UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file
| number |
811-07452 |
| AIM Variable Insurance Funds (Invesco Variable Insurance Funds) |
| (Exact name of registrant as specified in charter) |
| 11 Greenway Plaza, Suite 1000 Houston, Texas 77046 |
| (Address of principal executive offices) (Zip code) |
| Sheri Morris 11 Greenway Plaza, Suite 1000 Houston, Texas 77046 |
| (Name and address of agent for service) |
| Registrant’s telephone number, including area code: | (713) 626-1919 |
| Date of fiscal year end: |
12/31 |
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| Date of reporting period: | 6/30/16 |
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Item 1. Report to Stockholders.
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Semiannual Report to Shareholders
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June 30, 2016 | ||
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| Invesco V.I. American Franchise Fund | ||||
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| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIAMFR-SAR-1 | ||||
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| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. American Franchise Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Franchise Fund
Investment Abbreviations:
| ADR | – American Depositary Receipt | |
| REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Information Technology |
33.8 | % | ||
| Consumer Discretionary |
23.3 | |||
| Health Care |
19.2 | |||
| Consumer Staples |
7.6 | |||
| Industrials |
5.6 | |||
| Financials |
4.4 | |||
| Energy |
2.6 | |||
| Materials |
2.0 | |||
| Telecommunication Services |
1.2 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
0.3 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Franchise Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Franchise Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
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| Operations: |
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| Net investment income (loss) |
$ | 241,146 | $ | (809,606 | ) | |||
| Net realized gain |
17,311,602 | 52,382,485 | ||||||
| Change in net unrealized appreciation (depreciation) |
(44,639,371 | ) | (17,203,818 | ) | ||||
| Net increase (decrease) in net assets resulting from operations |
(27,086,623 | ) | 34,369,061 | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (2,611,057 | ) | |||||
| Series ll |
— | (990,300 | ) | |||||
| Total distributions from net realized gains |
— | (3,601,357 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(31,526,496 | ) | (85,531,558 | ) | ||||
| Series ll |
(11,331,113 | ) | (31,089,512 | ) | ||||
| Net increase (decrease) in net assets resulting from share transactions |
(42,857,609 | ) | (116,621,070 | ) | ||||
| Net increase (decrease) in net assets |
(69,944,232 | ) | (85,853,366 | ) | ||||
| Net assets: |
||||||||
| Beginning of period |
655,216,841 | 741,070,207 | ||||||
| End of period (includes undistributed net investment income (loss) of $(151,865) and $(393,011), respectively) |
$ | 585,272,609 | $ | 655,216,841 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. American Franchise Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to seek capital growth.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. American Franchise Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. American Franchise Fund
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. The Fund bears the risk of loss with respect to the investment of collateral. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. When loaning securities, the Fund retains certain benefits of owning the securities, including the economic equivalent of dividends or interest generated by the security. Lending securities entails a risk of loss to the Fund if, and to the extent that, the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower failed to return the securities. The securities loaned are subject to termination at the option of the borrower or the Fund. Upon termination, the borrower will return to the Fund the securities loaned and the Fund will return the collateral. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral and the securities may lose value during the delay which could result in potential losses to the Fund. Some of these losses may be indemnified by the lending agent. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, are included in Dividends from affiliated money market funds on the Statement of Operations. The aggregate value of securities out on loan, if any, is shown as a footnote on the Statement of Assets and Liabilities. |
| J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| K. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
Invesco V.I. American Franchise Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||||||
| First $250 million |
0 | .695% | ||||||
| Next $250 million |
0 | .67% | ||||||
| Next $500 million |
0 | .645% | ||||||
| Next $550 million |
0 | .62% | ||||||
| Next $3.45 billion |
0 | .60% | ||||||
| Next $250 million |
0 | .595% | ||||||
| Next $2.25 billion |
0 | .57% | ||||||
| Next $2.5 billion |
0 | .545% | ||||||
| Over $10 billion |
0 | .52% | ||||||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.68%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $7,716.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $70,045 for accounting and fund administrative services and reimbursed $682,467 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2016, the Fund incurred $1,984 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:
Invesco V.I. American Franchise Fund
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 571,219,322 | $ | 14,892,038 | $ | — | $ | 586,111,360 | ||||||||
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2016, the Fund engaged in securities sales of $315,458, which resulted in net realized gains (losses) of $(80,821).
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $181,407,124 and $217,127,160, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Invesco V.I. American Franchise Fund
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 180,583,074 | ||
| Aggregate unrealized (depreciation) of investment securities |
(8,722,931 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 171,860,143 | ||
Cost of investments for tax purposes is $414,251,217.
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
131,326 | $ | 7,034,129 | 254,518 | $ | 14,486,619 | ||||||||||
| Series II |
88,450 | 4,574,452 | 180,274 | 9,991,611 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 48,878 | 2,611,057 | ||||||||||||
| Series II |
— | — | 19,008 | 990,300 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(720,928 | ) | (38,560,625 | ) | (1,813,621 | ) | (102,629,234 | ) | ||||||||
| Series II |
(306,360 | ) | (15,905,565 | ) | (762,570 | ) | (42,071,423 | ) | ||||||||
| Net increase (decrease) in share activity |
(807,512 | ) | $ | (42,857,609 | ) | (2,073,513 | ) | $ | (116,621,070 | ) | ||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 28% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income (loss)(a) |
Net
gains (both |
Total from operations |
Dividends income |
Distributions from net |
Total distributions |
Net asset value, end |
Total return(b) |
Net assets, (000’s omitted) |
Ratio of absorbed |
Ratio
of fee waivers and/or expenses |
Ratio of net to average |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 57.30 | $ | 0.04 | $ | (2.27 | ) | $ | (2.23 | ) | $ | — | $ | — | $ | — | $ | 55.07 | (3.89 | )% | $ | 428,115 | 0.97 | %(d) | 0.97 | %(d) | 0.15 | %(d) | 31 | % | ||||||||||||||||||||||||||
| Year ended 12/31/15 |
54.88 | (0.03 | ) | 2.76 | 2.73 | — | (0.31 | ) | (0.31 | ) | 57.30 | 5.01 | 479,298 | 0.96 | 0.96 | (0.05 | ) | 68 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
50.63 | (0.09 | ) | 4.36 | 4.27 | (0.02 | ) | — | (0.02 | ) | 54.88 | 8.44 | 541,929 | 0.92 | 0.95 | (0.17 | ) | 64 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
36.28 | 0.04 | 14.50 | 14.54 | (0.19 | ) | — | (0.19 | ) | 50.63 | 40.13 | 580,620 | 0.90 | 0.96 | 0.08 | 75 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
31.90 | 0.19 | 4.19 | 4.38 | — | — | — | 36.28 | 13.73 | 496,341 | 0.88 | 0.98 | 0.52 | 190 | ||||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
34.00 | (0.05 | ) | (2.05 | ) | (2.10 | ) | — | — | — | 31.90 | (6.18 | ) | 122,986 | 0.84 | 0.99 | (0.15 | ) | 126 | |||||||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
55.85 | (0.03 | ) | (2.22 | ) | (2.25 | ) | — | — | — | 53.60 | (4.03 | ) | 157,158 | 1.22 | (d) | 1.22 | (d) | (0.10 | )(d) | 31 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
53.63 | (0.16 | ) | 2.69 | 2.53 | — | (0.31 | ) | (0.31 | ) | 55.85 | 4.75 | 175,919 | 1.21 | 1.21 | (0.30 | ) | 68 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
49.58 | (0.22 | ) | 4.27 | 4.05 | — | — | — | 53.63 | 8.17 | 199,141 | 1.17 | 1.20 | (0.42 | ) | 64 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
35.55 | (0.07 | ) | 14.20 | 14.13 | (0.10 | ) | — | (0.10 | ) | 49.58 | 39.79 | 257,788 | 1.15 | 1.21 | (0.17 | ) | 75 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
31.35 | 0.10 | 4.10 | 4.20 | — | — | — | 35.55 | 13.40 | 224,334 | 1.13 | 1.23 | 0.27 | 190 | ||||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
33.49 | (0.14 | ) | (2.00 | ) | (2.14 | ) | — | — | — | 31.35 | (6.39 | ) | 85,724 | 1.09 | 1.24 | (0.40 | ) | 126 | |||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the year ended December 31, 2012, the portfolio turnover calculation excludes the value of securities purchased of $14,357,093 and sold of $15,173,740 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Capital Appreciation Fund and Invesco V.I. Leisure Fund into the Fund. For the year ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $81,993,574 and sold of $49,870,241 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Large Cap Growth Fund into the Fund. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $432,295 and $158,400 for Series I and Series II, respectively. |
NOTE 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. American Franchise Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio2 |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2,3 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2,4 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 961.10 | $ | 4.73 | $ | 1,020.04 | $ | 4.87 | 0.97 | % | ||||||||||||
| Series II | 1,000.00 | 959.70 | 5.94 | 1,018.80 | 6.12 | 1.22 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2016, Invesco has agreed to limit administrative services fees reimbursed by the Fund. The annualized ratios restated as if this administrative services fee limitation had been in effect throughout the entire most recent fiscal half year are 0.89% and 1.14%, for Series I and Series II shares, respectively. |
| 3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.34 and $5.55 for Series I and Series II shares, respectively. |
| 4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.47 and $5.72 for Series I and Series II shares, respectively. |
Invesco V.I. American Franchise Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. American Franchise Fund
Invesco V.I. American Franchise Fund
|
| ||||
|
|
Semiannual Report to Shareholders
|
June 30, 2016 | ||
|
| ||||
| Invesco V.I. American Value Fund | ||||
| ||||
| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIAMVA-SAR-1 | ||||
|
| ||||
| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. American Value Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
Investment Abbreviations:
| ADR | – American Depositary Receipt | |
| REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Financials |
23.9 | % | ||
| Industrials |
16.6 | |||
| Information Technology |
12.5 | |||
| Consumer Discretionary |
11.7 | |||
| Health Care |
8.6 | |||
| Energy |
7.8 | |||
| Materials |
7.7 | |||
| Utilities |
3.7 | |||
| Consumer Staples |
3.2 | |||
| Telecommunication Services |
2.8 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
1.5 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
| |||||||
| Net investment income |
$ | 793,259 | $ | 701,458 | ||||
| Net realized gain |
2,649,403 | 19,681,886 | ||||||
| Change in net unrealized appreciation (depreciation) |
3,423,181 | (56,066,268 | ) | |||||
| Net increase (decrease) in net assets resulting from operations |
6,865,843 | (35,682,924 | ) | |||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (434,781 | ) | |||||
| Series ll |
— | (18,546 | ) | |||||
| Total distributions from net investment income |
— | (453,327 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (17,091,017 | ) | |||||
| Series ll |
— | (27,976,630 | ) | |||||
| Total distributions from net realized gains |
— | (45,067,647 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(7,514,761 | ) | 2,717,293 | |||||
| Series ll |
27,704,295 | (9,319,758 | ) | |||||
| Net increase (decrease) in net assets resulting from share transactions |
20,189,534 | (6,602,465 | ) | |||||
| Net increase (decrease) in net assets |
27,055,377 | (87,806,363 | ) | |||||
| Net assets: |
||||||||
| Beginning of period |
336,040,433 | 423,846,796 | ||||||
| End of period (includes undistributed net investment income of $1,444,864 and $651,605, respectively) |
$ | 363,095,810 | $ | 336,040,433 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. American Value Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide above-average total return over a market cycle of three to five years by investing in common stocks and other equity securities.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Invesco V.I. American Value Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| D. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. American Value Fund
| E. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||
| First $1 billion |
0.72% | |||
| Over $1 billion |
0.65% | |||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.72%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such
Invesco V.I. American Value Fund
Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $7,665.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $40,466 for accounting and fund administrative services and reimbursed $368,382 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2016, the Fund incurred $1,512 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 362,284,998 | $ | 3,832,882 | $ | — | $ | 366,117,880 | ||||||||
Invesco V.I. American Value Fund
NOTE 4—Derivative Investments
Effect of Derivative Investments for the six months ended June 30, 2016
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
| Location of Gain (Loss) on Statement of Operations |
||||
| Forward Foreign Currency |
||||
| Realized Gain: |
||||
| Currency risk |
$ | 103,388 | ||
| Change in Net Unrealized Appreciation (Depreciation): |
||||
| Currency risk |
(46,438 | ) | ||
| Total |
$ | 56,950 | ||
The table below summarizes the one month average notional value of forward foreign currency contracts outstanding during the period.
