (1.27 | ) | (1.27 | ) | — | (4.73 | ) | (4.73 | ) | 17.64 | (5.52 | ) | 166,407 | 1.04 | 1.04 | 0.02 | 31 | |||||||||||||||||||||||||||||||||||||
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 | 1.05 | (0.17 | ) | 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 | ||||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 16.96 | (0.03 | ) | 1.98 | 1.95 | — | (1.33 | ) | (1.33 | ) | 17.58 | 11.84 | 148,883 | 1.26 | (d) | 1.26 | (d) | (0.21 | )(d) | 37 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 22.97 | (0.05 | ) | (1.23 | ) | (1.28 | ) | — | (4.73 | ) | (4.73 | ) | 16.96 | (5.74 | ) | 128,614 | 1.29 | 1.29 | (0.23 | ) | 31 | |||||||||||||||||||||||||||||||||||
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 | 1.30 | (0.42 | ) | 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 |
(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 $158,518 and $135,441 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 the 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 the Invesco V.I. Small Cap Equity Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,108.70 | $ | 5.14 | $ | 1,020.26 | $ | 4.93 | 0.97 | % | ||||||||||||
Series II | 1,000.00 | 1,107.90 | 6.46 | 1,019.00 | 6.19 | 1.22 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Small Cap Equity Fund
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, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 20,654,360 | ||
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. 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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
| ||||
Annual Report to Shareholders
| December 31, 2016 | |||
| ||||
Invesco V.I. Technology Fund
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. I-VITEC-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, 2016, Series I shares of Invesco V.I. Technology Fund (the Fund) underperformed the NASDAQ Composite Index, the Fund’s style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | -0.76 | % | |||
Series II Shares | -1.01 | ||||
NASDAQ Composite Index▼ (Broad Market/Style-Specific Index) | 8.87 | ||||
S&P 500 Index▼ (Former Broad Market Index) | 11.96 | ||||
The BofA Merrill Lynch 100 Technology Index (price only)◾ (Former Style-Specific) | 11.83 | ||||
Lipper VUF Science & Technology Funds Classification Average◆ (Peer Group) | 11.18 |
Source(s) ▼FactSet Research Inc.; ◾Bloomberg L.P.; ◆Lipper Inc.
The Fund has elected to use the NASDAQ Composite Index as its broad market/style-specific index ratherthan the S&P 500 Index as its broad market index and The BofA Merrill Lynch 100 Technology Index as itsstyle-specific index, because the NASDAQ Composite Index more closely reflects the performance of thetypes of securities in which the Fund invests.
Market conditions and your Fund
During the year ended December 31, 2016, the US economy continued to expand. US gross domestic product (GDP) showed the US economy grew by 3.5% in the third quarter.1 However, annualized GDP is expected to be much lower. Employment data were mixed, with unemployment ending the year at 4.7%.2 Oil prices traded in a range from the high $20s to the low $50s during the reporting period.3 Major US stock market indexes posted gains for the reporting period, with most major market indexes hitting record highs; however, the markets were fairly volatile during the first half of the year.
Stocks began calendar year 2016 on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over the US Federal Reserve’s (the Fed) monetary policy. Markets recovered in February and posted gains until June, when UK voters opted to leave the European Union, sending markets sharply lower. Markets again recovered, and major US equity indexes hit record highs during the summer.
Following the surprise outcome of the US presidential election, a stock market rally sent major US equity market indexes to new record highs. The rally was led by financials, gaining on the belief that they might benefit from reduced federal regulation. Also in November, OPEC agreed to cut production for the first time in eight years, which helped support higher oil prices. The Fed raised interest rates by a quarter point in December 2016 – its only increase during the reporting period.4
In this market environment, the Fund underperformed the NASDAQ Composite Index. The most significant detractors from the Fund’s relative performance were stock selection in and overweight exposure to the biotechnology industry, as well as stock selection in and underweight exposure to the semiconductors and semiconductor equipment industry. Overweight exposure to the pharmaceuticals industry also detracted from the Fund’s relative performance. However, some of the underperformance in these industries was offset by outperformance in the wireless telecommunication services
industry. Holdings in the health care providers and services industry, combined with overweight exposure, contributed to relative performance, as well. Underweight exposure to the food and staples retailing industry also contributed to the Fund’s relative results.
From an individual securities perspective, the leading detractor from Fund performance was Alkermes. When a key developmental drug did not meet its goal in two advanced trials, the stock lost roughly half its value in one day during the first quarter, despite the company having several treatments already on the market. Another top detractor from Fund performance was software company Service-Now. Early in the year, poor communication of changes to the company’s sales force compensation plans led to a decline in the stock price. We sold our position in Alkermes by the close of the reporting period. LinkedIn was also a significant detractor during the year. The internet software and services company reported disappointing quarterly results, but even more concerning was the shutdown of its advertising platform, which was viewed as a key driver of future growth. We sold our position in LinkedIn during the first quarter.
The most significant individual contributor to Fund performance during the year was Sprint. The company reported better-than-expected first quarter earnings, announced new sources of liquidity, and performed well post-election on renewed hope that the rumored merger between Sprint and T-Mobile (not a Fund holding) was becoming more likely. Broadcom was also a significant contributor to Fund performance during the year. The semiconductor company completed a major merger that brought significant economies of scale and broadened its distribution channel. The Fund’s high-conviction holding Facebook was another contributor to relative performance. The compa-
Portfolio Composition | |||||
By sector | % of total net assets |
Information Technology | 57.7 | % | |||
Health Care | 16.2 | ||||
Consumer Discretionary | 15.9 | ||||
Industrials | 3.8 | ||||
Telecommunication Services | 3.5 | ||||
Financials | 1.5 | ||||
Consumer Staples | 1.1 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 0.3 |
Top 10 Equity Holdings* | |||
% of total net assets |
1. | Apple Inc. | 8.0 | % | ||||
2. | Amazon.com, Inc. | 6.9 | |||||
3. | Alphabet Inc.-Class A | 6.4 | |||||
4. | Microsoft Corp. | 4.9 | |||||
5. | Facebook Inc.-Class A | 4.4 | |||||
6. | Raytheon Co. | 3.8 | |||||
7. | Visa Inc.-Class A | 3.6 | |||||
8. | Sprint Corp. | 3.5 | |||||
9. | DISH Network Corp.-Class A | 3.5 | |||||
10. | Celgene Corp. | 3.4 |
Total Net Assets
| $
| 94.4 million
|
| ||||
Total Number of Holdings* | 40 |
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.
Data presented here are as of December 31, 2016.
Invesco V.I. Technology Fund
ny reported rising usage, increased migration to mobile devices and greater video usage, which led to higher video advertising revenue. At the same time, management reduced guidance for future expenses.
During the year, the Fund emphasized growth technology, including biopharmaceuticals, and de-emphasized mature technology. The Fund favors innovation, transformative technology and opportunities which we expect to take market share from mature companies, including the game-changing technologies of mobile, security, cloud and biopharmaceuti-cals. We remain optimistic about technology spending given strong corporate balance sheets and given companies’ need to invest in more robust security solutions for future growth. In our opinion, the increased pace of health care innovation will continue to drive attractive long-term growth rates due to successful mapping of the human genome and recent productivity improvements, both of which have fostered faster and more effective targeting of promising therapeutics. We attempt to harness multiyear secular trends, which may benefit long-term investors regardless of near-term economic strength.
We thank you for your commitment to Invesco V.I. Technology Fund.
1 | Source: Bureau of Economic Analysis |
2 | Source: Bureau of Labor Statistics |
3 | Source: Thompson-Reuters |
4 | Source: US Federal Reserve |
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 manager of Invesco V.I. | ||
Technology Fund. He joined Invesco in 2010. Mr. Vossearned 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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
3 | Source: Bloomberg L.P. |
Past performance cannot guarantee comparable future results.
During the reporting period, the Fund has elected to use the NASDAQ Composite Index as its broad market/
style-specific index rather than the S&P 500 Index because the NASDAQ Composite Index more closely reflects the performance of the types of securities in which the Fund invests.
Because this is the first reporting period since we have adopted the new index, SEC guidelines require that we compare performance to both the old and new indexes.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (5/20/1997) | 4.81 | % | |||
10 Years | 5.91 | ||||
5 Years | 10.39 | ||||
1 Year | -0.76 | ||||
Series II Shares | |||||
Inception (4/30/2004) | 6.31 | % | |||
10 Years | 5.65 | ||||
5 Years | 10.13 | ||||
1 Year | -1.01 |
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. 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. Technology Fund
Invesco V.I. Technology Fund’s investment objective is long-term growth of capital.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. The Fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer.
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.
Emerging markets securities risk.
