Invesco V.I. Global Real Estate Fund

Transcription

1 Annual Report to Shareholders December 31, 2012 The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 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 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd. s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing. Invesco Distributors, Inc. VIGRE-AR-1

2 Management s Discussion of Fund Performance Performance summary Global real estate equities benefited from slow economic growth and investors search for yield during the year ended December 31, In most markets across the globe, supply of new real estate remained limited, which has been positive for existing supply. The asset class, represented by the FTSE EPRA/NAREIT Developed Real Estate Index, was among the top performers during 2012, easily surpassing the broad equity market as measured by the MSCI World Index. Similarly, Invesco V.I. Global Real Estate Fund delivered strong double digit returns over the year and performed in line with its style-specific benchmark, the FTSE EPRA/NAREIT Developed Real Estate Index. Your Fund s long-term performance appears later in this report. Fund vs. Indexes Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares 28.12% Series II Shares MSCI World Index t (Broad Market Index) FTSE EPRA/NAREIT Developed Real Estate Index n (Style-Specific Index) Lipper VUF Real Estate Funds Classification Average u (Peer Group) Source(s): t Invesco, MSCI via FactSet Research Systems Inc.; n Invesco, Bloomberg L.P.; u Lipper Inc. How we invest Your Fund holds primarily real estate investment trusts (REITs) and other property-related securities from the US and abroad whose value is driven by tangible assets. Our goal is to create a global fund focused on total return that will perform at or above index levels with comparable levels of risk. Our investment strategy focuses on identifying US and non-us property types we believe may benefit from long-term sector trends. We use a fundamentals-driven investment process, including property market cycle analysis, property evaluation and management and structure review to identify securities with: Quality underlying properties. Solid management teams and flexible balance sheets. Attractive valuations relative to peer investment alternatives. We attempt to manage risk by diversifying property types and geographic locations as well as limiting the size of any one holding when: Relative valuation falls below desired levels. Risk/return relationships change significantly. Company fundamentals (property type, geography or management) change. A more attractive investment opportunity is identified. Market conditions and your Fund The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. However, the ongoing eurozone sovereign debt crisis intensified in April and May, dominating headlines and creating significant volatility in global equity markets. This negative news from overseas precipitated a slowdown in the US, where economic data began to decelerate over the summer. While corporate earnings remained solid until late in the year, financial markets were negatively influenced by headline economic data. Asian economies, which are mainly export-driven, were similarly affected with sharp corrections mid-year. Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook improved materially. Asian governments continued to try to balance key aims of supporting growth, while preventing asset bubbles. China announced a surprise interest rate cut in July and the Bank of Japan announced an expansion and extension of its asset purchase plan in September, following the US and European central banks monetary easing announcements. Near year end, market psychology turned negative first, due to uncertainty about the outcome of the US presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the fiscal cliff a variety of tax increases and spending cuts scheduled to take effect in January Despite volatility for much of the year, major equity market indexes delivered double-digit gains, and all 10 sectors of the MSCI World Index had positive returns. 1 Given this slow-growth, lowyield environment, global real estate Portfolio Composition By country United States 43.4% Hong Kong 11.6 Japan 10.9 Australia 8.2 Singapore 5.2 United Kingdom 5.1 Canada 4.2 France 4.0 Countries each less than 2.0% of portfolio 4.2 Money Market Funds Plus Other Assets Less Liabilities 3.2 Top 10 Equity Holdings* 1. Simon Property Group, Inc. 3.9% 2. AvalonBay Communities, Inc Mitsui Fudosan Co., Ltd Unibail-Rodamco S.E Sumitomo Realty & Development Co., Ltd Sun Hung Kai Properties Ltd Prologis, Inc Westfield Group Health Care REIT, Inc Macerich Co. (The) 2.3 Total Net Assets $301.2 million Total Number of Holdings* 107 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 equities rallied for much of the year, delivering double-digit performance that easily outpaced MSCI World Index broad markets. The Fund performed in line with its style-specific benchmark, the FTSE EPRA/NAREIT Developed Real Estate Index, for the year. Relative to this benchmark, top contributors to Fund performance included security selection in Canada, the UK and Japan. Conversely, security selection in the US detracted from the Fund s relative performance. Cash, although only a minor portion of Fund assets, also hurt relative performance given the rally in global real estate equities. Top individual contributors during the year included large-cap Japanese developers Mitsui Fudosan and Sumitomo Realty & Development. Mitsui Fudosan is Japan s largest real estate developer with projects around the world in virtually all sectors, including residential, retail, industrial, office and lodging. Sumitomo operates in four business segments, including property leasing and management, development and sales, construction and remodeling, and real estate brokerage. Top individual detractors from the Fund s performance included US apartment real estate investment trusts (REITs) UDR and BRE Properties. UDR has been repositioning its portfolio toward more supply-constrained coastal markets and BRE Properties is focused on communities on the West Coast. However, we sold the position in BRE Properties as a result of less favorable value and opportunities for growth relative to peers. The apartment REIT sector lagged other sectors as a result of improvement in the single-family housing market. We believed apartment REITs offered favorable forward cash-flow growth and the potential for favorable results from growing development pipelines. At the end of 2012 and relative to our style-specific benchmark, we were modestly overweight in France, Hong Kong, Norway, Japan and Finland. Conversely, we were underweight in the US, Switzerland, Canada, the Netherlands and Belgium. We generally maintained our bias toward companies with higher quality assets, supply-constrained markets and flexible, generally less leveraged balance sheets with longer-term debt maturities. We continued to maintain a well-diversified portfolio across all property types and global economic regions, based on a combination of relative fundamentals and stock valuations. We thank you for your continued investment in Invesco V.I. Global Real Estate Fund. 1 Source: Lipper 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. Joe Rodriguez Jr. Portfolio manager and chief investment officer (CIO) of Invesco s real estate securities investments team, is lead manager of Invesco V.I. Global Real Estate Fund. He joined Invesco in Mr. Rodriguez 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 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 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 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 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 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.