| Forward Foreign Currency Contracts |
||||
| Average notional value |
$ | 27,699,538 | ||
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2016, the Fund engaged in securities purchases of $194,109.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 8—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
Invesco V.I. American Value Fund
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $91,136,747 and $65,628,025, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 55,304,827 | ||
| Aggregate unrealized (depreciation) of investment securities |
(27,459,607 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 27,845,220 | ||
Cost of investments for tax purposes is $338,272,660.
NOTE 10—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
321,670 | $ | 4,690,139 | 620,709 | $ | 11,648,963 | ||||||||||
| Series II |
3,506,898 | 54,947,374 | 2,540,649 | 47,863,159 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 1,088,559 | 17,525,798 | ||||||||||||
| Series II |
— | — | 1,752,985 | 27,995,176 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(798,834 | ) | (12,204,900 | ) | (1,373,907 | ) | (26,457,468 | ) | ||||||||
| Series II |
(1,783,656 | ) | (27,243,079 | ) | (4,479,285 | ) | (85,178,093 | ) | ||||||||
| Net increase (decrease) in share activity |
1,246,078 | $ | 20,189,534 | 149,710 | $ | (6,602,465 | ) | |||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 67% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio
of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 15.69 | $ | 0.05 | $ | 0.30 | $ | 0.35 | $ | — | $ | — | $ | — | $ | 16.04 | 2.23 | % | $ | 120,878 | 1.01 | %(d) | 1.01 | %(d) | 0.64 | %(d) | 20 | % | ||||||||||||||||||||||||||||
| Year ended 12/31/15 |
19.92 | 0.06 | (1.82 | ) | (1.76 | ) | (0.06 | ) | (2.41 | ) | (2.47 | ) | 15.69 | (9.13 | ) | 125,686 | 0.99 | 0.99 | 0.33 | 26 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
19.89 | 0.07 | 1.78 | 1.85 | (0.10 | ) | (1.72 | ) | (1.82 | ) | 19.92 | 9.75 | 152,938 | 0.99 | 1.00 | 0.32 | 48 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
14.91 | 0.07 | 5.03 | 5.10 | (0.12 | ) | — | (0.12 | ) | 19.89 | 34.27 | 156,824 | 0.99 | 1.00 | 0.39 | 42 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
12.81 | 0.12 | 2.08 | 2.20 | (0.10 | ) | — | (0.10 | ) | 14.91 | 17.21 | 131,233 | 0.99 | 1.00 | 0.86 | 26 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
12.79 | 0.10 | 0.01 | 0.11 | (0.09 | ) | — | (0.09 | ) | 12.81 | 1.00 | 129,658 | 0.96 | 0.97 | 0.80 | 30 | ||||||||||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
15.55 | 0.02 | 0.31 | 0.33 | — | — | — | 15.88 | 2.12 | 242,218 | 1.26 | (d) | 1.26 | (d) | 0.39 | (d) | 20 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
19.75 | 0.02 | (1.80 | ) | (1.78 | ) | (0.01 | ) | (2.41 | ) | (2.42 | ) | 15.55 | (9.36 | ) | 210,354 | 1.24 | 1.24 | 0.08 | 26 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
19.73 | 0.01 | 1.77 | 1.78 | (0.04 | ) | (1.72 | ) | (1.76 | ) | 19.75 | 9.48 | 270,908 | 1.24 | 1.25 | 0.07 | 48 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
14.81 | 0.03 | 4.99 | 5.02 | (0.10 | ) | — | (0.10 | ) | 19.73 | 33.93 | 320,754 | 1.24 | 1.25 | 0.14 | 42 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
12.74 | 0.10 | 2.06 | 2.16 | (0.09 | ) | — | (0.09 | ) | 14.81 | 16.98 | 220,711 | 1.17 | 1.25 | 0.68 | 26 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
12.72 | 0.09 | 0.01 | 0.10 | (0.08 | ) | — | (0.08 | ) | 12.74 | 0.91 | 163,194 | 1.06 | 1.22 | 0.70 | 30 | ||||||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $119,583 and $212,490 for Series I and Series II shares, respectively. |
NOTE 12—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. American Value Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio2 |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2,3 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2,4 |
|||||||||||||||||||||
|
Series I |
$ | 1,000.00 | $ | 1,022.30 | $ | 5.08 | $ | 1,019.84 | $ | 5.07 | 1.01 | % | ||||||||||||
|
Series II |
1,000.00 | 1,021.20 | 6.33 | 1,018.60 | 6.32 | 1.26 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2016, Invesco has agreed to limit administrative services fees reimbursed by the Fund. The annualized ratios restated as if this administrative services fee limitation had been in effect throughout the entire most recent fiscal half year are 0.93% and 1.18%, for Series I and Series II shares, respectively. |
| 3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.68 and $5.93 for Series I and Series II shares, respectively. |
| 4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.67 and $5.92 for Series I and Series II shares, respectively. |
Invesco V.I. American Value Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. American Value Fund
Invesco V.I. American Value Fund
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Semiannual Report to Shareholders
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June 30, 2016 | ||
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| Invesco V.I. Balanced-Risk Allocation Fund | ||||
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| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIIBRA-SAR-1 | ||||
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| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Balanced-Risk Allocation Fund |
Consolidated Schedule of Investments
June 30, 2016
(Unaudited)
| Interest Rate |
Maturity Date |
Principal Amount |
Value | |||||||||||||
| U.S. Treasury Securities–12.35% |
| |||||||||||||||
| U.S. Treasury Bills–8.27%(a) | ||||||||||||||||
| U.S. Treasury Bills(b) |
0.47 | % | 07/07/2016 | $ | 13,500,000 | $ | 13,499,764 | |||||||||
| U.S. Treasury Bills(b) |
0.43 | % | 07/28/2016 | 15,860,000 | 15,857,917 | |||||||||||
| U.S. Treasury Bills |
0.45 | % | 08/25/2016 | 3,980,000 | 3,978,631 | |||||||||||
| U.S. Treasury Bills(b) |
0.46 | % | 09/08/2016 | 29,030,000 | 29,018,868 | |||||||||||
| U.S. Treasury Bills |
0.51 | % | 09/15/2016 | 5,370,000 | 5,367,562 | |||||||||||
| U.S. Treasury Bills(b) |
0.34 | % | 10/06/2016 | 18,700,000 | 18,687,336 | |||||||||||
| 86,410,078 | ||||||||||||||||
| U.S. Treasury Notes–4.08%(c) | ||||||||||||||||
| U.S. Treasury Floating Rate Notes |
0.33 | % | 07/31/2016 | 5,100,000 | 5,100,220 | |||||||||||
| U.S. Treasury Floating Rate Notes |
0.53 | % | 01/31/2018 | 19,970,000 | 20,012,536 | |||||||||||
| U.S. Treasury Floating Rate Notes |
0.45 | % | 04/30/2018 | 17,534,000 | 17,540,733 | |||||||||||
| 42,653,489 | ||||||||||||||||
| Total U.S. Treasury Securities (Cost $128,987,715) |
129,063,567 | |||||||||||||||
| Expiration Date |
||||||||||||||||
| Commodity-Linked Securities–3.20% |
||||||||||||||||
| Canadian Imperial Bank of Commerce, Commodity-Linked EMTN, U.S. Federal Funds Effective Rate minus 0.02% (linked to the Canadian Imperial Bank of Commerce Custom 4 Agriculture Commodity Index, multiplied by 2)(d) |
02/13/2017 | 8,530,000 | 12,766,235 | |||||||||||||
| Cargill, Inc., Commodity-Linked Notes, one month LIBOR rate minus 0.10% (linked to the Monthly Rebalance Commodity Excess Return Index, multiplied by 2)(d) |
02/27/2017 | 14,020,000 | 20,663,214 | |||||||||||||
| Total Commodity-Linked Securities (Cost $22,550,000) |
33,429,449 | |||||||||||||||
| Shares | ||||||||||||||||
| Money Market Funds–82.01% |
||||||||||||||||
| Government & Agency Portfolio–Institutional Class, 0.30%(e) |
160,139,520 | 160,139,520 | ||||||||||||||
| Invesco V.I. Government Money Market Fund–Series I, 0.14%(e) |
16,640,310 | 16,640,310 | ||||||||||||||
| Liquid Assets Portfolio–Institutional Class, 0.44%(e) |
169,846,808 | 169,846,808 | ||||||||||||||
| Premier Portfolio–Institutional Class, 0.40%(e) |
128,476,841 | 128,476,841 | ||||||||||||||
| STIC (Global Series) PLC–U.S. Dollar Liquidity Portfolio–Institutional Class (Ireland), 0.47%(e) |
120,728,387 | 120,728,387 | ||||||||||||||
| STIC Prime Portfolio–Institutional Class, 0.34%(e) |
115,662,671 | 115,662,671 | ||||||||||||||
| Treasury Portfolio–Institutional Class, 0.27%(e) |
145,672,747 | 145,672,747 | ||||||||||||||
| Total Money Market Funds (Cost $857,167,284) |
857,167,284 | |||||||||||||||
| TOTAL INVESTMENTS–97.56% (Cost $1,008,704,999) |
1,019,660,300 | |||||||||||||||
| OTHER ASSETS LESS LIABILITIES–2.44% |
25,466,159 | |||||||||||||||
| NET ASSETS–100.00% |
$ | 1,045,126,459 | ||||||||||||||
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
| Open Futures Contracts(f) | ||||||||||||||||||||||||||||
| Futures Contracts | Type of Contract |
Number of Contracts |
Expiration Month |
Notional Value |
Unrealized Appreciation (Depreciation) |
|||||||||||||||||||||||
| Brent Crude |
Long | 216 | January-2017 | $ | 11,119,680 | $ | 41,465 | |||||||||||||||||||||