Emerging markets (also referred to as developing markets) are generally subject to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Growth investing risk. Growth stocks tend to be more expensive relative to the issuing company’s earnings or assets compared with other types of stock. As a result, they tend to be more sensitive to changes in, or investors’ expectations of, the issuing company’s earnings and can be more volatile.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the
Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Mid-capitalization companies risk. Mid-capitalization companies tend to be more vulnerable to changing market conditions and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
Technology sector risk. The Fund will concentrate its investments in the securities of issuers engaged primarily in technology-related industries. Technology companies are subject to intense competition, rapid obsolescence of their products, issues with obtaining financing or regulatory approvals, product incompatibility, changing consumer preferences, high required corporate capital expenditure for research and development or infrastructure and development of new products, each of which make the prices of securities issued by these companies more volatile.
Invesco V.I. Technology Fund
About indexes used in this report The NASDAQ Composite Index is a broad-based, market index of the common stocks and similar securities listed on the Nasdaq stock market.
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The BofA Merrill Lynch 100 Technology Index is a price-only index designed to measure the performance of a cross section of 100 large, actively traded technology stocks and American Depositary Receipts.
The Lipper VUF Science & Technology Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper Science & Technology Funds classification.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
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, 2016
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.73% |
| |||||||
Aerospace & Defense–3.84% | ||||||||
Raytheon Co. | 25,568 | $ | 3,630,656 | |||||
Application Software–2.41% | ||||||||
salesforce.com, inc.(b) | 33,251 | 2,276,363 | ||||||
Biotechnology–10.81% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 12,948 | 1,584,188 | ||||||
Amgen Inc. | 13,814 | 2,019,745 | ||||||
Biogen Inc.(b) | 5,203 | 1,475,467 | ||||||
BioMarin Pharmaceutical Inc.(b) | 11,379 | 942,636 | ||||||
Celgene Corp.(b) | 27,936 | 3,233,592 | ||||||
Incyte Corp.(b) | 9,526 | 955,172 | ||||||
10,210,800 | ||||||||
Cable & Satellite–3.45% | ||||||||
DISH Network Corp.–Class A(b) | 56,224 | 3,257,056 | ||||||
Communications Equipment–0.31% | ||||||||
Palo Alto Networks, Inc.(b) | 2,342 | 292,867 | ||||||
Consumer Electronics–3.34% | ||||||||
Sony Corp. (Japan) | 113,500 | 3,154,423 | ||||||
Data Processing & Outsourced Services–7.49% | ||||||||
First Data Corp.–Class A(b) | 124,763 | 1,770,387 | ||||||
Mastercard Inc.–Class A | 18,637 | 1,924,270 | ||||||
Visa Inc.–Class A | 43,263 | 3,375,380 | ||||||
7,070,037 | ||||||||
Home Entertainment Software–7.79% | ||||||||
Activision Blizzard, Inc. | 45,590 | 1,646,255 | ||||||
Electronic Arts Inc.(b) | 23,785 | 1,873,307 | ||||||
Nintendo Co., Ltd. (Japan) | 11,600 | 2,425,032 | ||||||
Take-Two Interactive Software, Inc.(b) | 28,688 | 1,414,031 | ||||||
7,358,625 | ||||||||
Internet & Direct Marketing Retail–7.98% | ||||||||
Amazon.com, Inc.(b) | 8,710 | 6,531,368 | ||||||
Priceline Group Inc. (The)(b) | 684 | 1,002,785 | ||||||
7,534,153 | ||||||||
Internet Software & Services–15.08% | ||||||||
Alibaba Group Holding Ltd.–ADR (China)(b) | 21,942 | 1,926,727 | ||||||
Alphabet Inc.–Class A(b) | 7,580 | 6,006,771 | ||||||
Alphabet Inc.–Class C(b) | 2,805 | 2,164,955 | ||||||
Facebook Inc.–Class A(b) | 35,960 | 4,137,198 | ||||||
14,235,651 | ||||||||
Life Sciences Tools & Services–1.25% | ||||||||
Thermo Fisher Scientific, Inc. | 8,395 | 1,184,534 |
Shares | Value | |||||||
Managed Health Care–1.26% | ||||||||
UnitedHealth Group Inc. | 7,418 | $ | 1,187,177 | |||||
Movies & Entertainment–1.09% | ||||||||
Time Warner Inc. | 10,671 | 1,030,072 | ||||||
Pharmaceuticals–2.85% | ||||||||
Allergan PLC(b) | 7,877 | 1,654,249 | ||||||
Eli Lilly and Co. | 14,036 | 1,032,348 | ||||||
2,686,597 | ||||||||
Regional Banks–1.53% | ||||||||
SVB Financial Group(b) | 8,418 | 1,445,034 | ||||||
Semiconductor Equipment–1.06% | ||||||||
Applied Materials, Inc. | 31,125 | 1,004,404 | ||||||
Semiconductors–10.02% | ||||||||
Broadcom Ltd. (Singapore) | 18,039 | 3,188,754 | ||||||
Integrated Device Technology, Inc.(b) | 91,185 | 2,148,319 | ||||||
NVIDIA Corp. | 13,226 | 1,411,743 | ||||||
QUALCOMM, Inc. | 41,618 | 2,713,493 | ||||||
9,462,309 | ||||||||
Systems Software–5.57% | ||||||||
Microsoft Corp. | 74,704 | 4,642,106 | ||||||
ServiceNow, Inc.(b) | 8,358 | 621,334 | ||||||
5,263,440 | ||||||||
Technology Hardware, Storage & Peripherals–7.96% | ||||||||
Apple Inc. | 64,870 | 7,513,243 | ||||||
Tobacco–1.10% | ||||||||
Philip Morris International Inc. | 11,337 | 1,037,222 | ||||||
Wireless Telecommunication Services–3.54% | ||||||||
Sprint Corp.(b) | 396,539 | 3,338,858 | ||||||
Total Common Stocks & Other Equity Interests |
| 94,173,521 | ||||||
Money Market Funds–0.46% | ||||||||
Government & Agency Portfolio–Institutional Class, 0.43%(c) | 262,356 | 262,356 | ||||||
Treasury Portfolio–Institutional Class, 0.37%(c) | 174,904 | 174,904 | ||||||
Total Money Market Funds |
| 437,260 | ||||||
TOTAL INVESTMENTS–100.19% |
| 94,610,781 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.19)% |
| (179,327 | ) | |||||
NET ASSETS–100.00% |
| $ | 94,431,454 |
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. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $66,224,739) | $ | 94,173,521 | ||
Investments in affiliated money market funds, at value and cost | 437,260 | |||
Total investments, at value (Cost $66,661,999) | 94,610,781 | |||
Foreign currencies, at value (Cost $8,952) | 9,003 | |||
Receivable for: | ||||
Fund shares sold | 13,761 | |||
Dividends | 32,293 | |||
Investment for trustee deferred compensation and retirement plans | 62,666 | |||
Total assets | 94,728,504 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 117,528 | |||
Accrued fees to affiliates | 80,785 | |||
Accrued trustees’ and officers’ fees and benefits | 413 | |||
Accrued other operating expenses | 29,249 | |||
Trustee deferred compensation and retirement plans | 69,075 | |||
Total liabilities | 297,050 | |||
Net assets applicable to shares outstanding | $ | 94,431,454 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 60,817,342 | ||
Undistributed net investment income (loss) | (67,249 | ) | ||
Undistributed net realized gain | 5,732,528 | |||
Net unrealized appreciation | 27,948,833 | |||
$ | 94,431,454 | |||
Net Assets: |
| |||
Series I | $ | 87,632,418 | ||
Series II | $ | 6,799,036 | ||
Shares outstanding, no par value, |
| |||
Series I | 4,897,826 | |||
Series II | 396,743 | |||
Series I: | ||||
Net asset value per share | $ | 17.89 | ||
Series II: | ||||
Net asset value per share | $ | 17.14 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $1,640) | $ | 752,758 | ||
Dividends from affiliated money market funds (includes securities lending income of $529) | 7,364 | |||
Total investment income | 760,122 | |||
Expenses: | ||||
Advisory fees | 741,594 | |||
Administrative services fees | 245,306 | |||
Custodian fees | 3,423 | |||
Distribution fees — Series II | 18,087 | |||
Transfer agent fees | 26,100 | |||
Trustees’ and officers’ fees and benefits | 21,706 | |||
Reports to shareholders | 8,070 | |||
Professional services fees | 41,157 | |||
Other | 4,915 | |||
Total expenses | 1,110,358 | |||
Less: Fees waived | (2,710 | ) | ||
Net expenses | 1,107,648 | |||
Net investment income (loss) | (347,526 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 5,920,983 | |||
Foreign currencies | 7,623 | |||
5,928,606 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (7,410,210 | ) | ||
Foreign currencies | (54 | ) | ||
(7,410,264 | ) | |||
Net realized and unrealized gain (loss) | (1,481,658 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (1,829,184 | ) |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (347,526 | ) | $ | (602,316 | ) | ||
Net realized gain | 5,928,606 | 4,389,402 | ||||||
Change in net unrealized appreciation (depreciation) | (7,410,264 | ) | 3,449,118 | |||||
Net increase (decrease) in net assets resulting from operations | (1,829,184 | ) | 7,236,204 | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (4,059,433 | ) | (10,432,483 | ) | ||||
Series ll | (343,483 | ) | (803,764 | ) | ||||
Total distributions from net realized gains | (4,402,916 | ) | (11,236,247 | ) | ||||
Share transactions–net: | ||||||||
Series l | (13,847,236 | ) | 6,278,886 | |||||
Series ll | (789,246 | ) | 3,689,985 | |||||
Net increase (decrease) in net assets resulting from share transactions | (14,636,482 | ) | 9,968,871 | |||||
Net increase (decrease) in net assets | (20,868,582 | ) | 5,968,828 | |||||
Net assets: | ||||||||
Beginning of year | 115,300,036 | 109,331,208 | ||||||