4 Your Fund s Long-Term Performance Results of a $10,000 Investment Oldest Share Class(es) Fund and index data from 12/31/02 $35,000 30,000 25,000 20,000 $31,270 FTSE EPRA/NAREIT Developed Real Estate Index 1 $29,898 Series I Shares $28,184 Lipper VUF Real Estate Funds Classification Average 2 $20,626 MSCI World Index 3 15,000 10,000 5,000 12/31/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 1 Source(s): Invesco, Bloomberg L.P. 2 Source: Lipper Inc. 3 Source(s): Invesco, MSCI via FactSet Research Systems Inc. Past performance cannot guarantee comparable future results. Average Annual Total Returns As of 12/31/12 Series I Shares Inception (3/31/98) 8.71% 10 Years Years Year Series II Shares 10 Years 11.32% 5 Years Year Series II shares incepted on April 30, Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund s Series I and Series II share classes will differ primarily due to different class expenses. The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares. The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.14% and 1.39%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. Invesco V.I. Global Real Estate Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return. The most recent month-end performance data at the Fund level, excluding variable product charges, is available at As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser. Had the adviser not waived fees and/ or reimbursed expenses in the past, performance would have been lower.

5 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, 2012, 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 Concentration risk. To the extent, the Fund invests a greater amount in any one sector or industry, the Fund s performance will depend to a greater extent on the overall condition of the sector or industry, and there is increased risk to the Fund if conditions adversely affect that sector or industry. Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer s credit rating. Foreign securities risk. The Fund s foreign investments may be affected by changes in a foreign country s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies. High yield bond (junk bond) risk. Junk bonds involve a greater risk of default or price changes due to changes in the credit quality of the issuer. The values of junk bonds fluctuate more than those of high- quality bonds in response to company, political, regulatory or economic developments. Values of junk bonds can decline significantly over short periods of time. Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration. Management risk. The investment techniques and risk analysis used by the Fund s portfolio managers may not produce the desired results. Market risk. The prices of and the income generated by the Fund s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations. REIT risk/real estate risk. Investments in real-estate related instruments may be affected by economic, legal, cultural, environmental or technological factors that affect property values, rents or occupancies of real estate related to the Fund s holdings. Real estate companies, including REITs or similar structures, tend to be small and mid-cap companies, and their shares may be more volatile and less liquid. The value of investments in real estate related companies may be affected by the quality of management, the ability to repay loans, the utilization of leverage and financial covenants related thereto, whether the company carries adequate insurance and environmental factors. If a real estate related company defaults, the Fund may own real estate directly, which involves the following additional risks: environmental liabilities; difficulty in valuing and selling the real estate; and economic or regulatory changes. Short sales risk. Short sales may cause the Fund to repurchase a security at a higher price, thereby causing a loss. As there is no limit on how much the price of the security can increase, the Fund s exposure is unlimited. Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic Securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk. US government obligations risk. The Fund may invest in obligations issued by US Government agencies and instrumentalities that may receive varying levels of support from the government, which could affect the Fund s ability to recover should they default. About indexes used in this report The MSCI World Index is an unmanaged index considered representative of stocks of developed countries. The FTSE EPRA/NAREIT Developed Real Estate Index is an unmanaged index considered representative of global real estate companies and REITs. The Lipper VUF Real Estate Funds Classification Average represents an average of all of the variable insurance underlying funds in the Lipper Real Estate Funds classification. The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. 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.