| Gasoline Reformulated Blendstock Oxygenate Blending |
Long | 207 | August-2016 | 13,052,302 | (336,512 | ) | ||||||||||||||||||||||
| Heating Oil |
Long | 37 | August-2016 | 2,313,440 | (26,616 | ) | ||||||||||||||||||||||
| Natural Gas |
Long | 248 | December-2016 | 8,231,120 | 1,245,299 | |||||||||||||||||||||||
| Silver |
Long | 326 | September-2016 | 30,355,490 | 2,078,392 | |||||||||||||||||||||||
| WTI Crude |
Long | 207 | December-2016 | 10,478,340 | (23,084 | ) | ||||||||||||||||||||||
| Subtotal — Commodity Risk |
2,978,944 | |||||||||||||||||||||||||||
| Dow Jones EURO STOXX 50 Index |
Long | 2,455 | September-2016 | 77,768,637 | (1,255,938 | ) | ||||||||||||||||||||||
| E-Mini S&P 500 Index |
Long | 757 | September-2016 | 79,114,070 | (277,859 | ) | ||||||||||||||||||||||
| FTSE 100 Index |
Long | 945 | September-2016 | 80,803,126 | 4,856,999 | |||||||||||||||||||||||
| Hang Seng Index |
Long | 457 | July-2016 | 61,692,202 | 2,607,570 | |||||||||||||||||||||||
| Russell 2000 Index Mini |
Long | 568 | September-2016 | 65,172,320 | (1,200,956 | ) | ||||||||||||||||||||||
| Tokyo Stock Price Index |
Long | 612 | September-2016 | 73,821,704 | (5,137,201 | ) | ||||||||||||||||||||||
| Subtotal — Equity Risk |
(407,385 | ) | ||||||||||||||||||||||||||
| Australia 10 Year Bonds |
Long | 2,155 | September-2016 | 218,914,456 | 2,270,959 | |||||||||||||||||||||||
| Canada 10 Year Bonds |
Long | 1,735 | September-2016 | 198,792,152 | 4,616,116 | |||||||||||||||||||||||
| Euro Bonds |
Long | 312 | September-2016 | 57,853,535 | 1,220,130 | |||||||||||||||||||||||
| Long Gilt |
Long | 1,192 | September-2016 | 203,909,673 | 9,178,707 | |||||||||||||||||||||||
| U.S. Treasury 30 Year Bonds |
Long | 519 | September-2016 | 89,446,406 | 4,987,365 | |||||||||||||||||||||||
| Subtotal — Interest Rate Risk |
22,273,277 | |||||||||||||||||||||||||||
| Total Futures Contracts |
$ | 24,844,836 | ||||||||||||||||||||||||||
| Open Over-The-Counter Total Return Swap Agreements | ||||||||||||||||||||||||||||
| Counterparty | Pay/Receive | Reference Entity | Fixed Rate |
Number of Contracts |
Termination Date |
Notional Value(g) |
Unrealized Appreciation (Depreciation) |
|||||||||||||||||||||
| Barclays Bank PLC |
Receive | |
Barclays Commodity Strategy 1452 Excess Return Index |
|
0.33 | % | 31,100 | October-2016 | $ | 11,854,325 | $ | 528,495 | ||||||||||||||||
| Barclays Bank PLC |
Receive | |
Barclays Commodity Strategy 1718 Excess Return Index |
|
0.45 | 61,500 | January-2017 | 19,890,963 | (85,897 | ) | ||||||||||||||||||
| Canadian Imperial Bank of Commerce |
Receive | |
Canadian Imperial Bank of Commerce Custom 4 Agriculture Commodity Index |
|
0.55 | 128,000 | January-2017 | 14,044,596 | (160,819 | ) | ||||||||||||||||||
| Canadian Imperial Bank of Commerce |
Receive | |
Canadian Imperial Bank of Commerce Dynamic Roll LME Copper Excess Return Index 2 |
|
0.30 | 321,000 | April-2017 | 18,584,552 | 1,183,174 | |||||||||||||||||||
| Cargill, Inc. |
Receive | |
Monthly Rebalance Commodity Excess Return Index |
|
0.47 | 25,800 | January-2017 | 24,667,132 | 0 | |||||||||||||||||||
| Cargill, Inc. |
Receive | |
Single Commodity Index Excess Return |
|
0.12 | 13,400 | January-2017 | 12,580,279 | 0 | |||||||||||||||||||
| Goldman Sachs International |
Receive | |
Goldman Sachs Alpha Basket B797 Excess Return Strategy |
|
0.40 | 182,000 | January-2017 | 17,274,275 | 52,270 | |||||||||||||||||||
| J.P. Morgan Chase Bank, N.A. |
Receive | |
S&P GSCI Gold Index Excess Return |
|
0.09 | 138,500 | October-2016 | 14,975,818 | 583,542 | |||||||||||||||||||
| J.P. Morgan Chase Bank, N.A. |
Receive | |
J.P. Morgan Contag Beta Gas Oil Excess Return Index |
|
0.25 | 17,500 | April-2017 | 3,678,936 | (25,865 | ) | ||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
| Open Over-The-Counter Total Return Swap Agreements–(continued) | ||||||||||||||||||||||||||||
| Counterparty | Pay/Receive | Reference Entity | Fixed Rate |
Number of Contracts |
Termination Date |
Notional Value(g) |
Unrealized Appreciation (Depreciation) |
|||||||||||||||||||||
| Merrill Lynch International |
Receive | |
Merrill Lynch Gold Excess Return Index |
|
0.14 | % | 106,500 | June-2017 | $ | 18,410,676 | $ | (56,977 | ) | |||||||||||||||
| Morgan Stanley Capital Services LLC |
Receive | |
S&P GSCI Aluminum Dynamic Roll Index Excess Return |
|
0.38 | 160,500 | October-2016 | 14,276,394 | 369,631 | |||||||||||||||||||
| Subtotal — Commodity Risk |
2,387,554 | |||||||||||||||||||||||||||
| Macquarie Bank Ltd. |
Receive | |
Macquarie CGB 10 Year Index |
|
0.34 | 130,000 | June-2017 | CAD | 24,575,291 | 45,070 | ||||||||||||||||||
| Subtotal — Interest Rate Risk |
45,070 | |||||||||||||||||||||||||||
| Total Swap Agreements |
$ | 2,432,624 | ||||||||||||||||||||||||||
Investments Abbreviations:
| CAD | – Canadian Dollar | |
| CGB | – Canadian Government Bonds | |
| EMTN | – European Medium Term Notes | |
| LIBOR | – London Interbank Offered Rate |
Index Information:
| Canadian Imperial Bank of Commerce Custom 4 Agriculture Index |
– a basket of indices that provide exposure to various components of the agriculture markets. The underlying commodities comprising the indices are: Cocoa, Coffee ‘C’, Corn, Cotton, Lean Hogs, Live Cattle, Soybean Meal, Soybean Oil, Soybeans, Sugar and Wheat. | |
| Monthly Rebalance Commodity Excess Return Index | – a commodity index composed of futures contracts on Cocoa, Coffee ‘C’, Corn, Cotton No.2, Lean Hogs, Live Cattle, Soybean Meal, Soybean Oil, Soybeans, Sugar No.11 and Wheat. | |
| Barclays Commodity Strategy 1452 Excess Return Index | – a commodity index that provide exposure to futures contracts on Copper. | |
| Barclays Commodity Strategy 1718 Excess Return Index | – a commodity index that provide exposure to future contracts on Cocoa, Coffee, Corn, Cotton, Lean Hogs, Live Cattle, Soybean Meal, Soybean Oil, Soybeans, Sugar and Wheat. | |
| Single Commodity Index Excess Return | – a commodity index composed of futures contracts on Gold. | |
| Goldman Sachs Alpha Basket B797 Excess Return Strategy | – a basket of indices that provide exposure to various components of the agriculture markets. The underlying commodities comprising the indices are: Cocoa, Coffee, Corn, Cotton, Lean Hogs, Live Cattle, Soybean Meal, Soybean Oil, Soybeans, Sugar and Wheat. |
Notes to Consolidated Schedule of Investments:
| (a) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
| (b) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1L and Note 4. |
| (c) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2016. |
| (d) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2016 was $33,429,449, which represented 3.20% of the Fund’s Net Assets. |
| (e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
| (f) | Futures contracts collateralized by $9,191,000 cash held with Goldman Sachs & Co., the futures commission merchant. |
| (g) | Notional Value is denominated in U.S. Dollars unless otherwise noted. |
Target Risk Allocation and Notional Asset Weights*
By asset class
| Asset Class | Risk Allocation** |
% of Net Assets as of |
||||||
| Equities |
45.09 | % | 44.12 | % | ||||
| Fixed Income |
30.97 | 76.32 | ||||||
| Commodities |
23.94 | 28.84 | ||||||
| * | Risk contribution is measured as the standard deviation of each asset class as a percentage of total portfolio standard deviation. The risk contribution of each underlying asset determines the dollar-weighting of the asset. Standard deviation measures a fund’s range of total returns and fluctuations over a defined period of time. |
| ** | Based on the expected market exposure. |
| *** | Due to the use of leverage, the percentages may not equal 100%. |
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Consolidated Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income (loss) |
$ | (2,868,376 | ) | $ | (8,841,931 | ) | ||
| Net realized gain (loss) |
61,098,946 | (27,750,892 | ) | |||||
| Change in net unrealized appreciation (depreciation) |
38,079,826 | (9,109,394 | ) | |||||
| Net increase (decrease) in net assets resulting from operations |
96,310,396 | (45,702,217 | ) | |||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (1,076,721 | ) | |||||
| Series ll |
— | (38,929,666 | ) | |||||
| Total distributions from net investment income |
— | (40,006,387 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (2,241,364 | ) | |||||
| Series ll |
— | (87,763,065 | ) | |||||
| Total distributions from net realized gains |
— | (90,004,429 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
1,288,378 | (20,107,013 | ) | |||||
| Series ll |
(18,680,680 | ) | 107,582,311 | |||||
| Net increase (decrease) in net assets resulting from share transactions |
(17,392,302 | ) | 127,689,324 | |||||