End of year (includes undistributed net investment income (loss) of $(67,249) and $(67,397), respectively) | $ | 94,431,454 | $ | 115,300,036 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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 asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. The Fund bears the risk of loss with respect to the investment of collateral. 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. When loaning securities, the Fund retains certain benefits of owning the securities, including the economic equivalent of dividends or interest generated by the security. 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. The securities loaned are subject to termination at the option of the borrower or the Fund. Upon termination, the borrower will return to the Fund the securities loaned and the Fund will return the collateral. 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 and the securities may lose value during the delay which could result in potential losses to the Fund. Some of these losses may be indemnified by the lending agent. 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, are included in Dividends from affiliated money market funds on the Statement of Operations. The aggregate value of securities out on loan, if any, is shown as a footnote on the Statement of Assets and Liabilities. |
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 the 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, 2016, 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 Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $2,710.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $50,000 for accounting and fund administrative services and was reimbursed $195,306 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $341 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. |
Invesco V.I. Technology Fund
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 2016. 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 | |||||||||||||
Common Stocks & Other Equity Interests | $ | 88,594,066 | $ | 5,579,455 | $ | — | $ | 94,173,521 | ||||||||
Money Market Funds | 437,260 | — | — | 437,260 | ||||||||||||
Total Investments | $ | 89,031,326 | $ | 5,579,455 | $ | — | $ | 94,610,781 |
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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | — | $ | 44,845 | ||||
Long-term capital gain | 4,402,916 | 11,191,402 | ||||||
Total distributions | $ | 4,402,916 | $ | 11,236,247 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed long-term gain | $ | 6,045,183 | ||
Net unrealized appreciation — investments | 27,636,127 | |||
Net unrealized appreciation — other investments | 51 | |||
Temporary book/tax differences | (67,249 | ) | ||
Shares of beneficial interest | 60,817,342 | |||
Total net assets | $ | 94,431,454 |
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, 2016.
Invesco V.I. Technology Fund
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2016 was $50,614,079 and $68,800,624, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 28,783,306 | ||
Aggregate unrealized (depreciation) of investment securities | (1,147,179 | ) | ||
Net unrealized appreciation of investment securities | $ | 27,636,127 |
Cost of investments for tax purposes is $66,974,654.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of net operating losses, on December 31, 2016, undistributed net investment income (loss) was increased by $347,674, undistributed net realized gain was decreased by $7,624 and shares of beneficial interest was decreased by $340,050. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 459,692 | $ | 7,989,025 | 937,510 | $ | 18,643,275 | ||||||||||
Series II | 28,944 | 482,623 | 169,083 | 3,299,652 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 220,142 | 4,059,433 | 596,483 | 10,432,483 | ||||||||||||
Series II | 19,439 | 343,483 | 47,730 | 803,764 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,477,788 | ) | (25,895,694 | ) | (1,131,990 | ) | (22,796,872 | ) | ||||||||
Series II | (95,643 | ) | (1,615,352 | ) | (22,460 | ) | (413,431 | ) | ||||||||
Net increase (decrease) in share activity | (845,214 | ) | $ | (14,636,482 | ) | 596,356 | $ | 9,968,871 |
(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. Technology Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Distributions from net realized gains | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income (loss) to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | $ | 18.83 | $ | (0.06 | ) | $ | (0.06 | ) | $ | (0.12 | ) | $ | (0.82 | ) | $ | 17.89 | (0.76 | )% | $ | 87,632 | 1.10 | %(d) | 1.10 | %(d) | (0.33 | )%(d) | 52 | % | ||||||||||||||||||||
Year ended 12/31/15 | 19.75 | (0.11 | ) | 1.29 | 1.18 | (2.10 | ) | 18.83 | 6.82 | 107,257 | 1.15 | 1.15 | (0.53 | ) | 61 | |||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 19.42 | (0.13 | ) | 2.20 | 2.07 | (1.74 | ) | 19.75 | 11.05 | 104,556 | 1.16 | 1.16 | (0.65 | ) | 77 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 16.87 | (0.07 | ) | 4.19 | 4.12 | (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 | ||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 18.12 | (0.10 | ) | (0.06 | ) | (0.16 | ) | (0.82 | ) | 17.14 | (1.01 | ) | 6,799 | 1.35 | (d) | 1.35 | (d) | (0.58 | )(d) | 52 | ||||||||||||||||||||||||||||
Year ended 12/31/15 | 19.13 | (0.15 | ) | 1.24 | 1.09 | (2.10 | ) | 18.12 | 6.56 | 8,043 | 1.40 | 1.40 | (0.78 | ) | 61 | |||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 18.90 | (0.17 | ) | 2.14 | 1.97 | (1.74 | ) | 19.13 | 10.82 | 4,775 | 1.41 | 1.41 | (0.90 | ) | 77 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 16.50 | (0.12 | ) | 4.09 | 3.97 | (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 |
(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 $91,644 and $7,235 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 the 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 the Invesco V.I. Technology Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,089.70 | $ | 5.67 | $ | 1,019.71 | $ | 5.48 | 1.08 | % | ||||||||||||
Series II | 1,000.00 | 1,088.40 | 6.98 | 1,018.45 | 6.75 | 1.33 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Technology Fund
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, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 4,402,916 | ||
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. 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk —��1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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
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Annual Report to Shareholders
| December 31, 2016 | |||
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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.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIVOPP-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2016, Series I shares of Invesco V.I. Value Opportunities Fund (the Fund) underperformed the S&P 1500 Value Index, the Fund’s style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/15 to 12/31/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 18.34 | % | |||
Series II Shares | 17.92 | ||||
S&P 500 Index▼ (Broad Market Index) | 11.96 | ||||
S&P 1500 Value Index▼ (Style-Specific Index) | 18.49 | ||||
Lipper VUF Multi-Cap Value Funds Index◾ (Peer Group Index) | 16.08 |
Source(s):▼ FactSet Research Systems Inc.; ◾Lipper Inc.
Market conditions and your Fund
During the year ended December 31, 2016, the US economy continued to expand. The US Federal Reserve (the Fed) raised interest rates in December 2016 – one year after raising them in December 2015 for the first time since 2006. Major US stock market indexes posted gains for the reporting period, but they were fairly volatile. Stocks began the year on a negative note, driven by investor concerns about economic weakness in China, falling oil prices and uncertainty over Fed policy. Markets recovered in February and posted gains until June when UK voters opted to leave the European Union, sending markets sharply lower. Markets recovered in the summer and rallied even more after the US presidential election as investors expected tax reform, infrastructure spending and regulatory changes could stimulate economic activity. Within the S&P 500 Index, energy, telecommunication services and financials were the best-performing sectors for the year, while health care, real estate and consumer staples were the worst. Overall, investor fear rose during the first half of the year, leading to short-term outperformance of defensive sectors and wider valuation disparities across the market.
This trend reversed in the third and fourth quarters. As investors, we believe it is important to take a long-term perspective.
During the year, we continued to use our intrinsic value strategy, seeking to create wealth by maintaining a long-term investment horizon and investing in companies that are selling at a significant discount to our estimate of their intrinsic value. We believe intrinsic value represents the fair economic worth of the business. Since our application of this strategy is highly disciplined and relatively unique, it is important to understand the benefits and limitations of our process. First, the investment strategy is intended to preserve your capital while growing it at above-market rates over the long term. Second, our investments have little in common with popular stock market indexes and most of our peers. And third, the Fund’s short-term relative performance will naturally be different from stock market indexes and peers and have little information value since we typically structure the portfolio significantly differently than these benchmarks.
Drivers of Fund performance were mainly stock specific during the year. Information technology company Belden
was the largest contributor to the Fund’s performance. Belden is a manufacturer of high-quality network and connectivity products used in applications for which performance is critical. Shares of this long-term holding rose as the company reported strong financial results throughout the year.