6 Schedule of Investments December 31, 2012 Shares Value Common Stocks & Other Equity Interests 96.76% Australia 8.17% Centro Retail Australia 1,299,133 $ 3,079,233 CFS Retail Property Trust 1,846,450 3,703,828 Dexus Property Group 1,327,126 1,408,720 Goodman Group 552,607 2,516,806 GPT Group 973,273 3,765,043 Stockland 860,692 3,176,706 Westfield Group 628,861 6,946,778 24,597,114 Austria 0.31% Conwert Immobilien Invest S.E. 70, ,008 Canada 4.18% Allied Properties REIT 60,600 2,014,507 Boardwalk REIT 36,692 2,385,146 Canadian Apartment Properties REIT 89,400 2,242,430 Chartwell Seniors Housing REIT 253,600 2,776,903 Primaris Retail REIT 55,600 1,506,638 RioCan REIT 59,900 1,662,984 12,588,608 China 0.56% China Resources Land Ltd. 212, ,965 Country Garden Holdings Co. (a) 1,065, ,123 Sino-Ocean Land Holdings Ltd. 691, ,919 1,681,007 Finland 0.36% Sponda Oyj 228,533 1,089,832 France 4.01% Gecina S.A. 13,108 1,462,378 Klepierre 36,283 1,461,809 Mercialys S.A. 35, ,551 Societe Immobiliere de Location pour I Industrie et le Commerce 6, ,431 Unibail-Rodamco S.E. 31,009 7,588,036 12,080,205 Germany 1.23% Deutsche Wohnen AG 82,562 1,524,038 GSW Immobilien AG 51,360 2,169,983 3,694,021 Hong Kong 11.62% Hang Lung Properties Ltd. 296,000 1,186,898 Henderson Land Development Co. Ltd. 508,000 3,618,978 Hongkong Land Holdings Ltd. 513,000 3,607,833 Hysan Development Co. Ltd. 369,000 1,784,634 Kerry Properties Ltd. 538,400 2,812,321 Link REIT (The) 215,000 1,075,385 Shares Value Hong Kong (continued) New World Development Co. Ltd. 720,000 $ 1,130,043 Shimao Property Holdings Ltd. 1,177,500 2,264,358 Sino Land Co. Ltd. 1,591,600 2,882,697 Sun Hung Kai Properties Ltd. 465,000 7,018,824 Swire Properties Ltd. 523,400 1,760,270 Wharf Holdings Ltd. (The) 741,000 5,863,462 35,005,703 Japan 10.91% Activia Properties, Inc ,012,150 Frontier Real Estate Investment Corp ,020 GLP J-REIT ,561 Industrial & Infrastructure Fund Investment Corp ,588 Japan Real Estate Investment Corp ,743,516 Japan Retail Fund Investment Corp ,092 Kenedix Realty Investment Corp ,890 Mitsubishi Estate Co. Ltd. 202,000 4,822,673 Mitsui Fudosan Co., Ltd. 361,000 8,807,929 Nippon Building Fund Inc ,151,435 Sumitomo Realty & Development Co., Ltd. 224,000 7,433,049 Tokyu Land Corp. 267,000 1,949,232 32,865,135 Malta 0.00% BGP Holdings PLC (Acquired 08/06/09; Cost $0) (a)(b) 3,053,090 0 Netherlands 0.32% Corio N.V. 20, ,273 Norway 0.25% Norwegian Property ASA 490, ,051 Singapore 5.21% CapitaCommercial Trust 1,208,000 1,670,064 Capitaland Ltd. 1,237,000 3,795,335 CapitaMall Trust 1,068,000 1,871,610 CapitaMalls Asia Ltd. 1,531,000 2,462,918 City Developments Ltd. 53, ,392 Global Logistic Properties Ltd. 1,013,000 2,329,538 Keppel Land Ltd. 467,000 1,561,168 Suntec REIT 1,044,000 1,439,078 15,695,103 Sweden 1.12% Castellum AB 136,070 1,934,908 Fabege AB 58, ,289 Wihlborgs Fastigheter AB 54, ,985 3,382,182 See accompanying Notes to Financial Statements which are an integral part of the financial statements.