| Net increase (decrease) in net assets |
78,918,094 | (48,023,709 | ) | |||||
| Net assets: |
||||||||
| Beginning of period |
966,208,365 | 1,014,232,074 | ||||||
| End of period (includes undistributed net investment income (loss) of $(1,301,185) and $1,567,191, respectively) |
$ | 1,045,126,459 | $ | 966,208,365 | ||||
Consolidated Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Balanced-Risk Allocation Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these consolidated financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund will seek to gain exposure to the commodity markets primarily through investments in the Invesco Cayman Commodity Fund IV Ltd. (the “Subsidiary”), a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands. The Subsidiary was organized by the Fund to invest in commodity-linked derivatives and other securities that may provide leveraged and non-leveraged exposure to commodities. The Fund may invest up to 25% of its total assets in the Subsidiary.
The Fund’s investment objective is total return with a low to moderate correlation to traditional financial market indices.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its consolidated financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a
Invesco V.I. Balanced-Risk Allocation Fund
particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote, if available, provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end-of-day net present values, spreads, ratings, industry, company performance and returns of referenced assets.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the consolidated financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Consolidated Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Consolidated Statement of Operations and the Consolidated Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Consolidated Statement of Operations and the Consolidated Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Consolidated Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
Invesco V.I. Balanced-Risk Allocation Fund
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the consolidated financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Subsidiary is classified as a controlled foreign corporation under Subchapter N of the Internal Revenue Code. Therefore, the Fund is required to increase its taxable income by its share of the Subsidiary’s income. Net investment losses of the Subsidiary cannot be deducted by the Fund in the current period nor carried forward to offset taxable income in future periods.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The financial statements are prepared on a consolidated basis in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. The accompanying financial statements reflect the financial position of the Fund and its Subsidiary and the results of operations on a consolidated basis. All inter-company accounts and transactions have been eliminated in consolidation. |
In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the consolidated financial statements are released to print.
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust, and under the Subsidiary’s organizational documents, the directors and officers of the Subsidiary, are indemnified against certain liabilities that may arise out of the performance of their duties to the Fund and/or the Subsidiary, respectively. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Consolidated Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Consolidated Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Consolidated Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Consolidated Statement of Assets and Liabilities.
| K. | Structured Securities — The Fund may invest in structured securities. Structured securities are a type of derivative security whose value is determined by reference to changes in the value of underlying securities, currencies, interest rates, commodities, indices or other financial |
Invesco V.I. Balanced-Risk Allocation Fund
| indicators (“reference instruments”). Most structured securities are fixed-income securities that have maturities of three years or less. Structured securities may be positively or negatively indexed (i.e., their principal value or interest rates may increase or decrease if the underlying reference instrument appreciates) and may have return characteristics similar to direct investments in the underlying reference instrument. |
Structured securities may entail a greater degree of market risk than other types of debt securities because the investor bears the risk of the reference instruments. In addition to the credit risk of structured securities and the normal risks of price changes in response to changes in interest rates, the principal amount of structured notes or indexed securities may decrease as a result of changes in the value of the underlying reference instruments. Changes in the daily value of structured securities are recorded as unrealized gains (losses) in the Consolidated Statement of Operations. When the structured securities mature or are sold, the Fund recognizes a realized gain (loss) on the Consolidated Statement of Operations.
| L. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between Counterparties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Consolidated Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Consolidated Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal Counterparty risk since the exchange’s clearinghouse, as Counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Consolidated Statement of Assets and Liabilities. |
| M. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between Counterparties. These agreements may contain among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index. At the maturity date, a net cash flow is exchanged where the total return is equivalent to the return of the underlying reference less a financing rate, if any. As a receiver, the Fund would receive payments based on any positive total return and would owe payments in the event of a negative total return. As the payer, the Fund would owe payments on any net positive total return, and would receive payment in the event of a negative total return.
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Consolidated Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Consolidated Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Consolidated Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Consolidated Statement of Operations. The Fund segregates cash or liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Cash held as collateral is recorded as deposits with brokers on the Consolidated Statement of Assets and Liabilities. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and Counterparty risk in excess of amounts recognized on the Consolidated Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the Counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements. A short position in a security poses more risk than holding the same security long. As there is no limit on how much the price of the security can increase, the Fund’s exposure is unlimited.
| N. | Leverage Risk — Leverage exists when the Fund can lose more than it originally invests because it purchases or sells an instrument or enters into a transaction without investing an amount equal to the full economic exposure of the instrument or transaction. |
| O. | Other Risks — The Fund will seek to gain exposure to commodity markets primarily through an investment in the Subsidiary and through investments in exchange-traded funds and commodity-linked derivatives. The Subsidiary, unlike the Fund, may invest without limitation in commodities, commodity-linked derivatives and other securities, such as exchange-traded notes, that may provide leveraged and non-leveraged exposure to commodity markets. The Fund is indirectly exposed to the risks associated with the Subsidiary’s investments. |
The Fund is non-diversified and may invest in securities of fewer issuers than if it were diversified. Thus, the value of the Fund’s shares may vary more widely and the Fund may be subject to greater market and credit risk than if the Fund invested more broadly.
| P. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser less the amount paid by the Subsidiary to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||||||
| First $250 million |
0 | .95% | ||||||
| Next $250 million |
0 | .925% | ||||||
| Next $500 million |
0 | .90% | ||||||
| Next $1.5 billion |
0 | .875% | ||||||
| Next $2.5 billion |
0 | .85% | ||||||
| Next $2.5 billion |
0 | .825% | ||||||
| Next $2.5 billion |
0 | .80% | ||||||
| Over $10 billion |
0 | .775% | ||||||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.92%.