Health care diagnostic and research company Alere also contributed to the Fund’s absolute performance. Alere is a point-of-care diagnostics company that is at the forefront of a convergence between medical diagnostic testing and personal health management. Shares of the company rose after it was announced that Abbott Laboratories (not a Fund holding) was acquiring Alere.
Many of the Fund’s holdings in the financials sector posted strong gains during the year. Two of the top contributors to Fund performance in this sector were JP Morgan Chase and Bank of America.
Energy sector holding Weatherford International was the largest detractor from the Fund’s performance during the year. Weatherford is one of the largest multinational oilfield service companies providing innovative solutions, technology and services to the oil and gas industry. Shares of the company declined after reporting disappointing financial results during most of the year.
Health care sector holdings Endo International and Brookdale Senior Living were also significant detractors from Fund performance. Endo International is a global specialty pharmaceutical company that develops, manufactures, markets and distributes branded and generic products, as well as over-the-counter medications. Brookdale Senior Living is the leading operator of senior living communities in the US. Shares of both companies underperformed the market along with the health care sector in general. We sold our position in Endo International during the reporting period.
Portfolio Composition | |||||
By sector | % of total net assets |
Financials | 45.1 | % | |||
Health Care | 12.8 | ||||
Information Technology | 12.5 | ||||
Consumer Discretionary | 10.2 | ||||
Industrials | 8.7 | ||||
Energy | 3.6 | ||||
Real Estate | 2.4 | ||||
Materials | 2.1 | ||||
Money Market Funds | |||||
Plus Other Assets Less Liabilities | 2.6 |
Top 10 Equity Holdings* | |||
% of total net assets |
1. | JPMorgan Chase & Co. | 5.5 | % | ||||
2. | AECOM | 4.6 | |||||
3. | Synchrony Financial | 4.5 | |||||
4. | Affiliated Managers Group, Inc. | 4.4 | |||||
5. | Alere, Inc. | 4.1 | |||||
6. | Citigroup Inc. | 4.1 | |||||
7. | AmTrust Financial Services, Inc. | 3.9 | |||||
8. | Belden Inc. | 3.9 | |||||
9. | Cardinal Health, Inc. | 3.5 | |||||
10. | Dana Inc. | 3.5 |
Total Net Assets
| $
| 140.2 million
|
| ||||
Total Number of Holdings* | 41 |
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.
Data presented here are as of December 31, 2016.
.
Invesco V.I. Value Opportunities Fund
We believe the single most important indicator of how the Fund is positioned for potential future success is not our recent investment results or popular statistical measures, but rather the difference between current market prices and the Fund’s estimated intrinsic value – the aggregate business value of the portfolio based on our estimate of intrinsic value for each individual holding.
At the end of the year, the difference between the market price and the estimated intrinsic value of the Fund was attractive, according to our estimation. While there is no assurance that market value will ever reflect our estimate of the Fund’s intrinsic value, we believe the gap between price and estimated intrinsic value may provide above-average capital appreciation.
We will continue to work hard to protect and grow the Fund’s estimated intrinsic value. We thank you for your investment and for sharing our long-term investment perspective.
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.
R. Canon Coleman II Chartered Financial Analyst, Portfolio Manager, is lead manager of Invesco V.I. Value Opportunities Fund. He joined Invesco in 1999. Mr. Coleman | ||
earned a BS and an MS in accounting from the University of Florida. He also earned an MBA from the Wharton School of the University of Pennsylvania. |
Jonathan Edwards Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Value Opportunities Fund. He | ||
joined Invesco in 2001. Mr. Edwards earned a BS in economics from Texas A&M University and an MBA from The University of Texas at Austin. |
Jonathan Mueller Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Value Opportunities Fund. He | ||
joined Invesco in 2001. Mr. Mueller earned a BBA in accounting from Texas Christian University and an MBA in finance from The University of Texas at Austin. He is also a Certified Public Accountant. |
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 12/31/06
1 | Source: FactSet Research Systems Inc. |
2 | Source: Lipper Inc. |
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/16 | |||||
Series I Shares | |||||
Inception (9/10/01) | 4.30 | % | |||
10 Years | 2.99 | ||||
5 Years | 12.22 | ||||
1 Year | 18.34 | ||||
Series II Shares | |||||
Inception (9/10/01) | 4.04 | % | |||
10 Years | 2.72 | ||||
5 Years | 11.94 | ||||
1 Year | 17.92 |
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 0.94% and 1.19%, 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.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. 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.
∎ | Unless otherwise stated, information presented in this report is as of December 31, 2016, and is based on total net assets. |
∎ | Unless otherwise noted, all data provided by Invesco. |
∎ | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in
the Fund
Convertible securities risk. The market values of convertible securities are affected by market interest rates, the risk of actual issuer default on interest or principal payments and the value of the underlying common stock into which the convertible security may be converted. Additionally, a convertible security is subject to the same types of market and issuer risks as apply to the underlying common stock. In addition, certain convertible securities are subject to involuntary conversions and may undergo principal write-downs upon the occurrence of certain triggering events, and, as a result, are subject to an increased risk of loss.
Depositary receipts risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. The Fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer.
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.
Emerging markets securities risk.
Emerging markets (also referred to as developing markets) are generally subject to greater market volatility, political, social and economic instability, uncertain trading markets and more governmental limitations on foreign investment than more developed markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price fluctuations than companies in more developed markets. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably. In addition, investments in emerging markets securities may also be subject to additional transaction costs, delays in settlement procedures, and lack of timely information.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless the Fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which the Fund has exposure to foreign currencies) to decline in value. Currency exchange rates may
fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful.
Initial public offerings (IPO) risk. The prices of IPO securities often fluctuate more than prices of securities of companies with longer trading histories and sometimes experience significant price drops shortly after their initial issuance. In addition, companies offering securities in IPOs may have less experienced management or limited operating histories.
Management risk. The Fund is actively managed and depends heavily on the Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market risk. The market values of the Fund’s investments, and therefore the value of the Fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
Preferred securities risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities. Preferred securities also may be subordinated to bonds or other debt instruments, subjecting them to a greater risk of non-payment, may be less liquid than many other securities, such as common stocks, and generally offer no voting rights with respect to the issuer.
Real estate investment trust (REIT)/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.
Invesco V.I. Value Opportunities Fund
Shares of real estate related companies, which tend to be small- and mid-cap companies, may be more volatile and less liquid.
Sector focus risk. The Fund may from time to time invest a significant amount of its assets (i.e. over 25%) in one market sector or group of related industries. In this event, the Fund’s performance will depend to a greater extent on the overall condition of the sector or group of industries and there is increased risk that the Fund will lose significant value if conditions adversely affect that sector or group of industries.
Small- and mid-capitalization companies risks. Small- and mid-capitalization companies tend to be more vulnerable to changing market conditions, may have little or no operating history or track record of success, and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market.
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.
Value investing style risk. A value investing style subjects the Fund 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.
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 1500® Value Index combines the value stocks of the S&P 500, S&P MidCap 400 and the S&P SmallCap 600 indexes.
The Lipper VUF Multi-Cap Value Funds Index is an unmanaged index considered representative of multicap value variable insurance underlying funds tracked by Lipper.
The S&P MidCap 400® Index seeks to track the performance of mid-cap US equities.