7 Shares Value United Kingdom 5.10% Big Yellow Group PLC 114,779 $ 659,697 British Land Co. PLC 337,860 3,141,880 Derwent London PLC 30,057 1,033,675 Great Portland Estates PLC 300,046 2,397,811 Hammerson PLC 242,394 1,953,543 Land Securities Group PLC 267,692 3,620,147 Shaftesbury PLC 169,064 1,574,526 Unite Group PLC 219, ,621 15,367,900 United States 43.41% Acadia Realty Trust 74,856 1,877,389 Alexandria Real Estate Equities, Inc. 46,978 3,256,516 American Tower Corp. 17,600 1,359,953 AvalonBay Communities, Inc. 72,221 9,792,445 Boston Properties, Inc. 34,720 3,673,723 Brookfield Office Properties, Inc. 100,096 1,710,112 CBL & Associates Properties, Inc. 67,000 1,421,070 CubeSmart 142,560 2,077,099 DCT Industrial Trust Inc. 404,526 2,625,374 DDR Corp. 370,499 5,802,014 DiamondRock Hospitality Co. 157,746 1,419,714 Digital Realty Trust, Inc. 46,320 3,144,665 Duke Realty Corp. 234,435 3,251,613 Equity Residential 81,535 4,620,588 Essex Property Trust, Inc. 44,124 6,470,785 General Growth Properties, Inc. 174,524 3,464,301 HCP, Inc. 14, ,845 Health Care REIT, Inc. 112,769 6,911,612 Healthcare Realty Trust, Inc. 63,835 1,532,678 Shares Value United States (continued) Host Hotels & Resorts Inc. 401,618 $ 6,293,354 Hudson Pacific Properties Inc. 42, ,944 Kilroy Realty Corp. 69,617 3,297,757 Macerich Co. (The) 116,318 6,781,339 Pebblebrook Hotel Trust 61,270 1,415,337 Piedmont Office Realty Trust Inc.-Class A 71,600 1,292,380 Post Properties, Inc. 39,600 1,978,020 Prologis, Inc. 192,320 7,017,757 Public Storage 12,100 1,754,016 Retail Opportunity Investments Corp. 111,927 1,439,381 Senior Housing Properties Trust 64,299 1,520,028 Simon Property Group, Inc. 75,006 11,857,699 SL Green Realty Corp. 38,088 2,919,445 Starwood Hotels & Resorts Worldwide, Inc. 13, ,559 UDR, Inc. 228,155 5,425,526 Ventas, Inc. 104,358 6,754,050 Vornado Realty Trust 53,200 4,260, ,731,344 Total Common Stocks & Other Equity Interests (Cost $232,768,378) 291,398,486 Money Market Funds 2.65% Liquid Assets Portfolio Institutional Class (c) 3,989,140 3,989,140 Premier Portfolio Institutional Class (c) 3,989,141 3,989,141 Total Money Market Funds (Cost $7,978,281) 7,978,281 TOTAL INVESTMENTS 99.41% (Cost $240,746,659) 299,376,767 OTHER ASSETS LESS LIABILITIES 0.59% 1,775,772 NET ASSETS % $301,152,539 Investment Abbreviations: REIT Real Estate Investment Trust Notes to Schedule of Investments: (a) Non-income producing security. (b) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at December 31, 2012 represented less than 1% of the Fund s Net Assets. (c) The money market fund and the Fund are affiliated by having the same investment adviser. See accompanying Notes to Financial Statements which are an integral part of the financial statements.