The Subsidiary has entered into a separate contract with the Adviser whereby the Adviser provides investment advisory and other services to the Subsidiary. In consideration of these services, the Subsidiary pays an advisory fee to the Adviser based on the annual rate of the Subsidiary’s average daily net assets as set forth in the table above.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2017, to waive advisory fees and/or reimburse expenses of shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.79% and Series II shares to 1.04% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Acquired Fund Fees and Expenses are not operating expenses of the Fund directly, but are fees and expenses, including management fees of the investment companies in which the Fund invests. Unless Invesco continues the fee waiver agreement, it will terminate on April 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. To the extent that the annualized expense ratio does not exceed the expense limits, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $2,304,806.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $114,761 for accounting and fund administrative services and reimbursed $908,179 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Consolidated Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Consolidated Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the consolidated financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Money Market Funds |
$ | 857,167,284 | $ | — | $ | — | $ | 857,167,284 | ||||||||
| U.S. Treasury Securities |
— | 129,063,567 | — | 129,063,567 | ||||||||||||
| Commodity-Linked Securities |
— | 33,429,449 | — | 33,429,449 | ||||||||||||
| 857,167,284 | 162,493,016 | — | 1,019,660,300 | |||||||||||||
| Futures Contracts* |
24,844,836 | — | — | 24,844,836 | ||||||||||||
| Swap Agreements* |
— | 2,432,624 | — | 2,432,624 | ||||||||||||
| Total Investments |
$ | 882,012,120 | $ | 164,925,640 | $ | — | $ | 1,046,937,760 | ||||||||
| * | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2016:
| Value | ||||||||
| Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
| Commodity risk: |
||||||||
| Futures contracts(a) |
$ | 3,365,156 | $ | (386,212 | ) | |||
| Swap agreements(b) |
2,717,112 | (329,558 | ) | |||||
| Equity risk: |
||||||||
| Futures contracts(a) |
7,464,569 | (7,871,954 | ) | |||||
| Interest rate risk: |
||||||||
| Futures contracts(a) |
22,273,277 | — | ||||||
| Swap agreements(b) |
45,070 | — | ||||||
| Total |
$ | 35,865,194 | $ | (8,587,724 | ) | |||
| (a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Consolidated Statement of Assets and Liabilities. |
| (b) | Values are disclosed on the Consolidated Statement of Assets and Liabilities under the caption Unrealized appreciation on swap agreements — OTC and Unrealized depreciation on swap agreements — OTC. |
Invesco V.I. Balanced-Risk Allocation Fund
Effect of Derivative Investments for the six months ended June 30, 2016
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
| Location of Gain (Loss) on Consolidated Statement of Operations |
||||||||
| Futures Contracts |
Swap Agreements |
|||||||
| Realized Gain (Loss): |
||||||||
| Commodity risk |
$ | 11,343,210 | $ | 25,648,731 | ||||
| Equity risk |
(10,913,949 | ) | (150,061 | ) | ||||
| Interest rate risk |
37,440,503 | (123,670 | ) | |||||
| Change in Net Unrealized Appreciation (Depreciation): |
||||||||
| Commodity risk |
6,694,290 | 1,999,204 | ||||||
| Equity risk |
(3,997,482 | ) | (1,774 | ) | ||||
| Interest rate risk |
20,499,732 | 45,070 | ||||||
| Total |
$ | 61,066,304 | $ | 27,417,500 | ||||
The table below summarizes the average notional value of futures contracts and swap agreements outstanding during the period.
| Futures Contracts |
Swap Agreements |
|||||||
| Average notional value |
$ | 1,144,032,448 | $ | 177,374,214 | ||||
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Consolidated Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on the Fund’s financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2016.
| Counterparty
|
Gross amounts of Recognized |
Gross Amounts Not Offset in
the Consolidated Statement of Assets and Liabilities |
Net Amount |
|||||||||||||||||
| Financial
|
Collateral Received | |||||||||||||||||||
| Non-Cash | Cash | |||||||||||||||||||
| Fund |
||||||||||||||||||||
| Macquarie Bank Ltd. |
$ | 45,076 | $ | (698 | ) | $ | — | $ | — | $ | 44,378 | |||||||||
| Subsidiary |
||||||||||||||||||||
| Barclays Bank PLC |
528,495 | (94,580 | ) | — | — | 433,915 | ||||||||||||||
| Cargill, Inc. |
2,233,809 | (10,529 | ) | — | (1,940,000 | ) | 283,280 | |||||||||||||
| Canadian Imperial Bank of Commerce |
1,187,773 | (172,634 | ) | — | — | 1,015,139 | ||||||||||||||
| Goldman Sachs International |
52,355 | (5,500 | ) | — | — | 46,855 | ||||||||||||||
| JPMorgan Chase Bank, N.A. |
583,542 | (26,417 | ) | — | — | 557,125 | ||||||||||||||
| Merrill Lynch International |
30,575 | (30,575 | ) | — | — | — | ||||||||||||||
| Morgan Stanley Capital Services LLC |
369,631 | (2,229 | ) | — | — | 367,402 | ||||||||||||||
| Subtotal — Subsidiary |
$ | 4,986,180 | $ | (342,464 | ) | $ | — | $ | (1,940,000 | ) | $ | 2,703,716 | ||||||||
| Total |
$ | 5,031,256 | $ | (343,162 | ) | $ | — | $ | (1,940,000 | ) | $ | 2,748,094 | ||||||||
Invesco V.I. Balanced-Risk Allocation Fund
| Counterparty | Gross amounts of Recognized |
Gross Amounts Not Offset in
the Consolidated Statement of Assets and Liabilities |
Net Amount |
|||||||||||||||||
| Financial Instruments |
Collateral Pledged | |||||||||||||||||||
| Non-Cash | Cash | |||||||||||||||||||
| Fund |
||||||||||||||||||||
| Macquarie Bank Ltd. |
$ | 698 | $ | (698 | ) | $ | — | $ | — | $ | — | |||||||||
| Subsidiary |
||||||||||||||||||||
| Barclays Bank PLC |
94,580 | (94,580 | ) | — | — | — | ||||||||||||||
| Cargill, Inc. |
10,529 | (10,529 | ) | — | — | — | ||||||||||||||
| Canadian Imperial Bank of Commerce |
172,634 | (172,634 | ) | — | — | — | ||||||||||||||
| Goldman Sachs International |
5,500 | (5,500 | ) | — | — | — | ||||||||||||||
| JPMorgan Chase Bank, N.A. |
26,417 | (26,417 | ) | — | — | — | ||||||||||||||
| Merrill Lynch International |
93,804 | (30,575 | ) | — | — | 63,229 | ||||||||||||||
| Morgan Stanley Capital Services LLC |
2,229 | (2,229 | ) | — | — | — | ||||||||||||||
| Subtotal — Subsidiary |
$ | 405,693 | $ | (342,464 | ) | $ | — | $ | — | $ | 63,229 | |||||||||
| Total |
$ | 406,391 | $ | (343,162 | ) | $ | — | $ | — | $ | 63,229 | |||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Consolidated Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2015, which expires as follows:
| Capital Loss Carryforward* | ||||||||||||
| Expiration | Short-Term | Long-Term | Total | |||||||||
| Not subject to expiration |
$ | — | $ | 1,608,455 | $ | 1,608,455 | ||||||
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $22,550,000 and $21,029,156, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $51,683,622 and $21,029,156, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 10,952,946 | ||
| Aggregate unrealized (depreciation) of investment securities |
— | |||
| Net unrealized appreciation of investment securities |
$ | 10,952,946 | ||
Cost of investments for tax purposes is $1,008,707,354.
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
212,232 | $ | 2,235,922 | 1,757,785 | $ | 21,010,182 | ||||||||||
| Series II |
6,281,038 | 64,909,872 | 14,484,245 | 168,905,179 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 325,942 | 3,318,085 | ||||||||||||
| Series II |
— | — | 12,581,205 | 126,692,731 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(90,837 | ) | (947,544 | ) | (377,523 | ) | (4,221,254 | ) | ||||||||
| Series II |
(8,089,509 | ) | (83,590,552 | ) | (16,310,112 | ) | (188,015,599 | ) | ||||||||
| Net increase (decrease) in share activity |
(1,687,076 | ) | $ | (17,392,302 | ) | 12,461,542 | $ | 127,689,324 | ||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 85% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income (loss)(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net asset swith fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income (loss) to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months ended 06/30/16 |
$ | 10.20 | $ | (0.02 | ) | $ | 1.06 | $ | 1.04 | $ | — | $ | — | $ | — | $ | 11.24 | 10.20 | % | $ | 30,968 | 0.68 | %(d) | 1.15 | %(d) | (0.35 | )%(d) | 74 | % | |||||||||||||||||||||||||||
| Year ended 12/31/15 |
12.30 | (0.07 | ) | (0.44 | ) | (0.51 | ) | (0.52 | ) | (1.07 | ) | (1.59 | ) | 10.20 | (4.10 | ) | 26,854 | 0.69 | 1.15 | (0.61 | ) | 44 | ||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
12.30 | (0.08 | ) | 0.80 | 0.72 | — | (0.72 | ) | (0.72 | ) | 12.30 | 5.91 | 11,397 | 0.69 | (e) | 1.11 | (0.65 | ) | 60 | |||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
12.65 | (0.08 | ) | 0.30 | 0.22 | (0.21 | ) | (0.36 | ) | (0.57 | ) | 12.30 | 1.70 | 8,821 | 0.70 | 1.11 | (0.65 | ) | 76 | |||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
11.53 | (0.07 | ) | 1.34 | 1.27 | (0.11 | ) | (0.04 | ) | (0.15 | ) | 12.65 | 10.98 | 10,354 | 0.70 | (e) | 1.15 | (0.59 | ) | 188 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11(f) |
13.09 | (0.04 | ) | 1.28 | 1.24 | (0.10 | ) | (2.70 | ) | (2.80 | ) | 11.53 | 11.00 | 4,472 | 0.71 | (e) | 1.22 | (0.32 | ) | 142 | ||||||||||||||||||||||||||||||||||||
| Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months ended 06/30/16 |
10.08 | (0.03 | ) | 1.05 | 1.02 | — | — | — | 11.10 | 10.12 | 1,014,158 | 0.93 | (d) | 1.40 | (d) | (0.60 | )(d) | 74 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
12.17 | (0.10 | ) | (0.44 | ) | (0.54 | ) | (0.48 | ) | (1.07 | ) | (1.55 | ) | 10.08 | (4.40 | ) | 939,354 | 0.94 | 1.40 | (0.86 | ) | 44 | ||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
12.21 | (0.12 | ) | 0.80 | 0.68 | — | (0.72 | ) | (0.72 | ) | 12.17 | 5.62 | 1,002,835 | 0.94 | (e) | 1.36 | (0.90 | ) | 60 | |||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
12.57 | (0.11 | ) | 0.30 | 0.19 | (0.19 | ) | (0.36 | ) | (0.55 | ) | 12.21 | 1.50 | 1,369,485 | 0.95 | 1.36 | (0.90 | ) | 76 | |||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
11.49 | (0.10 | ) | 1.32 | 1.22 | (0.10 | ) | (0.04 | ) | (0.14 | ) | 12.57 | 10.64 | 1,343,806 | 0.95 | (e) | 1.40 | (0.84 | ) | 188 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11(f) |
13.05 | (0.07 | ) | 1.27 | 1.20 | (0.06 | ) | (2.70 | ) | (2.76 | ) | 11.49 | 10.61 | 257,898 | 0.96 | (e) | 1.47 | (0.57 | ) | 142 | ||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $28,099 and $953,566 for Series I and Series II shares, respectively. |
| (e) | In addition to the fees and expenses which the Fund bears directly; the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Because the underlying funds have varied expenses and fee levels and the Fund may own different proportions at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. Estimated underlying fund expenses are not expenses that are incurred directly by your Fund. They are expenses that are incurred directly by the underlying funds and are deducted from the value of the funds your Fund invests in. The effect of the estimated underlying fund expenses that you bear indirectly is included in your Fund’s total return. Estimated acquired fund fees from underlying funds were 0.09%, 0.02% and 0.04% for the years ended December 31, 2014, 2012 and 2011, respectively. |
| (f) | Prior to May 2, 2011, the Fund operated as Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund (the “Predecessor Fund”). On such date, holders of the Predecessor Fund’s Series I and Series II shares received Series I and Series II shares, respectively, of the Fund. |
Note 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Balanced-Risk Allocation Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before |
Annualized Expense Ratio |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 1,102.90 | $ | 3.56 | $ | 1,021.48 | $ | 3.42 | 0.68 | % | ||||||||||||
| Series II | 1,000.00 | 1,101.20 | 4.86 | 1,020.24 | 4.67 | 0.93 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Balanced-Risk Allocation Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Balanced-Risk Allocation Fund
Invesco V.I. Balanced-Risk Allocation Fund
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Semiannual Report to Shareholders
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June 30, 2016 | ||
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| Invesco V.I. Comstock Fund | ||||
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|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VICOM-SAR-1 | ||||
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| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Comstock Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Investment Abbreviations:
| ADR | – American Depositary Receipt |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Financials |
28.6 | % | ||
| Energy |
16.5 | |||
| Consumer Discretionary |
14.5 | |||
| Information Technology |
12.2 | |||
| Health Care |
11.0 | |||
| Industrials |
6.3 | |||
| Consumer Staples |
3.1 | |||
| Materials |
2.3 | |||
| Telecommunication Services |
1.4 | |||
| Utilities |
0.9 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
3.2 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 20,896,391 | $ | 27,144,608 | ||||
| Net realized gain |
34,310,639 | 146,668,828 | ||||||
| Change in net unrealized appreciation (depreciation) |
(61,873,466 | ) | (299,481,881 | ) | ||||
| Net increase (decrease) in net assets resulting from operations |
(6,666,436 | ) | (125,668,445 | ) | ||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (6,885,163 | ) | |||||
| Series ll |
— | (28,122,100 | ) | |||||
| Total distributions from net investment income |
— | (35,007,263 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (974,858 | ) | |||||
| Series ll |
— | (4,644,340 | ) | |||||
| Total distributions from net realized gains |
— | (5,619,198 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(93,171,558 | ) | 22,959,786 | |||||
| Series ll |
(48,435,872 | ) | (153,528,318 | ) | ||||
| Net increase (decrease) in net assets resulting from share transactions |
(141,607,430 | ) | (130,568,532 | ) | ||||
| Net increase (decrease) in net assets |
(148,273,866 | ) | (296,863,438 | ) | ||||
| Net assets: |
||||||||
| Beginning of period |
1,882,089,578 | 2,178,953,016 | ||||||
| End of period (includes undistributed net investment income of $45,658,318 and $24,761,927, respectively) |
$ | 1,733,815,712 | $ | 1,882,089,578 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Comstock Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to seek capital growth and income through investments in equity securities, including common stocks, preferred stocks and securities convertible into common and preferred stocks.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Comstock Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain
Invesco V.I. Comstock Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||
| First $500 million |
0.60% | |||
| Over $500 million |
0.55% | |||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.56%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
Invesco V.I. Comstock Fund
The Adviser has contractually agreed, through at least April 30, 2017, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.78% and Series II shares to 1.03% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause total annual operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on April 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $470,719.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $193,168 for accounting and fund administrative services and reimbursed $2,015,484 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2016, the Fund incurred $5,657 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 1,712,332,049 | $ | 26,532,981 | $ | — | $ | 1,738,865,030 | ||||||||
| Forward Foreign Currency Contracts* |
— | 4,799,822 | — | 4,799,822 | ||||||||||||
| Total Investments |
$ | 1,712,332,049 | $ | 31,332,803 | $ | — | $ | 1,743,664,852 | ||||||||
| * | Unrealized appreciation . |
Invesco V.I. Comstock Fund
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2016:
| Value | ||||||||
| Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
| Currency risk: |
||||||||
| Forward foreign currency contracts(a) |
$ | 4,897,426 | $ | (97,604 | ) | |||
| (a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Unrealized appreciation on forward foreign currency contracts outstanding and Unrealized depreciation on forward foreign currency contracts outstanding. |
Effect of Derivative Investments for the six months ended June 30, 2016
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
| Location of Gain (Loss) on Statement of Operations |
||||
| Forward Foreign Currency Contracts |
||||
| Realized Gain (Loss): |
||||
| Currency risk |
$ | (3,674,510 | ) | |
| Change in Net Unrealized Appreciation: |
||||
| Currency risk |
2,519,924 | |||
| Total |
$ | (1,154,586 | ) | |
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
| Forward Foreign Currency Contracts |
||||
| Average notional value |
$ | 161,932,000 | ||
| Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
| Settlement Date |
Counterparty |
Contract to | Notional Value |
Unrealized Appreciation (Depreciation) |
||||||||||||||||||||||
| Deliver | Receive | |||||||||||||||||||||||||
| 07/22/16 |
Barclays Bank PLC | CHF | 6,771,257 | USD | 7,060,808 | $ | 6,945,501 | $ | 115,307 | |||||||||||||||||
| 07/22/16 |
Barclays Bank PLC | EUR | 9,858,867 | USD | 11,111,732 | 10,947,994 | 163,738 | |||||||||||||||||||
| 07/22/16 |
Barclays Bank PLC | GBP | 6,071,361 | USD | 8,916,765 | 8,084,669 | 832,096 | |||||||||||||||||||
| 07/22/16 |
CIBC World Markets Corp. | USD | 653,437 | CAD | 847,454 | 655,959 | 2,522 | |||||||||||||||||||
| 07/22/16 |
CIBC World Markets Corp. | CAD | 15,402,582 | USD | 12,023,874 | 11,922,138 | 101,736 | |||||||||||||||||||
| 07/22/16 |
CIBC World Markets Corp. | CHF | 6,771,257 | USD | 7,061,484 | 6,945,501 | 115,983 | |||||||||||||||||||
| 07/22/16 |
CIBC World Markets Corp. | EUR | 9,858,867 | USD | 11,101,085 | 10,947,994 | 153,091 | |||||||||||||||||||
| 07/22/16 |
CIBC World Markets Corp. | GBP | 6,071,351 | USD | 8,912,136 | 8,084,656 | 827,480 | |||||||||||||||||||
| 07/22/16 |
Deutsche Bank Securities Inc. | CAD | 15,402,596 | USD | 12,013,831 | 11,922,149 | 91,682 | |||||||||||||||||||
| 07/22/16 |
Deutsche Bank Securities Inc. | EUR | 9,858,880 | USD | 11,111,549 | 10,948,008 | 163,541 | |||||||||||||||||||
| 07/22/16 |
Deutsche Bank Securities Inc. | GBP | 1,578,487 | USD | 2,085,182 | 2,101,925 | (16,743 | ) | ||||||||||||||||||
| 07/22/16 |
Goldman Sachs International | USD | 12,708,120 | CHF | 12,313,787 | 12,630,656 | (77,464 | ) | ||||||||||||||||||
| 07/22/16 |
Goldman Sachs International | CAD | 15,402,582 | USD | 12,016,744 | 11,922,138 | 94,606 | |||||||||||||||||||
| 07/22/16 |
Goldman Sachs International | CHF | 6,771,255 | USD | 7,054,493 | 6,945,499 | 108,994 | |||||||||||||||||||
| 07/22/16 |
Goldman Sachs International | EUR | 18,726,865 | USD | 20,864,693 | 20,795,656 | 69,037 | |||||||||||||||||||
| 07/22/16 |
Goldman Sachs International | GBP | 6,071,351 | USD | 8,907,747 | 8,084,656 | 823,091 | |||||||||||||||||||
| 07/22/16 |
RBC Capital Markets Corp. | USD | 753,864 | CHF | 737,516 | 756,494 | 2,630 | |||||||||||||||||||
| 07/22/16 |
RBC Capital Markets Corp. | USD | 376,552 | GBP | 280,229 | 373,155 | (3,397 | ) | ||||||||||||||||||
| 07/22/16 |
RBC Capital Markets Corp. | CAD | 15,402,582 | USD | 12,028,897 | 11,922,138 | 106,759 | |||||||||||||||||||
| 07/22/16 |
RBC Capital Markets Corp. | CHF | 6,771,256 | USD | 7,065,388 | 6,945,500 | 119,888 | |||||||||||||||||||
| 07/22/16 |
RBC Capital Markets Corp. | EUR | 9,858,868 | USD | 11,113,951 | 10,947,995 | 165,956 | |||||||||||||||||||
| 07/22/16 |
RBC Capital Markets Corp. | GBP | 6,071,351 | USD | 8,923,945 | 8,084,656 | 839,289 | |||||||||||||||||||
| Total Open Forward Foreign Currency Contracts — Currency Risk |
$ | 4,799,822 | ||||||||||||||||||||||||
Currency Abbreviations:
Invesco V.I. Comstock Fund
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on the Fund’s financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2016.
| Counterparty |
Gross amounts |
Gross Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||
| Financial |
Collateral Received | Net Amount |
||||||||||||||||||
| Non-Cash | Cash | |||||||||||||||||||
| Barclays Bank PLC |
$ | 1,111,141 | $ | — | $ | — | $ | — | $ | 1,111,141 | ||||||||||
| CIBC World Markets Corp. |
1,200,812 | — | — | — | 1,200,812 | |||||||||||||||
| Deutsche Bank Securities Inc. |
255,223 | (16,743 | ) | — | — | 238,480 | ||||||||||||||
| Goldman Sachs International |
1,095,728 | (77,464 | ) | — | — | 1,018,264 | ||||||||||||||
| RBC Capital Markets Corp. |
1,234,522 | (3,397 | ) | — | — | 1,231,125 | ||||||||||||||
| Total |
$ | 4,897,426 | $ | (97,604 | ) | $ | — | $ | — | $ | 4,799,822 | |||||||||
| Counterparty |
Gross amounts |
Gross Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||
| Financial |
Collateral Pledged | Net Amount |
||||||||||||||||||
| Non-Cash | Cash | |||||||||||||||||||
| Deutsche Bank Securities Inc. |
$ | 16,743 | $ | (16,743 | ) | $ | — | $ | — | $ | — | |||||||||
| Goldman Sachs International |
77,464 | (77,464 | ) | — | — | — | ||||||||||||||
| RBC Capital Markets Corp. |
3,397 | (3,397 | ) | — | — | — | ||||||||||||||
| Total |
$ | 97,604 | $ | (97,604 | ) | $ | — | $ | — | $ | — | |||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
Invesco V.I. Comstock Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $181,579,089 and $278,572,899, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 225,508,033 | ||
| Aggregate unrealized (depreciation) of investment securities |
(204,863,253 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 20,644,780 | ||
Cost of investments for tax purposes is $1,718,220,250.
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
995,420 | $ | 16,550,681 | 3,760,569 | $ | 70,725,463 | ||||||||||
| Series II |
3,727,019 | 62,763,628 | 5,016,751 | 92,293,330 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 468,137 | 7,860,021 | ||||||||||||
| Series II |
— | — | 1,957,374 | 32,766,440 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(6,351,749 | ) | (109,722,239 | ) | (2,957,578 | ) | (55,625,698 | ) | ||||||||
| Series II |
(6,574,674 | ) | (111,199,500 | ) | (14,920,435 | ) | (278,588,088 | ) | ||||||||
| Net increase (decrease) in share activity |
(8,203,984 | ) | $ | (141,607,430 | ) | (6,675,182 | ) | $ | (130,568,532 | ) | ||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 59% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total Distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio
of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 17.57 | $ | 0.21 | $ | (0.23 | ) | $ | (0.02 | ) | $ | — | $ | — | $ | — | $ | 17.55 | (0.11 | )% | $ | 237,951 | 0.77 | %(d) | 0.83 | %(d) | 2.55 | %(d) | 11 | % | ||||||||||||||||||||||||||
| Year ended 12/31/15 |
19.16 | 0.28 | (1.45 | ) | (1.17 | ) | (0.37 | ) | (0.05 | ) | (0.42 | ) | 17.57 | (5.98 | ) | 332,411 | 0.78 | 0.83 | 1.52 | 16 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
17.75 | 0.32 | 1.34 | 1.66 | (0.25 | ) | — | (0.25 | ) | 19.16 | 9.39 | 338,159 | 0.78 | 0.83 | 1.73 | 19 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
13.27 | 0.22 | 4.53 | 4.75 | (0.27 | ) | — | (0.27 | ) | 17.75 | 35.97 | 311,837 | 0.76 | 0.84 | 1.36 | 11 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
11.32 | 0.23 | 1.94 | 2.17 | (0.22 | ) | — | (0.22 | ) | 13.27 | 19.23 | 250,995 | 0.67 | 0.85 | 1.81 | 14 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
11.71 | 0.20 | (0.40 | ) | (0.20 | ) | (0.19 | ) | — | (0.19 | ) | 11.32 | (1.84 | ) | 262,319 | 0.62 | 0.80 | 1.75 | 24 | |||||||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
17.51 | 0.19 | (0.24 | ) | (0.05 | ) | — | — | — | 17.46 | (0.29 | ) | 1,495,865 | 1.02 | (d) | 1.08 | (d) | 2.30 | (d) | 11 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
19.08 | 0.24 | (1.44 | ) | (1.20 | ) | (0.32 | ) | (0.05 | ) | (0.37 | ) | 17.51 | (6.19 | ) | 1,549,679 | 1.03 | 1.08 | 1.27 | 16 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
17.68 | 0.27 | 1.33 | 1.60 | (0.20 | ) | — | (0.20 | ) | 19.08 | 9.10 | 1,840,794 | 1.03 | 1.08 | 1.48 | 19 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
13.22 | 0.17 | 4.52 | 4.69 | (0.23 | ) | — | (0.23 | ) | 17.68 | 35.65 | 1,916,026 | 1.01 | 1.09 | 1.11 | 11 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
11.28 | 0.19 | 1.94 | 2.13 | (0.19 | ) | — | (0.19 | ) | 13.22 | 18.92 | 1,640,627 | 0.92 | 1.10 | 1.56 | 14 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
11.67 | 0.17 | (0.40 | ) | (0.23 | ) | (0.16 | ) | — | (0.16 | ) | 11.28 | (2.11 | ) | 1,528,067 | 0.87 | 1.05 | 1.50 | 24 | |||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the year ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $21,084,025 and sold of $6,434,519 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. Value Fund into the Fund. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $320,762 and $1,475,066 for Series I and Series II shares, respectively. |
Invesco V.I. Comstock Fund
NOTE 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Comstock Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before |
Annualized Expense Ratio |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 998.90 | $ | 3.83 | $ | 1,021.03 | $ | 3.87 | 0.77 | % | ||||||||||||
| Series II | 1,000.00 | 997.10 | 5.06 | 1,019.79 | 5.12 | 1.02 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Comstock Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Comstock Fund
Invesco V.I. Comstock Fund
Fund Performance
| Invesco V.I. Core Equity Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Investment Abbreviations:
| ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Information Technology |
19.4 | % | ||
| Financials |
17.4 | |||
| Health Care |
15.9 | |||
| Consumer Discretionary |
11.5 | |||
| Consumer Staples |
8.2 | |||
| Industrials |
8.2 | |||
| Energy |
5.2 | |||
| Utilities |
3.3 | |||
| Telecommunication Services |
1.4 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
9.5 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 8,194,477 | $ | 9,312,542 | ||||
| Net realized gain |
34,946,796 | 81,552,026 | ||||||
| Change in net unrealized appreciation (depreciation) |
3,790,989 | (159,207,239 | ) | |||||
| Net increase (decrease) in net assets resulting from operations |
46,932,262 | (68,342,671 | ) | |||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (11,263,836 | ) | |||||
| Series ll |
— | (1,739,714 | ) | |||||
| Total distributions from net investment income |
— | (13,003,550 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (103,008,374 | ) | |||||
| Series ll |
— | (19,872,167 | ) | |||||
| Total distributions from net realized gains |
— | (122,880,541 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(44,778,355 | ) | (3,612,941 | ) | ||||
| Series ll |
(7,089,827 | ) | 25,857,596 | |||||
| Net increase (decrease) in net assets resulting from share transactions |
(51,868,182 | ) | 22,244,655 | |||||
| Net increase (decrease) in net assets |
(4,935,920 | ) | (181,982,107 | ) | ||||
| Net assets: |
||||||||
| Beginning of period |
1,099,642,253 | 1,281,624,360 | ||||||
| End of period (includes undistributed net investment income of $16,326,000 and $8,131,523, respectively) |
$ | 1,094,706,333 | $ | 1,099,642,253 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Core Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Core Equity Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain
Invesco V.I. Core Equity Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||
| First $250 million |
0.65% | |||
| Over $250 million |
0.60% | |||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.61%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
Invesco V.I. Core Equity Fund
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $52,493.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $125,386 for accounting and fund administrative services and reimbursed $1,249,689 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 959,706,308 | $ | 133,070,166 | $ | — | $ | 1,092,776,474 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
Invesco V.I. Core Equity Fund
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $79,666,110 and $171,602,738, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 218,416,687 | ||
| Aggregate unrealized (depreciation) of investment securities |
(28,970,595 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 189,446,092 | ||
Cost of investments for tax purposes is $903,330,382.