The S&P SmallCap 600® Index measures the small-cap segment of the US equity 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
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. Value Opportunities Fund
Schedule of Investments(a)
December 31, 2016
Shares | Value | |||||||
Common Stocks–97.35% |
| |||||||
Advertising–1.68% | ||||||||
Omnicom Group Inc. | 27,615 | $ | 2,350,313 | |||||
Agricultural & Farm Machinery–0.47% | ||||||||
AGCO Corp. | 11,389 | 658,968 | ||||||
Asset Management & Custody Banks–5.41% | ||||||||
Affiliated Managers Group, Inc.(b) | 42,140 | 6,122,942 | ||||||
SEI Investments Co. | 29,600 | 1,461,056 | ||||||
7,583,998 | ||||||||
Auto Parts & Equipment–3.51% | ||||||||
Dana Inc. | 258,900 | 4,913,922 | ||||||
Construction & Engineering–4.58% | ||||||||
AECOM(b) | 176,704 | 6,424,957 | ||||||
Consumer Electronics–1.05% | ||||||||
Harman International Industries, Inc. | 13,300 | 1,478,428 | ||||||
Consumer Finance–4.52% | ||||||||
Synchrony Financial | 174,632 | 6,333,903 | ||||||
Diversified Banks–13.21% | ||||||||
Bank of America Corp. | 216,902 | 4,793,534 | ||||||
Citigroup Inc. | 95,372 | 5,667,958 | ||||||
JPMorgan Chase & Co. | 89,660 | 7,736,762 | ||||||
Wells Fargo & Co. | 5,685 | 313,300 | ||||||
18,511,554 | ||||||||
Electronic Components–3.88% | ||||||||
Belden Inc. | 72,656 | 5,432,489 | ||||||
Electronic Equipment & Instruments–2.40% | ||||||||
FLIR Systems, Inc. | 92,800 | 3,358,432 | ||||||
Electronic Manufacturing Services–1.30% | ||||||||
Flex Ltd.(b) | 127,000 | 1,824,990 | ||||||
Health Care Distributors–3.53% | ||||||||
Cardinal Health, Inc. | 68,700 | 4,944,339 | ||||||
Health Care Facilities–1.75% | ||||||||
Brookdale Senior Living Inc.(b) | 197,898 | 2,457,893 | ||||||
Health Care Supplies–4.14% | ||||||||
Alere, Inc.(b) | 148,777 | 5,797,840 | ||||||
Hotels, Resorts & Cruise Lines–3.91% | ||||||||
Carnival Corp. | 43,000 | 2,238,580 | ||||||
Norwegian Cruise Line Holdings Ltd.(b) | 76,400 | 3,249,292 | ||||||
5,487,872 | ||||||||
Human Resource & Employment Services–1.67% | ||||||||
ManpowerGroup Inc. | 26,300 | 2,337,281 |
Shares | Value | |||||||
Industrial Machinery–1.96% | ||||||||
ITT Inc. | 71,400 | $ | 2,753,898 | |||||
Investment Banking & Brokerage–7.76% | ||||||||
E*TRADE Financial Corp.(b) | 87,500 | 3,031,875 | ||||||
LPL Financial Holdings, Inc. | 98,593 | 3,471,459 | ||||||
TD Ameritrade Holding Corp. | 100,300 | 4,373,080 | ||||||
10,876,414 | ||||||||
Life & Health Insurance–5.29% | ||||||||
Aflac, Inc. | 18,334 | 1,276,047 | ||||||
MetLife, Inc. | 76,317 | 4,112,723 | ||||||
Unum Group | 46,112 | 2,025,700 | ||||||
7,414,470 | ||||||||
Managed Health Care–2.21% | ||||||||
Anthem, Inc. | 21,500 | 3,091,055 | ||||||
Oil & Gas Equipment & Services–1.84% | ||||||||
Weatherford International PLC(b) | 516,850 | 2,579,081 | ||||||
Oil & Gas Exploration & Production–1.81% | ||||||||
Apache Corp. | 39,900 | 2,532,453 | ||||||
Pharmaceuticals–1.22% | ||||||||
Novartis AG (Switzerland) | 23,552 | 1,713,756 | ||||||
Property & Casualty Insurance–3.93% | ||||||||
AmTrust Financial Services, Inc. | 201,047 | 5,504,667 | ||||||
Real Estate Services–2.42% | ||||||||
Realogy Holdings Corp. | 131,613 | 3,386,402 | ||||||
Regional Banks–2.85% | ||||||||
First Horizon National Corp. | 84,800 | 1,696,848 | ||||||
SVB Financial Group(b) | 13,400 | 2,300,244 | ||||||
3,997,092 | ||||||||
Semiconductors–2.52% | ||||||||
ON Semiconductor Corp.(b) | 277,300 | 3,538,348 | ||||||
Steel–2.05% | ||||||||
Allegheny Technologies, Inc. | 180,300 | 2,872,179 | ||||||
Systems Software–2.40% | ||||||||
Oracle Corp. | 87,595 | 3,368,028 | ||||||
Thrifts & Mortgage Finance–2.08% | ||||||||
MGIC Investment Corp.(b) | 94,500 | 962,955 | ||||||
Radian Group Inc. | 109,000 | 1,959,820 | ||||||
2,922,775 | ||||||||
Total Common Stocks |
| 136,447,797 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Value Opportunities Fund
Shares | Value | |||||||
Money Market Funds–2.77% |
| |||||||
Government & Agency Portfolio–Institutional Class, 0.43%(c) | 2,328,410 | $ | 2,328,410 | |||||
Treasury Portfolio–Institutional Class, 0.37%(c) | 1,552,273 | 1,552,273 | ||||||
Total Money Market Funds |
| 3,880,683 | ||||||
TOTAL INVESTMENTS–100.12% |
| 140,328,480 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.12)% |
| (168,498 | ) | |||||
NET ASSETS–100.00% |
| $ | 140,159,982 |
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. The rate shown is the 7-day SEC standardized yield as of December 31, 2016. |
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, 2016
Statement of Operations
For the year ended December 31, 2016
Assets: |
| |||
Investments, at value (Cost $115,544,883) | $ | 136,447,797 | ||
Investments in affiliated money market funds, at value and cost | 3,880,683 | |||
Total investments, at value (Cost $119,425,566) | 140,328,480 | |||
Foreign currencies, at value (Cost $3,872) | 3,897 | |||
Receivable for: | ||||
Fund shares sold | 22,680 | |||
Dividends | 153,872 | |||
Investment for trustee deferred compensation and retirement plans | 105,317 | |||
Total assets | 140,614,246 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 172,154 | |||
Accrued fees to affiliates | 133,719 | |||
Accrued trustees’ and officers’ fees and benefits | 579 | |||
Accrued other operating expenses | 30,306 | |||
Trustee deferred compensation and retirement plans | 117,506 | |||
Total liabilities | 454,264 | |||
Net assets applicable to shares outstanding | $ | 140,159,982 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 121,205,538 | ||
Undistributed net investment income | 186,627 | |||
Undistributed net realized gain (loss) | (2,130,304 | ) | ||
Net unrealized appreciation | 20,898,121 | |||
$ | 140,159,982 | |||
Net Assets: |
| |||
Series I | $ | 85,722,452 | ||
Series II | $ | 54,437,530 | ||
Shares outstanding, no par value, |
| |||
Series I | 13,238,287 | |||
Series II | 8,434,315 | |||
Series I: | ||||
Net asset value per share | $ | 6.48 | ||
Series II: | ||||
Net asset value per share | $ | 6.45 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $9,643) | $ | 1,850,513 | ||
Dividends from affiliated money market funds | 18,025 | |||
Total investment income | 1,868,538 | |||
Expenses: | ||||
Advisory fees | 904,464 | |||
Administrative services fees | 306,844 | |||
Custodian fees | 8,928 | |||
Distribution fees — Series II | 128,914 | |||
Transfer agent fees | 29,352 | |||
Trustees’ and officers’ fees and benefits | 22,909 | |||
Reports to shareholders | 9,718 | |||
Professional services fees | 42,440 | |||
Other | 5,078 | |||
Total expenses | 1,458,647 | |||
Less: Fees waived | (6,719 | ) | ||
Net expenses | 1,451,928 | |||
Net investment income | 416,610 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (1,596,721 | ) | ||
Foreign currencies | (739 | ) | ||
(1,597,460 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 22,969,191 | |||
Foreign currencies | (620 | ) | ||
22,968,571 | ||||
Net realized and unrealized gain | 21,371,111 | |||
Net increase in net assets resulting from operations | $ | 21,787,721 |
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, 2016 and 2015
2016 | 2015 | |||||||
Operations: |
| |||||||
Net investment income | $ | 416,610 | $ | 683,206 | ||||
Net realized gain (loss) | (1,597,460 | ) | 40,172,220 | |||||
Change in net unrealized appreciation (depreciation) | 22,968,571 | (57,752,481 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 21,787,721 | (16,897,055 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (313,905 | ) | (2,559,400 | ) | ||||
Series ll | (39,335 | ) | (1,443,446 | ) | ||||
Total distributions from net investment income | (353,240 | ) | (4,002,846 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (23,395,971 | ) | (7,184,178 | ) | ||||
Series ll | (15,462,579 | ) | (4,742,937 | ) | ||||
Total distributions from net realized gains | (38,858,550 | ) | (11,927,115 | ) | ||||
Share transactions–net: | ||||||||
Series l | 12,374,483 | (7,096,221 | ) | |||||
Series ll | 6,433,390 | (12,382,949 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | 18,807,873 | (19,479,170 | ) | |||||
Net increase (decrease) in net assets | 1,383,804 | (52,306,186 | ) | |||||
Net assets: | ||||||||
Beginning of year | 138,776,178 | 191,082,364 | ||||||
End of year (includes undistributed net investment income of $186,627 and $230,954, respectively) | $ | 140,159,982 | $ | 138,776,178 |
Notes to Financial Statements
December 31, 2016
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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies.
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 asked 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 asked prices. For purposes of determining net asset value (“NAV”) 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. Value Opportunities Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked 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 Fund 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 the Statement of Changes in Net Assets, or the net investment income per share and the 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. Value Opportunities 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 the 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 | .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, 2016, the effective advisory fees incurred by the Fund was 0.695%.
Invesco V.I. Value Opportunities Fund
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, will 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, 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 (the “expense limits”). 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, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, 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, 2016, the Adviser waived advisory fees of $6,719.
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 fees paid to insurance companies that have agreed to provide certain administrative services to the Fund. These administrative services provided by the insurance companies may include, among other things: maintenance of master accounts with the Fund; tracking, recording and transmitting net purchase and redemption orders for Fund shares; maintaining and preserving records related to the purchase, redemption and other account activity of variable product owners; distributing copies of Fund documents such as prospectuses, proxy materials and periodic reports, to variable product owners, and responding to inquiries from variable product owners about the Fund. Pursuant to such agreement, for the year ended December 31, 2016, Invesco was paid $50,000 for accounting and fund administrative services and was reimbursed $256,844 for fees paid to 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, 2016, 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, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2016, the Fund incurred $1,719 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, 2016, 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.
Invesco V.I. Value Opportunities Fund
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2016, the Fund engaged in securities purchases of $160,745.
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, 2016 and 2015:
2016 | 2015 | |||||||
Ordinary income | $ | 615,315 | $ | 4,002,846 | ||||
Long-term capital gain | 38,596,475 | 11,927,115 | ||||||
Total distributions | $ | 39,211,790 | $ | 15,929,961 |
Tax Components of Net Assets at Period-End:
2016 | ||||
Undistributed ordinary income | $ | 302,890 | ||
Net unrealized appreciation — investments | 20,494,057 | |||
Net unrealized appreciation (depreciation) — other investments | (4,793 | ) | ||
Temporary book/tax differences | (116,263 | ) | ||
Capital loss carryforward | (1,721,447 | ) | ||
Shares of beneficial interest | 121,205,538 | |||
Total net assets | $ | 140,159,982 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. 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 has a capital loss carryforward as of December 31, 2016, as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
Not subject to expiration | $ | 1,721,447 | $ | — | $ | 1,721,447 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
NOTE 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, 2016 was $46,123,185 and $67,418,475, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 26,693,234 | ||
Aggregate unrealized (depreciation) of investment securities | (6,199,177 | ) | ||
Net unrealized appreciation of investment securities | $ | 20,494,057 |
Cost of investments for tax purposes is $119,834,423.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of distributions, on December 31, 2016, undistributed net investment income was decreased by $107,697 and undistributed net realized gain (loss) was increased by $107,697. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2016(a) | 2015 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 639,701 | $ | 4,362,558 | 222,458 | $ | 2,046,113 | ||||||||||
Series II | 159,359 | 1,120,628 | 283,180 | 2,554,872 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 4,109,164 | 23,709,875 | 1,263,759 | 9,743,578 | ||||||||||||
Series II | 2,691,304 | 15,501,915 | 804,471 | 6,186,383 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,235,453 | ) | (15,697,950 | ) | (2,030,461 | ) | (18,885,912 | ) | ||||||||
Series II | (1,457,745 | ) | (10,189,153 | ) | (2,241,197 | ) | (21,124,204 | ) | ||||||||
Net increase (decrease) in share activity | 3,906,330 | $ | 18,807,873 | (1,697,790 | ) | $ | (19,479,170 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 62% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Value Opportunities 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 12/31/16 | $ | 7.82 | $ | 0.03 | $ | 1.10 | $ | 1.13 | $ | (0.03 | ) | $ | (2.44 | ) | $ | (2.47 | ) | $ | 6.48 | 18.34 | % | $ | 85,722 | 1.01 | %(d) | 1.02 | %(d) | 0.43 | %(d) | 36 | % | |||||||||||||||||||||||||
Year ended 12/31/15 | 9.84 | 0.05 | (1.09 | ) | (1.04 | ) | (0.26 | ) | (0.72 | ) | (0.98 | ) | 7.82 | (10.40 | ) | 83,889 | 1.04 | 1.04 | 0.51 | 82 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 9.36 | 0.18 | (e) | 0.44 | 0.62 | (0.14 | ) | — | (0.14 | ) | 9.84 | 6.62 | 110,865 | 1.03 | 1.04 | 1.87 | (e) | 15 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 7.10 | 0.10 | 2.28 | 2.38 | (0.12 | ) | — | (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 | ) | — | (0.10 | ) | 7.10 | 17.70 | 130,383 | 1.01 | 1.02 | 1.37 | 9 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/16 | 7.79 | 0.01 | 1.10 | 1.11 | (0.01 | ) | (2.44 | ) | (2.45 | ) | 6.45 | 17.92 | 54,438 | 1.26 | (d) | 1.27 | (d) | 0.18 | (d) | 36 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/15 | 9.79 | 0.02 | (1.08 | ) | (1.06 | ) | (0.22 | ) | (0.72 | ) | (0.94 | ) | 7.79 | (10.65 | ) | 54,887 | 1.29 | 1.29 | 0.26 | 82 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 9.31 | 0.15 | (e) | 0.44 | 0.59 | (0.11 | ) | — | (0.11 | ) | 9.79 | 6.39 | 80,217 | 1.28 | 1.29 | 1.62 | (e) | 15 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 7.07 | 0.08 | 2.26 | 2.34 | (0.10 | ) | — | (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 | ) | — | (0.08 | ) | 7.07 | 17.66 | 98,014 | 1.26 | 1.27 | 1.12 | 9 |
(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 $78,573 and $51,566 for Series I and Series II shares, respectively. |
(e) | Net Investment income per share and the ratio of net investment income to average net assets include significant dividends received during the year ended December 31, 2014. 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. |
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 the 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 the Invesco V.I. Value Opportunities Fund (one of the portfolios constituting the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) as of December 31, 2016, 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 as of December 31, 2016 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 14, 2017
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, 2016 through December 31, 2016.
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 (07/01/16) | ACTUAL | HYPOTHETICAL expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/16)1 | Expenses Paid During Period2 | Ending Account Value (12/31/16) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,245.50 | $ | 5.48 | $ | 1,020.26 | $ | 4.93 | 0.97 | % | ||||||||||||
Series II | 1,000.00 | 1,241.40 | 6.87 | 1,019.00 | 6.19 | 1.22 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2016 through December 31, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. 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, 2016:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 38,596,475 | ||
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. 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) 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, Invesco Holding Company (US) Inc. (formerly 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 and Senior Vice President | 2006 | Head of the Americas 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 Chairman, Invesco Investment Services, Inc. (formerly known as Invesco AIM Investment Services, Inc.) (registered transfer agent) Chief Executive Officer, Invesco Corporate Class 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 and Senior Vice President, The Invesco Funds; Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management).
Formerly: Director, Chief Executive Officer and President, Van Kampen Exchange Corp.; President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company), Invesco Canada Holdings Inc. (holding company), Trimark Investments Ltd./Placements Trimark Ltèe and Invesco Financial Services Ltd/Services Financiers Invesco Ltèe; Chief Executive Officer, Invesco Canada Fund Inc. (corporate mutual fund company); 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 |
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 | ||||||||
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); Independent Directors Council and Investment Company Institute | 144 | Chairman of the Audit Committee, ALPS (Attorneys Liability Protection Society) (insurance company) and Member of the Audit Committee, Ferroglobe PLC (metallurgical company) and Investment Company Institute; Member of the Executive Committee and Chair of the Governance Committee, Independent Directors Council | ||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office/private equity investments)
Formerly: Chairman of the Board, Denver Film Society, Chairman of the Board of Trustees, Evans Scholarship Foundation; Chairman, Board of Governors, Western Golf Association | 144 | Trustee, Evans Scholarship Foundation; Chairman of the Board, Denver Film Society | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Discovery Learning Alliance (non-profit)
Formerly: Owner and Chief Executive Officer, Dos Angeles Ranch L.P. (cattle, hunting, corporate entertainment); Director, Insperity, Inc. (formerly known as Administaff); 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 | None | ||||
Eli Jones — 1961 Trustee | 2016 | Professor and Dean, Mays Business School — Texas A&M University
Formerly: Professor and Dean, Walton College of Business, University of Arkansas and E.J. Ourso College of Business, Louisiana State University and Director, Arvest Bank | 144 | Director of 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 | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired.
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None | ||||
Robert C. Troccoli — 1949 Trustee | 2016 | Adjunct Professor, University of Denver — Daniels College of Business
Formerly: Senior Partner, KPMG LLP | 144 | None | ||||
Other Officers | ||||||||
Sheri Morris — 1964 President, Principal Executive Officer and Treasurer | 1999 | President, Principal Executive Officer and Treasurer, 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 and Principal Financial Officer, The Invesco Funds; 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 | ||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | 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) | ||||||||
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.; 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.) Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Managing Director, 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, Secretary, General Counsel and Senior Vice President, Van Kampen Exchange Corp.; Director, Vice President and Secretary, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; 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 | ||||
Karen Dunn Kelley — 1960 Senior Vice President | 1993 | Senior Managing Director, Investments, Invesco Ltd.; 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 and Director, 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.; Senior Vice President, The Invesco Funds
Formerly: Director, Invesco Management Company Limited; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Invesco Management Trust only); Director and President, INVESCO Asset Management (Bermuda) Ltd., Director, INVESCO Global Asset Management DAC (formerly known as 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); 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 Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Kelli Gallegos — 1970 Vice President, Principal Financial Officer and Assistant Treasurer | 2008 | Vice President, Principal Financial Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | N/A | N/A | ||||
Tracy Sullivan — 1962 Vice President, Chief Tax Officer and Assistant Treasurer | 2008 | Vice President, Chief Tax Officer and Assistant Treasurer, The Invesco Funds; Assistant Treasurer, Invesco PowerShares Capital Management LLC, 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: Assistant Vice President, The Invesco Funds | 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) | ||||||||
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., 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; Anti-Money Laundering Compliance Officer and Bank Secrecy Act Officer, INVESCO National Trust Company and Invesco Trust Company; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc.
Formerly: Anti-Money Laundering Compliance Officer, Van Kampen Exchange Corp. | N/A | N/A | ||||
Robert R. Leveille — 1969 Chief Compliance Officer | 2016 | Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser); and Chief Compliance Officer, The Invesco Funds
Formerly: Chief Compliance Officer, Putnam Investments and the Putnam Funds | 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 Statement of Additional Information 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. | |
PricewaterhouseCoopers LLP informed the Trust that it has identified an issue related to its independence under Rule 2-01(c)(1)(ii)(A) of Regulation S-X (referred to as the Loan Rule). The Loan Rule prohibits accounting firms, such as PricewaterhouseCoopers LLP, from being deemed independent if they have certain financial relationships with their audit clients or certain affiliates of those clients. The Trust is required under various securities laws to have its financial statements audited by an independent accounting firm. | ||
The Loan Rule specifically provides that an accounting firm would not be independent if it or certain affiliates and covered persons receives a loan from a lender that is a record or beneficial owner of more than ten percent of an audit client’s equity securities (referred to as a “more than ten percent owner”). For purposes of the Loan Rule, audit clients include the Funds as well as all registered investment companies advised by the Adviser and its affiliates, including other subsidiaries of the Adviser’s parent company, Invesco Ltd. (collectively, the Invesco Fund Complex). PricewaterhouseCoopers LLP informed the Trust it and certain affiliates and covered persons have relationships with lenders who hold, as record owner, more than ten percent of the shares of certain funds within the Invesco Fund Complex, which may implicate the Loan Rule. | ||
On June 20, 2016, the SEC Staff issued a “no-action” letter to another mutual fund complex (see Fidelity Management & Research Company et al., No-Action Letter) related to the audit independence issue described above. In that letter, the SEC confirmed that it would not recommend enforcement action against a fund that relied on audit services performed by an audit firm that was not in compliance with the Loan Rule in certain specified circumstances. In connection with prior independence determinations, PricewaterhouseCoopers LLP communicated, as contemplated by the no-action letter, that it believes that it remains objective and impartial and that a reasonable investor possessing all the facts would conclude that PricewaterhouseCoopers LLP is able to exhibit the requisite objectivity and impartiality to report on the Funds’ financial statements as the independent registered public accounting firm. PricewaterhouseCoopers LLP also represented that it has complied with PCAOB Rule 3526(b)(1) and (2), which are conditions to the Funds relying on the no action letter, and affirmed that it is an independent accountant within the meaning of PCAOB Rule 3520. Therefore, the Adviser, the Funds and PricewaterhouseCoopers LLP concluded that PricewaterhouseCoopers LLP could continue as the Funds’ independent registered public accounting firm. The Invesco Fund Complex relied upon the no-action letter in reaching this conclusion. | ||
If in the future the independence of PricewaterhouseCoopers LLP is called into question under the Loan Rule by circumstances that are not addressed in the SEC’s no-action letter, the Funds will need to take other action in order for the Funds’ filings with the SEC containing financial statements to be deemed compliant with applicable securities laws. Such additional actions could result in additional costs, impair the ability of the Funds to issue new shares or |
have other material adverse effects on the Funds. In addition, the SEC has indicated that the no-action relief will expire 18 months from its issuance after which the Invesco Funds will no longer be able to rely on the letter unless its term is extended or made permanent by the SEC Staff. |
(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 2016 | Fees Billed for Services Rendered to the Registrant for fiscal year end 2015 | |||||||||||||||
Audit Fees | $ 569,575 | $ 569,575 | ||||||||||||||
Audit-Related Fees | $ 0 | $ 0 | ||||||||||||||
Tax Fees(1) | $ 146,702 | $ 159,139 | ||||||||||||||
All Other Fees | $ 0 | $ 0 | ||||||||||||||
Total Fees | $ 716,277 | $ 728,714 |
(g) PWC billed the Registrant aggregate non-audit fees of $146,702 for the fiscal year ended 2016, and $159,139 for the fiscal year ended 2015, for non-audit services rendered to the Registrant.
(1) | Tax fees for the fiscal year end December 31, 2016 includes fees billed for reviewing tax returns and/or services related to tax compliance. Tax fees for fiscal year end December 31, 2015 includes fees billed for reviewing tax returns and/or services related to tax compliance. |
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 to be Pre-Approved by the Registrant’s Audit Committee | Fees Billed for Non- Audit Services to be Pre-Approved by the Registrant’s Audit Committee | |||||||||||||||
Audit-Related Fees | $ 635,000 | $ 574,000 | ||||||||||||||
Tax Fees | $ 0 | $ 0 | ||||||||||||||
All Other Fees | $ 2,432,000 | $ 3,750,000 | ||||||||||||||
Total Fees(1) | $ 3,067,000 | $ 4,324,000 |
(1) Audit-Related fees for the year end 2016 include fees billed related to reviewing controls at a service organization. Audit-Related fees for the year end 2015 include fees billed related to reviewing controls at a service organization.
All other fees for the year end 2016 include fees billed related to the identification of structural and organizational alternatives, informed by industry practices, for certain of the company’s administrative activities and functions. All other fees for the year end 2015 include fees billed related to reviewing the operating effectiveness of strategic projects.
(e)(2) There were no amounts that were pre-approved by the Audit Committee pursuant to the de minimus exception under Rule 2-01 of Regulation S-X.
(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 $5,763,000 for the fiscal year ended December 31, 2016, and $9,099,000 for the fiscal year ended December 31, 2015, for non-audit services rendered to Invesco and Invesco Affiliates.
PWC provided audit services to the Investment Company complex of approximately $22 million.
(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, 2016
I. | Statement of Principles |
The Audit Committees (the “Audit Committee”) of the Boards of Trustees of the Funds (the “Board”) have adopted these policies and procedures (the “Procedures”) with respect to the pre-approval of audit and non-audit services to be provided by the Funds’ independent auditor (the “Auditor”) to the Funds, and to the Funds’ investment adviser(s) and any entity controlling, controlled by, or under common control with the investment adviser(s) that provides ongoing services to the Funds (collectively, “Service Affiliates”).
Under Section 202 of the Sarbanes-Oxley Act of 2002, all audit and non-audit services provided to the Funds by the Auditor must be preapproved by the Audit Committee. Rule 2-01 of Regulation S-X requires that the Audit Committee also pre-approve a Service Affiliate’s engagement of the Auditor for non-audit services if the engagement relates directly to the operations and financial reporting of the Funds (a “Service Affiliate’s Covered Engagement”).
These Procedures set forth the procedures and the conditions pursuant to which the Audit Committee may pre-approve audit and non-audit services for the Funds and a Service Affiliate’s Covered Engagement pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) and other organizations and regulatory bodies applicable to the Funds (“Applicable Rules”).1 They address both general pre-approvals without consideration of specific case-by-case services (“general pre-approvals”) and pre-approvals on a case-by-case basis (“specific pre-approvals”). Any services requiring pre-approval that are not within the scope of general pre-approvals hereunder are subject to specific pre-approval. These Procedures also address the delegation by the Audit Committee of pre-approval authority to the Audit Committee Chair or Vice Chair.
II. | Pre-Approval of Fund Audit Services |
The annual Fund audit services engagement, including terms and fees, is subject to specific pre-approval by the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by an independent auditor to be able to form an opinion on the Funds’ financial statements. The Audit Committee will receive, review and consider sufficient information concerning a proposed Fund audit engagement to make a reasonable evaluation of the Auditor’s qualifications and independence. The Audit Committee will oversee the Fund audit services engagement as necessary, including approving any changes in terms, audit scope, conditions and fees.
1 | Applicable Rules include, for example, New York Stock Exchange (“NYSE”) rules applicable to closed-end funds managed by Invesco and listed on NYSE. |
In addition to approving the Fund audit services engagement at least annually and specifically approving any changes, the Audit Committee may generally or specifically pre-approve engagements for other audit services, which are those services that only an independent auditor reasonably can provide. Other audit services may include services associated with SEC registration statements, periodic reports and other documents filed with the SEC.
III. | General and Specific Pre-Approval of Non-Audit Fund Services |
The Audit Committee will consider, at least annually, the list of General Pre-Approved Non-Audit Services which list may be terminated or modified at any time by the Audit Committee. To inform the Audit Committee’s review and approval of General Pre-Approved Non-Audit Services, the Funds’ Treasurer (or his or her designee) and Auditor shall provide such information regarding independence or other matters as the Audit Committee may request.
Any services or fee ranges that are not within the scope of General Pre-Approved Non-Audit Services have not received general pre-approval and require specific pre-approval. Each request for specific pre-approval by the Audit Committee for services to be provided by the Auditor to the Funds must be submitted to the Audit Committee by the Funds’ Treasurer (or his or her designee) and must include detailed information about the services to be provided, the fees or fee ranges to be charged, and other relevant information sufficient to allow the Audit Committee to consider whether to pre-approve such engagement, including evaluating whether the provision of such services will impair the independence of the Auditor and is otherwise consistent with Applicable Rules.
IV. | Non-Audit Service Types |
The Audit Committee may provide either general or specific pre-approval of audit-related, tax or other services, each as described in more detail below.
a. | 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 an 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; services related to mergers, acquisitions or dispositions; compliance with ratings agency requirements and interfund lending activities; and assistance with internal control reporting requirements.
b. | 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 Committee will not approve proposed services of the Auditor which the Audit Committee believes are to be provided in connection with a service or transaction initially recommended by the Auditor, the sole business purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee will consult with the Funds’ Treasurer (or his or her designee) and may consult with outside counsel or advisers as necessary to ensure the consistency of tax services rendered by the Auditor with the foregoing policy. The Auditor shall not represent any Fund or any Service Affiliate before a tax court, district court or federal court of claims.
Each request to provide tax services under either the general or specific pre-approval of the Audit Committee will include a description from the Auditor in writing of (i) the scope of the service, the fee structure for the engagement, and any side letter or other amendment to the engagement letter, or any other agreement (whether oral, written, or otherwise) between the Auditor and the Funds, relating to the service; and (ii) any compensation arrangement or other agreement, such as a referral agreement, a referral fee or fee-sharing arrangement, between the Auditor (or an affiliate of the Auditor) and any person (other than the
Funds or Service Affiliates receiving the services) with respect to the promoting, marketing, or
recommending of a transaction covered by the service. The Auditor will also discuss with the Audit Committee the potential effects of the services on the independence of the Auditor, and document the substance of its discussion with the Audit Committee.
c. | Other Services |
The Audit Committee may pre-approve other non-audit services so long as the Audit Committee believes that the service will not impair the independence of the Auditor. Appendix I includes a list of services that the Auditor is prohibited from performing by the SEC rules. Appendix I also includes a list of services that would impair the Auditor’s independence unless the Audit Committee reasonably concludes that the results of the services will not be subject to audit procedures during an audit of the Funds’ financial statements.
V. | Pre-Approval of Service Affiliate’s Covered Engagements |
Rule 2-01 of Regulation S-X requires that the Audit Committee pre-approve a Service Affiliate’s engagement of the Auditor for non-audit services if the engagement relates directly to the operations and financial reporting of the Funds, defined above as a “Service Affiliate’s Covered Engagement”.
The Audit Committee may provide either general or specific pre-approval of any Service Affiliate’s Covered Engagement, including for audit-related, tax or other services, as described above, if the Audit Committee believes that the provision of the services to a Service Affiliate will not impair the independence of the Auditor with respect to the Funds. Any Service Affiliate’s Covered Engagements that are not within the scope of General Pre-Approved Non-Audit Services have not received general pre-approval and require specific pre-approval.
Each request for specific pre-approval by the Audit Committee of a Service Affiliate’s Covered Engagement must be submitted to the Audit Committee by the Funds’ Treasurer (or his or her designee) and must include detailed information about the services to be provided, the fees or fee ranges to be charged, a description of the current status of the pre-approval process involving other audit committees in the Invesco investment company complex (as defined in Rule 2-201 of Regulation S-X) with respect to the proposed engagement, and other relevant information sufficient to allow the Audit Committee to consider whether the provision of such services will impair the independence of the Auditor from the Funds. Additionally, the Funds’ Treasurer (or his or her designee) and the Auditor will provide the Audit Committee with a statement that the proposed engagement requires pre-approval by the Audit Committee, the proposed engagement, in their view, will not impair the independence of the Auditor and is consistent with Applicable Rules, and the description of the proposed engagement provided to the Audit Committee is consistent with that presented to or approved by the Invesco audit committee.
Information about all Service Affiliate engagements of the Auditor for non-audit services, whether or not subject to pre-approval by the Audit Committee, shall be provided to the Audit Committee at least quarterly, to allow the Audit Committee to consider whether the provision of such services is compatible with maintaining the Auditor’s independence from the Funds. The Funds’ Treasurer and Auditor shall provide the Audit Committee with sufficiently detailed information about the scope of services provided and the fees for such services, to ensure that the Audit Committee can adequately consider whether the provision of such services is compatible with maintaining the Auditor’s independence from the Funds.
VI. | Pre-Approved Fee Levels or Established Amounts |
Pre-approved fee levels or ranges for audit and non-audit services to be provided by the Auditor to the Funds, and for a Service Affiliate’s Covered Engagement, under general pre-approval or specific pre-approval will be set periodically by the Audit Committee. Any proposed fees exceeding 110% of the maximum pre-approved fee levels or ranges for such services or engagements will be promptly presented to the Audit Committee and will require specific pre-approval by the Audit Committee before payment of any additional fees is made.
VII. | Delegation |
The Audit Committee may from time to time delegate specific pre-approval authority to its Chair and/or Vice Chair, so that the Chair or, in his or her absence, Vice Chair may grant specific pre-approval for audit and non-audit services by the Auditor to the Funds and/or a Service Affiliate’s Covered Engagement between Audit Committee meetings. Any such delegation shall be reflected in resolutions adopted by the Audit Committee and may include such limitations as to dollar amount(s) and/or scope of service(s) as the Audit Committee may choose to impose. Any such delegation shall not preclude the Chair or Vice Chair from declining, on a case by case basis, to exercise his or her delegated authority and instead convening the Audit Committee to consider and pre-approve any proposed services or engagements.
Notwithstanding the foregoing, any non-audit services to be provided to the Funds for which the fees are estimated to exceed $500,000 and any Service Affiliate’s Covered Engagement for which the fees are estimated to exceed $500,000 must be pre-approved by the Audit Committee and may not be delegated to the Chair or Vice Chair.
VIII. | Compliance with Procedures |
Notwithstanding anything herein to the contrary, failure to pre-approve any services or engagements that are not required to be pre-approved pursuant to the de minimis exception provided for in Rule 2-01(c)(7)(i)(C) of Regulation S-X shall not constitute a violation of these Procedures. The Audit Committee has designated the Funds’ Treasurer to ensure services and engagements are pre-approved in compliance with these Procedures. The Funds’ Treasurer will immediately report to the Chair of the Audit Committee, or the Vice Chair in his or her absence, any breach of these Procedures that comes to the attention of the Funds’ Treasurer or any services or engagements that are not required to be pre-approved pursuant to the de minimis exception provided for in Rule 2-01(c)(7)(i)(C) of Regulation S-X.
On at least an annual basis, the Auditor will provide the Audit Committee with a summary of all non-audit services provided to any entity in the investment company complex (as defined in section 2-01(f)(14) of Regulation S-X, including the Funds and Service Affiliates) that were not pre-approved, including the nature of services provided and the associated fees.
IX. | Amendments to Procedures |
All material amendments to these Procedures must be approved in advance by the Audit Committee. Non-material amendments to these Procedures may be made by the Legal and Compliance Departments and will be reported to the Audit Committee at the next regularly scheduled meeting of the Audit Committee.
Appendix I
Non-Audit Services That May Impair the Auditor’s Independence
The Auditor is not independent if, at any point during the audit and professional engagement, the Auditor provides the following 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; and |
• | Any other service that the Public Company Oversight Board determines by regulation is impermissible. |
An Auditor is not independent if, at any point during the audit and professional engagement, the Auditor provides the following non-audit services unless it is reasonable to conclude that the results of the services will not be subject to audit procedures during an audit of the Funds’ 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; and |
• | Internal audit outsourcing services. |
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 13, 2017, 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 13, 2017, 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/ Sheri Morris | |
Sheri Morris | ||
Principal Executive Officer | ||
Date: | February 24, 2017 |
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/ Sheri Morris | |
Sheri Morris | ||
Principal Executive Officer | ||
Date: | February 24, 2017 |
By: | /s/ Kelli Gallegos | |
Kelli Gallegos | ||
Principal Financial Officer | ||
Date: | February 24, 2017 |
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. |