8 Statement of Assets and Liabilities December 31, 2012 Assets: Investments, at value (Cost $232,768,378) $291,398,486 Investments in affiliated money market funds, at value and cost 7,978,281 Total investments, at value (Cost $240,746,659) 299,376,767 Foreign currencies, at value (Cost $62,080) 63,764 Receivable for: Investments sold 228,894 Fund shares sold 947,969 Dividends 1,133,587 Investment for trustee deferred compensation and retirement plans 25,201 Total assets 301,776,182 Liabilities: Payable for: Fund shares reacquired 278,242 Accrued fees to affiliates 245,373 Accrued other operating expenses 53,597 deferred compensation and retirement plans 46,431 Total liabilities 623,643 Net assets applicable to shares outstanding 301,152,539 Net assets consist of: Shares of beneficial interest $274,875,259 Undistributed net investment income 4,703,048 Undistributed net realized gain (loss) (37,049,186) Unrealized appreciation 58,623,418 $301,152,539 Net Assets: Series I $176,933,271 Series II $124,219,268 Statement of Operations For the Year ended December 31, 2012 Investment income: Dividends (net of foreign withholding taxes of $418,923) $ 7,628,949 Dividends from affiliated money market funds 8,172 Total investment income 7,637,121 Expenses: Advisory fees 1,858,213 Administrative services fees 667,621 Custodian fees 137,869 Distribution fees Series II 228,382 Transfer agent fees 35,883 s and officers fees and benefits 29,965 Other 85,423 Total expenses 3,043,356 Less: Fees waived (7,785) Net expenses 3,035,571 Net investment income 4,601,550 Realized and unrealized gain (loss) from: Net realized gain from: Investment securities 10,778,978 Foreign currencies 1,504 10,780,482 Change in net unrealized appreciation (depreciation) of: Investment securities 44,292,477 Foreign currencies (6,213) 44,286,264 Net realized and unrealized gain 55,066,746 Net increase in net assets resulting from operations $59,668,296 Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: Series I 11,434,154 Series II 8,220,382 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, 2012 and Operations: Net investment income $ 4,601,550 $ 3,235,829 Net realized gain 10,780, ,937 Change in net unrealized appreciation (depreciation) 44,286,264 (19,892,528) Net increase (decrease) in net assets resulting from operations 59,668,296 (15,686,762) Distributions to shareholders from net investment income: Series I (897,653) (5,627,461) Series ll (457,553) (2,275,433) Total distributions from net investment income (1,355,206) (7,902,894) Share transactions-net: Series l 5,417,318 19,582,854 Series ll 40,819,507 35,133,330 Net increase in net assets resulting from share transactions 46,236,825 54,716,184 Net increase in net assets 104,549,915 31,126,528 Net assets: Beginning of year 196,602, ,476,096 End of year (includes undistributed net investment income of $4,703,048 and $(1,251,973), respectively) $301,152,539 $196,602,624 Notes to Financial Statements December 31, 2012 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-five separate portfolios, (each constituting a Fund ). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission ( SEC ) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class. The Fund s investment objective is total return through growth of capital and current income. The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies ( variable products ). The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ( NYSE ). Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. 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.

10 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 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 trade 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. The Fund recharacterizes distributions received from REIT investments based on information provided by the REIT into the following categories: ordinary income, long-term and short-term capital gains, and return of capital. If information is not available on a timely basis from the REIT, the recharacterization will be based on available information which may include the previous year s allocation. If new or additional information becomes available from the REIT at a later date, a recharacterization will be made in the following year. The Fund records as dividend income the amount recharacterized as ordinary income and as realized gain the amount recharacterized as capital gain in the Statement of Operations, and the amount recharacterized as return of capital as a reduction to the cost of investments in the Statement of Assets and Liabilities. These recharacterizations are reflected in the accompanying financial statements. C. Country Determination For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. D. Distributions Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. E. Federal Income Taxes The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund s taxable earnings to shareholders. As such, the Fund will not be subject to 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.

11 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. I. Foreign Currency Translations Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. J. Foreign Currency Contracts The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to lock in the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. K. Other Risks The Fund s investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund s investments may tend to rise and fall more rapidly. Because, the Fund concentrates its assets in the real estate industry, an investment in the Fund will be closely linked to the performance of the real estate markets. Property values may fall due to increasing vacancies or declining rents resulting from economic, legal, cultural or technological developments. NOTE 2 Advisory Fees and Other Fees Paid to Affiliates The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the Adviser or Invesco ). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund s average daily net assets as follows: Average Daily Net Assets Rate First $250 million 0.75% Next $250 million 0.74% Next $500 million 0.73% Next $1.5 billion 0.72% Next $2.5 billion 0.71% Next $2.5 billion 0.70% Next $2.5 billion 0.69% Over $10 billion 0.68% Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers ) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s). The Adviser has contractually agreed, through April 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating