Invesco V.I. Core Equity Fund

Transcription

1 Annual Report to Shareholders December 31, 2013 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 or , or by electronic request at the following address: publicinfo@sec.gov. The SEC file numbers for the Fund are and 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 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

2 Management s Discussion of Fund Performance Performance summary For the year ended December 31, 2013, s returns were positive, with investments in the health care, financials and information technology sectors making the strongest impact on results. The Fund lagged its broad market benchmark, the S&P 500 Index, and its style-specific benchmark, the Russell 1000 Index. Investments in the materials sector were the largest detractor from the Fund s results versus its style-specific benchmark. The Fund s allocation to cash also tempered results for the reporting period. Your Fund s long-term performance appears later in this report. Fund vs. Indexes Total returns, 12/31/12 to 12/31/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares 29.25% Series II Shares S&P 500 Index t (Broad Market Index) Russell 1000 Index n (Style-Specific Index) Lipper VUF Large-Cap Core Funds Index u (Peer Group Index) Source(s): t Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; n Invesco, Russell via FactSet Research Systems Inc.; u Lipper Inc. How we invest We seek to manage your Fund with the goal of achieving long-term realized investor returns exceeding those of passive benchmarks across a full market cycle, which we define as market trough to market trough, or peak to peak. As Fund managers, we believe investors need a reason to stick with the Fund for long periods of time in order to realize these returns, and believe the best way we can encourage this behavior is by striving to deliver a smoother, less volatile investor experience. The portfolio we construct is intended to provide attractive participation during positive-trending equity markets, but with a greater em phasis on comparative downside protection potential during more turbulent, down-trending equity markets. We position the Fund to act as a conservative cornerstone a stable foundation for a well-diversified portfolio. The Fund s portfolio is comprised of what we call core stocks. A core stock encompasses elements of growth (revenues, profits, economic value) and value (both absolute and comparative measures). Along this growth-value continuum, we seek to identify and invest in areas of temporary disconnection between market perception and the view our research uncovers. To build a portfolio of core stocks, we conduct thorough fundamental research of businesses to gain a deeper understanding of the companies prospects, growth potential and return on invested capital (ROIC) characteristics. The analytical process we use to identify potential investments for the Fund includes three phases: financial, business and valuation. Financial analysis provides insights into historical ROIC (a key indicator of business quality) and historical capital allocation (a key indicator of management quality). Business analysis evaluates the competitive landscape and any structural or cyclical business opportunities or threats and allows us to identify key revenue, profit and return drivers of the company. Both the financial and business analyses serve as a basis to construct valuation models that help us appraise a company s intrinsic worth. Our valuation analysis employs three primary techniques: discounted cash flow, traditional valuation multiples and net asset value. We consider selling a stock when it exceeds our target price, we have not seen a demonstrable improvement in fundamentals, or a more compelling investments opportunity exists. Market conditions and your Fund The year ended December 31, 2013 was characterized by slow but steady improvement in the US economy and strong US equity market returns. As the year began, consumer confidence trended higher based on the recovery of the US housing market, despite uncertainty surrounding the outcome of tax and spending negotiations between the White House and Congress and implementation of sequestration spending cuts which consequently left many businesses hesitant to spend. US equity markets rose for the first half of the year, but from late May through June, capital markets declined following US Federal Reserve (the Fed) Chairman Ben Bernanke s comments suggesting that the time had come for the Fed to begin to reduce the size of its bond buying program, also known as quantitative easing (QE). This sell-off was brief but broad, and few asset classes were immune. Markets stabilized in mid-summer, despite some volatility in August surrounding a potential US military reaction to instability in Syria. The fourth quarter began amid uncertainty created by a two-week federal government shut- Portfolio Composition By sector Health Care 18.4% Information Technology 15.0 Financials 13.1 Energy 11.5 Industrials 10.0 Consumer Discretionary 7.4 Materials 4.9 Consumer Staples 4.3 Utilities 0.9 Money Market Funds Plus Other Assets Less Liabilities 14.5 Top 10 Equity Holdings* 1. American Express Co. 2.5% 2. General Electric Co TE Connectivity Ltd Northern Trust Corp Berkshire Hathaway Inc.-Class A HCA Holdings, Inc Gilead Sciences, Inc Progressive Corp. (The) Sanofi-ADR Analog Devices, Inc. 1.8 Top Five Industries* 1. Pharmaceuticals 8.4% 2. Oil & Gas Equipment & Services Property and Casualty Insurance Oil & Gas Exploration & Production Semiconductors 3.4 Total Net Assets $1.3 billion 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.

3 down, yet equities shrugged off this news and rallied steadily throughout the last three months of the year. In December, as expected, the Fed officially announced that it would begin reducing the scope of QE in early Despite the Fed s actions, equities continued to rise, as the announcement was widely anticipated and largely priced into stock valuations. For the reporting period, major US equity market indexes delivered strong double-digit gains, and all 10 sectors of the S&P 500 Index had positive returns. The consumer discretionary sector had the highest return of any sector. The largest contributor to Fund results for the reporting period was Gilead Sciences, a biopharmaceutical company that specializes in therapeutics for the treatment of HIV and hepatitis C. The company s shares rose significantly during the reporting period after the US Food and Drug Administration approved the company s single-tablet HIV combination drug, Stribild. The company s shares also rose amid a broader upward move in the biotechnology industry toward the end of the reporting period. Growing investor excitement over the strong future prospects for its hepatitis C virus franchise also lifted Gilead Sciences stock. Another key contributor was American Express, the world s largest issuer of credit cards measured by purchase volume. The company delivered strong earnings growth as revenues and credit costs improved. The company also returned capital to shareholders via dividends and share repurchases. We believe the company is well positioned in the credit card industry with durable competitive advantages, a strong brand and a seasoned management team. Another key contributor was Pioneer Natural Resources, an oil and gas exploration and production firm with key assets in the Permian Basin and the Eagle Ford and Barnett shale sites. Production volumes and revenues were up yearover-year, and the promising projections for new production in its Wolfcamp site boosted the company s shares during the reporting period. Two of the Fund s largest detractors were metals and mining companies Kinross Gold and Agnico-Eagle Mines, both of which were hurt by declining gold prices during the reporting period. Agnico-Eagle Mines, a gold producer based in Canada, returned to profitability during the reporting period, following a series of unexpected operational disruptions at two of the company s mines that resulted in impairment charges in However, the company s earnings were hurt by higher production costs and lower gold prices. During the reporting period, we increased our exposure to the more cyclical areas of the market, such as the consumer discretionary, industrials and energy sectors and we reduced our exposure to the more defensive consumer staples and health care sectors. However, at the end of the reporting period, the health care sector remained our largest overweight position relative to the Russell 1000 Index, and the largest underweight position was in the consumer discretionary sector. Regardless of market conditions, our goal for remains the same: to serve as a conservative cornerstone for your investment portfolio. We seek to provide attractive upside participation with strong potential downside protection, so that over a full market cycle the Fund may deliver superior investment results with the potential for reduced risk and a smoother investor experience. As always, we thank you for your continued investment in Invesco V.I. Core Equity Fund. Diversification does not eliminate the risk of loss. 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 domestic core investments team, is lead manager of Invesco V.I. Core Equity Fund. He joined Invesco in Mr. Sloan earned a BS in business administration and an MBA from the University of Missouri. Tyler Dann II Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Core Equity Fund. He joined Invesco in Mr. Dann earned a BA from Princeton University. Brian Nelson Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Core Equity Fund. He joined Invesco in Mr. Nelson earned a BA from the University of California, Santa Barbara.

4 Your Fund s Long-Term Performance Results of a $10,000 Investment Oldest Share Class(es) Fund and index data from 12/31/03 $25,000 20,000 15,000 $21,161 Russell 1000 Index 1 $20,914 Series I Shares $20,430 S&P 500 Index 2 $19,491 Lipper VUF Large-Cap Core Funds Index 3 10,000 5,000 12/31/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13 1 Source(s): Invesco, Russell via FactSet Research Systems Inc. 2 Source(s): Invesco, S&P-Dow Jones via FactSet Research Systems Inc. 3 Source: Lipper Inc. Past performance cannot guarantee comparable future results. Average Annual Total Returns As of 12/31/13 Series I Shares Inception (5/2/94) 8.54% 10 Years Years Year Series II Shares Inception (10/24/01) 6.97% 10 Years Years Year The performance of the Fund s Series I and Series II share classes will differ primarily due to different class expenses. The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares. The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.90% and 1.15%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report., 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 As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.

5 s investment objective is long-term growth of capital. Unless otherwise stated, information presented in this report is as of December 31, 2013, 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. Holding cash or cash equivalents may negatively affect performance. Debt securities risk. The Fund may invest in debt securities that are affected by changing interest rates and changes in their effective maturities and credit quality. Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions. Foreign securities risk. The Fund s foreign investments may be affected by changes in a foreign country s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies. Management risk. The investment techniques and risk analysis used by the Fund s portfolio managers may not produce the desired results. Market risk. The prices of and the income generated by the Fund s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations. 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.

6 Schedule of Investments (a) December 31, 2013 Shares Value Common Stocks & Other Equity Interests 85.47% Air Freight & Logistics 0.71% FedEx Corp. 65,490 $ 9,415,497 Asset Management & Custody Banks 2.15% Northern Trust Corp. 460,721 28,514,023 Auto Parts & Equipment 1.22% Johnson Controls, Inc. 315,617 16,191,152 Automobile Manufacturers 0.98% Daimler AG (Germany) 149,637 12,949,260 Biotechnology 2.03% Gilead Sciences, Inc. (b) 358,433 26,936,240 Brewers 1.20% Molson Coors Brewing Co. Class B 282,966 15,888,541 Casinos & Gaming 1.13% Las Vegas Sands Corp. 190,412 15,017,794 Communications Equipment 3.30% Cisco Systems, Inc. 584,320 13,117,984 F5 Networks, Inc. (b) 122,471 11,127,715 QUALCOMM, Inc. 263,258 19,546,907 43,792,606 Computer Storage & Peripherals 0.74% EMC Corp. 389,939 9,806,966 Construction & Farm Machinery & Heavy Trucks 0.67% Caterpillar Inc. 98,247 8,921,810 Construction Materials 0.59% CRH PLC (Ireland) 305,495 7,750,776 Consumer Finance 2.52% American Express Co. 368,363 33,421,575 Department Stores 1.80% Macy s, Inc. 446,002 23,816,507 Diversified Banks 1.27% U.S. Bancorp 415,308 16,778,443 Diversified Chemicals 0.75% Dow Chemical Co. (The) 225,000 9,990,000 Electric Utilities 0.93% Duke Energy Corp. 177,824 12,271,634 Electrical Components & Equipment 0.75% Eaton Corp. PLC 130,669 9,946,524 Electronic Manufacturing Services 2.19% TE Connectivity Ltd. (Switzerland) 527,911 29,093,175 Fertilizers & Agricultural Chemicals 1.06% Mosaic Co. (The) 298,384 14,104,612 Shares Value Food Retail 0.88% Kroger Co. (The) 296,341 $ 11,714,360 General Merchandise Stores 0.40% Target Corp. 84,787 5,364,474 Gold 0.47% Agnico Eagle Mines Ltd. (Canada) 72,960 1,924,685 Kinross Gold Corp. (Canada) 990,000 4,336,200 6,260,885 Health Care Distributors 1.03% Cardinal Health, Inc. 203,526 13,597,572 Health Care Equipment 1.13% Covidien PLC 219,399 14,941,072 Health Care Facilities 2.11% HCA Holdings, Inc. (b) 585,165 27,918,222 Health Care Services 1.07% Express Scripts Holding Co. (b) 202,113 14,196,417 Heavy Electrical Equipment 0.75% ABB Ltd. (Switzerland) 377,886 9,982,958 Home Improvement Retail 1.07% Lowe s Cos., Inc. 286,473 14,194,737 Household Products 1.08% Procter & Gamble Co. (The) 175,221 14,264,742 Industrial Conglomerates 2.46% General Electric Co. 1,164,909 32,652,399 Industrial Gases 1.18% Air Products and Chemicals, Inc. 140,285 15,681,057 Industrial Machinery 2.88% Illinois Tool Works Inc. 178,076 14,972,630 Parker Hannifin Corp. 136,321 17,536,333 Sandvik AB (Sweden) 396,290 5,610,083 38,119,046 Insurance Brokers 1.80% Marsh & McLennan Cos., Inc. 493,879 23,883,988 Integrated Oil & Gas 2.45% Chevron Corp. 152,988 19,109,731 Occidental Petroleum Corp. 140,200 13,333,020 32,442,751 Internet Software & Services 1.15% ebay Inc. (b) 277,888 15,253,272 Investment Banking & Brokerage 1.26% Charles Schwab Corp. (The) 641,912 16,689,712 See accompanying Notes to Financial Statements which are an integral part of the financial statements.

7 Shares Value IT Consulting & Other Services 1.05% International Business Machines Corp. 74,295 $ 13,935,513 Life Sciences Tools & Services 2.60% Agilent Technologies, Inc. 291,185 16,652,870 Thermo Fisher Scientific, Inc. 159,746 17,787,717 34,440,587 Movies & Entertainment 0.77% Twenty-First Century Fox, Inc. Class A 290,845 10,231,927 Oil & Gas Equipment & Services 5.08% Cameron International Corp. (b) 372,280 22,161,828 Halliburton Co. 333,073 16,903,455 Schlumberger Ltd. 103,485 9,325,033 Weatherford International Ltd. (b) 1,221,552 18,921,841 67,312,157 Oil & Gas Exploration & Production 3.97% Anadarko Petroleum Corp. 119,053 9,443,284 EOG Resources, Inc. 75,411 12,656,982 Noble Energy, Inc. 198,461 13,517,179 Pioneer Natural Resources Co. 92,140 16,960,210 52,577,655 Packaged Foods & Meats 1.10% Danone S.A. (France) 202,978 14,644,046 Paper Products 0.89% International Paper Co. 241,225 11,827,262 Pharmaceuticals 8.43% Allergan, Inc. 108,871 12,093,391 Merck & Co., Inc. 328,981 16,465,499 Novartis AG ADR (Switzerland) 209,949 16,875,700 Pfizer Inc. 396,259 12,137,413 Roche Holding AG (Switzerland) 71,522 20,047,706 Sanofi ADR (France) 452,752 24,281,090 Zoetis Inc. 299,398 9,787, ,688,120 Shares Value Property & Casualty Insurance 4.09% Berkshire Hathaway Inc. Class A (b) 157 $ 27,930,300 Progressive Corp. (The) 965,472 26,328,422 54,258,722 Railroads 1.73% Norfolk Southern Corp. 110,365 10,245,183 Union Pacific Corp. 75,663 12,711,384 22,956,567 Semiconductor Equipment 0.65% KLA-Tencor Corp. 134,659 8,680,119 Semiconductors 3.42% Analog Devices, Inc. 471,838 24,030,709 Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) 6,047,823 21,307,229 45,337,938 Systems Software 2.53% Microsoft Corp. 429,635 16,081,238 Symantec Corp. 738,767 17,420,126 33,501,364 Total Common Stocks & Other Equity Interests (Cost $751,249,052) 1,133,156,776 Money Market Funds 14.40% Liquid Assets Portfolio Institutional Class (c) 95,445,338 95,445,338 Premier Portfolio Institutional Class (c) 95,445,338 95,445,338 Total Money Market Funds (Cost $190,890,676) 190,890,676 TOTAL INVESTMENTS 99.87% (Cost $942,139,728) 1,324,047,452 OTHER ASSETS LESS LIABILITIES 0.13% 1,675,019 NET ASSETS % $1,325,722,471 Investment Abbreviations: ADR American Depositary Receipt Notes to Schedule of Investments: (a) (b) (c) 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. Non-income producing security. The money market fund and the Fund are affiliated by having the same investment adviser. See accompanying Notes to Financial Statements which are an integral part of the financial statements.

8 Statement of Assets and Liabilities December 31, 2013 Assets: Investments, at value (Cost $751,249,052) $1,133,156,776 Investments in affiliated money market funds, at value and cost 190,890,676 Total investments, at value (Cost $942,139,728) 1,324,047,452 Foreign currencies, at value (Cost $1,470,092) 1,460,714 Receivable for: Fund shares sold 380,323 Dividends 1,575,893 Investment for trustee deferred compensation and retirement plans 430,757 Other assets 148,507 Total assets 1,328,043,646 Liabilities: Payable for: Fund shares reacquired 908,508 Accrued fees to affiliates 889,730 Accrued trustees and officers fees and benefits 1,982 Accrued other operating expenses 10,618 deferred compensation and retirement plans 510,337 Total liabilities 2,321,175 Net assets applicable to shares outstanding $1,325,722,471 Net assets consist of: Shares of beneficial interest $ 931,287,260 Undistributed net investment income 10,258,645 Undistributed net realized gain 2,267,294 Net unrealized appreciation 381,909,272 $1,325,722,471 Net Assets: Series I $1,167,022,744 Series II $ 158,699,727 Statement of Operations For the year ended December 31, 2013 Investment income: Dividends (net of foreign withholding taxes of $671,125) $ 21,987,531 Dividends from affiliated money market funds 98,648 Total investment income 22,086,179 Expenses: Advisory fees 7,599,281 Administrative services fees 3,318,743 Custodian fees 67,584 Distribution fees Series II 333,592 Transfer agent fees 59,087 s and officers fees and benefits 81,976 Other 83,957 Total expenses 11,544,220 Less: Fees waived (211,263) Net expenses 11,332,957 Net investment income 10,753,222 Realized and unrealized gain (loss) from: Net realized gain (loss) from: Investment securities (includes net gains from securities sold to affiliates of $133,514) 105,363,467 Foreign currencies (31,522) 105,331,945 Change in net unrealized appreciation (depreciation) of: Investment securities 200,785,951 Foreign currencies (19,553) 200,766,398 Net realized and unrealized gain 306,098,343 Net increase in net assets resulting from operations $316,851,565 Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: Series I 30,364,461 Series II 4,173,361 Series I: Net asset value per share $ Series II: Net asset value per share $ See accompanying Notes to Financial Statements which are an integral part of the financial statements.

9 Statement of Changes in Net Assets For the years ended December 31, 2013 and Operations: Net investment income $ 10,753,222 $ 14,806,822 Net realized gain 105,331,945 45,482,074 Change in net unrealized appreciation 200,766,398 90,993,715 Net increase in net assets resulting from operations 316,851, ,282,611 Distributions to shareholders from net investment income: Series I (15,433,838) (10,258,120) Series ll (1,757,717) (825,074) Total distributions from net investment income (17,191,555) (11,083,194) Share transactions net: Series l (134,770,231) (189,370,062) Series ll 17,964,440 49,735,579 Net increase (decrease) in net assets resulting from share transactions (116,805,791) (139,634,483) Net increase in net assets 182,854, ,934 Net assets: Beginning of year 1,142,868,252 1,142,303,318 End of year (includes undistributed net investment income of $10,258,645 and $16,728,501, respectively) $1,325,722,471 $1,142,868,252 Notes to Financial Statements December 31, 2013 NOTE 1 Significant Accounting Policies (the Fund ) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Trust ). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the 1940 Act ), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a Fund ). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission ( SEC ) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class. The Fund s investment objective is long-term growth of capital. The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies ( variable products ). The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ( NYSE ). Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments. Foreign securities (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued

10 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 s. 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 s. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security s fair value. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. B. Securities Transactions and Investment Income Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund s net asset value and, accordingly, they reduce the Fund s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. Country Determination For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. D. Distributions Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. E. Federal Income Taxes The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code ), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. F. Expenses Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. G. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ( GAAP ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. H. Indemnifications Under the Trust s organizational documents, each, 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.

11 I. Foreign Currency Translations Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. J. Forward Foreign Currency Contracts The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to lock in the U.S. dollar price of that security. A forward foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. NOTE 2 Advisory Fees and Other Fees Paid to Affiliates The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the Adviser or Invesco ). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund s average daily net assets as follows: Average Daily Net Assets First $250 million 0.65% Over $250 million 0.60% Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers ) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s). The Adviser has contractually agreed, through at least June 30, 2014, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, The fee waiver agreement cannot be terminated during its term. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation. Further, the Adviser has contractually agreed, through at least April 30, 2015, 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, 2013, the Adviser waived advisory fees of $211,263. The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants accounts. Pursuant to such agreement, for the year ended December 31, 2013, Invesco was paid $291,514 for accounting and fund administrative services and reimbursed $3,027,229 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. ( IIS ) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees. Rate

12 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, 2013, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees. For the year ended December 31, 2013, the Fund incurred $291 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund. Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI. NOTE 3 Additional Valuation Information GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment s assigned level: Level 1 Prices are determined using quoted prices in an active market for identical assets. Level 2 Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. Level 3 Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. The following is a summary of the tiered valuation input levels, as of December 31, The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. Level 1 Level 2 Level 3 Total Equity Securities $1,244,704,654 $79,342,798 $ $1,324,047,452 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 s 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 s 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, 2013, the Fund engaged in securities sales of $1,470,253, which resulted in net realized gains of $133,514. NOTE 5 s and Officers Fees and Benefits s and Officers Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain s and Officers of the Fund. s have the option to defer compensation payable by the Fund, and s and Officers Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those s 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 s were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to s over a period of time based on the number of years of service. The Fund may have certain former s who also participate in a retirement plan and receive benefits under such plan. s 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.