NOTE 8—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
696,636 | $ | 23,714,436 | 1,187,179 | $ | 45,584,411 | ||||||||||
| Series II |
108,646 | 3,536,355 | 510,959 | 20,186,238 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 3,461,745 | 114,272,210 | ||||||||||||
| Series II |
— | — | 662,941 | 21,611,881 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(2,019,234 | ) | (68,492,791 | ) | (4,152,164 | ) | (163,469,562 | ) | ||||||||
| Series II |
(317,432 | ) | (10,626,182 | ) | (414,744 | ) | (15,940,523 | ) | ||||||||
| Net increase (decrease) in share activity |
(1,531,384 | ) | $ | (51,868,182 | ) | 1,255,916 | $ | 22,244,655 | ||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 46% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Core Equity Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 33.84 | $ | 0.27 | $ | 1.24 | $ | 1.51 | $ | — | $ | — | $ | — | $ | 35.35 | 4.46 | % | $ | 916,098 | 0.89 | %(d) | 0.90 | %(d) | 1.58 | %(d) | 8 | % | ||||||||||||||||||||||||||||
| Year ended 12/31/15 |
41.00 | 0.32 | (2.79 | ) | (2.47 | ) | (0.46 | ) | (4.23 | ) | (4.69 | ) | 33.84 | (5.75 | ) | 921,516 | 0.89 | 0.90 | 0.81 | 45 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
38.43 | 0.40 | 2.72 | 3.12 | (0.35 | ) | (0.20 | ) | (0.55 | ) | 41.00 | 8.12 | 1,096,219 | 0.88 | 0.90 | 1.01 | 35 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
30.14 | 0.31 | 8.47 | 8.78 | (0.49 | ) | — | (0.49 | ) | 38.43 | 29.25 | 1,167,023 | 0.88 | 0.90 | 0.89 | 25 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
26.72 | 0.37 | 3.34 | 3.71 | (0.29 | ) | — | (0.29 | ) | 30.14 | 13.88 | 1,033,655 | 0.88 | 0.90 | 1.29 | 44 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
27.03 | 0.24 | (0.28 | ) | (0.04 | ) | (0.27 | ) | — | (0.27 | ) | 26.72 | (0.06 | ) | 1,091,171 | 0.87 | 0.89 | 0.86 | 35 | |||||||||||||||||||||||||||||||||||||
| Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
33.40 | 0.22 | 1.23 | 1.45 | — | — | — | 34.85 | 4.34 | 178,609 | 1.14 | (d) | 1.15 | (d) | 1.33 | (d) | 8 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
40.53 | 0.22 | (2.75 | ) | (2.53 | ) | (0.37 | ) | (4.23 | ) | (4.60 | ) | 33.40 | (5.98 | ) | 178,126 | 1.14 | 1.15 | 0.56 | 45 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
38.03 | 0.30 | 2.67 | 2.97 | (0.27 | ) | (0.20 | ) | (0.47 | ) | 40.53 | 7.82 | 185,406 | 1.13 | 1.15 | 0.76 | 35 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
29.86 | 0.22 | 8.39 | 8.61 | (0.44 | ) | — | (0.44 | ) | 38.03 | 28.94 | 158,700 | 1.13 | 1.15 | 0.64 | 25 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
26.51 | 0.30 | 3.31 | 3.61 | (0.26 | ) | — | (0.26 | ) | 29.86 | 13.61 | 109,213 | 1.13 | 1.15 | 1.04 | 44 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
26.82 | 0.17 | (0.27 | ) | (0.10 | ) | (0.21 | ) | — | (0.21 | ) | 26.51 | (0.29 | ) | 51,132 | 1.12 | 1.14 | 0.61 | 35 | |||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $899,119 and $175,443 for Series I and Series II shares, respectively. |
Note 10—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Core Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before |
Annualized Expense Ratio2 |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2,3 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2,4 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 1,044.60 | $ | 4.52 | $ | 1,020.44 | $ | 4.47 | 0.89 | % | ||||||||||||
| Series II | 1,000.00 | 1,043.40 | 5.79 | 1,019.19 | 5.72 | 1.14 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2016, Invesco has agreed to limit administrative services fees reimbursed by the Fund. The annualized ratios restated as if this administrative services fee limitation had been in effect throughout the entire most recent fiscal half year are 0.80% and 1.05%, for Series I and Series II shares, respectively. |
| 3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.07 and $5.33 for Series I and Series II shares, respectively. |
| 4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.02 and $5.27 for Series I and Series II shares, respectively. |
Invesco V.I. Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Core Equity Fund
Invesco V.I. Core Equity Fund
|
| ||||
|
|
Semiannual Report to Shareholders
|
June 30, 2016 | ||
|
| ||||
| Invesco V.I. Core Plus Bond Fund | ||||
| ||||
| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VICPB-SAR-1 | ||||
|
| ||||
| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Core Plus Bond Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Investment Abbreviations:
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2016 was $4,826,849, which represented 30.10% of the Fund’s Net Assets. |
| (c) | Perpetual bond with no specified maturity date. |
| (d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2016. |
| (e) | Security purchased on a forward commitment basis. This security is subject to dollar roll transactions. See Note 1K. |
| (f) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
| (g) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1J and Note 4. |
| (h) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The value of this security at June 30, 2016 represented less than 1% of the Fund’s Net Assets. |
| (i) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. |
| (j) | Non-income producing security. |
| (k) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By security type, based on Total Investments as of June 30, 2016
| Bonds and Notes |
64.5 | % | ||
| U.S. Government Sponsored Agency Mortgage-Backed Securities |
11.4 | |||
| Asset-Backed Securities |
9.6 | |||
| U.S. Treasury Securities |
8.2 | |||
| Preferred Stocks |
1.1 | |||
| Security Types Each Less Than 1% of Portfolio |
0.6 | |||
| Money Market Funds |
4.6 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 284,714 | $ | 645,281 | ||||
| Net realized gain |
90,280 | 157,261 | ||||||
| Change in net unrealized appreciation (depreciation) |
576,700 | (847,554 | ) | |||||
| Net increase (decrease) in net assets resulting from operations |
951,694 | (45,012 | ) | |||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (743,970 | ) | |||||
| Series ll |
— | (6,999 | ) | |||||
| Total distributions from net investment income |
— | (750,969 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(647,889 | ) | (1,446,156 | ) | ||||
| Series ll |
(10,136 | ) | 3,318 | |||||
| Net increase (decrease) in net assets resulting from share transactions |
(658,025 | ) | (1,442,838 | ) | ||||
| Net increase (decrease) in net assets |
293,669 | (2,238,819 | ) | |||||
| Net assets: |
||||||||
| Beginning of period |
15,743,201 | 17,982,020 | ||||||
| End of period (includes undistributed net investment income of $860,492 and $575,778, respectively) |
$ | 16,036,870 | $ | 15,743,201 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Core Plus Bond Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return, comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Invesco V.I. Core Plus Bond Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote, if available, provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end-of-day net present values, spreads, ratings, industry, company performance and returns of referenced assets.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco V.I. Core Plus Bond Fund
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Lower-Rated Securities — The Fund may invest in lower-quality debt securities, i.e., “junk bonds”. Investments in lower-rated securities or unrated securities of comparable quality tend to be more sensitive to economic conditions than higher rated securities. Junk bonds involve a greater risk of default by the issuer because such securities are generally unsecured and are often subordinated to other creditors’ claims. |
| J. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties (“Counterparties”) to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal Counterparty risk since the exchange’s clearinghouse, as Counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
| K. | Dollar Rolls and Forward Commitment Transactions — The Fund may enter into dollar roll transactions to enhance the Fund’s performance. The Fund executes its dollar roll transactions in the to be announced (“TBA”) market whereby the Fund makes a forward commitment to purchase a security and, instead of accepting delivery, the position is offset by the sale of the security with a simultaneous agreement to repurchase at a future date. |
The Fund accounts for dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions increase the Fund’s portfolio turnover rate. The Fund will segregate liquid assets in an amount equal to its dollar roll commitments. Dollar roll transactions are considered borrowings under the 1940 Act.
Dollar roll transactions involve the risk that a Counterparty to the transaction may fail to complete the transaction. If this occurs, the Fund may lose the opportunity to purchase or sell the security at the agreed upon price. Dollar roll transactions also involve the risk that the value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to purchase under the agreement.
| L. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between Counterparties. A swap agreement may be negotiated bilaterally and traded over-the-counter (“OTC”) between two parties (“uncleared/OTC”) or, in some instances, must be transacted through a future commission merchant (“FCM”) and cleared through a clearinghouse that serves as a central Counterparty (“centrally cleared swap”). These agreements may contain among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index.
Invesco V.I. Core Plus Bond Fund
In a centrally cleared swap, the Fund’s ultimate Counterparty is a central clearinghouse. The Fund initially will enter into centrally cleared swaps through an executing broker. When a fund enters into a centrally cleared swap, it must deliver to the central Counterparty (via the FCM) an amount referred to as “initial margin.” Initial margin requirements are determined by the central Counterparty, but an FCM may require additional initial margin above the amount required by the central Counterparty. Initial margin deposits required upon entering into centrally cleared swaps are satisfied by cash or securities as collateral at the FCM. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities. During the term of a cleared swap agreement, a “variation margin” amount may be required to be paid by the Fund or may be received by the Fund, based on the daily change in price of the underlying reference instrument subject to the swap agreement and is recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities until the centrally cleared swap is terminated at which time a realized gain or loss is recorded.
A CDS is an agreement between Counterparties to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value”, of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its Counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. If a Counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund’s maximum risk of loss from Counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the Counterparty and by the designation of collateral by the Counterparty to cover the Fund’s exposure to the Counterparty.
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets.
An interest rate swap is an agreement between Counterparties pursuant to which the parties exchange a floating rate payment for a fixed rate payment based on a specified notional amount.
Changes in the value of centrally cleared and OTC swap agreements are recognized as unrealized gains (losses) in the Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Statement of Operations. The Fund segregates cash or liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Cash held as collateral is recorded as deposits with brokers on the Statement of Assets and Liabilities. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and Counterparty risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the Counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements. A short position in a security poses more risk than holding the same security long. As there is no limit on how much the price of the security can increase, the Fund’s exposure is unlimited.
Notional amounts of each individual credit default swap agreement outstanding as of June 30, 2016 for which the Fund is the seller of protection are disclosed in the open swap agreements table. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into by the Fund for the same referenced entity or entities.
| M. | Leverage Risk — Leverage exists when the Fund can lose more than it originally invests because it purchases or sells an instrument or enters into a transaction without investing an amount equal to the full economic exposure of the instrument or transaction. |
| N. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
Invesco V.I. Core Plus Bond Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||||||
| First $500 million |
0 | .45% | ||||||
| Next $500 million |
0 | .425% | ||||||
| Next $1.5 billion |
0 | .40% | ||||||
| Next $2.5 billion |
0 | .375% | ||||||
| Over $5 billion |
0 | .35% | ||||||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.45%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.61% and Series II shares to 0.86% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on April 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. To the extent that the annualized expense ratio does not exceed the expense limits the Adviser will retain its ability to be reimbursed for such waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $34,859 and reimbursed Fund expenses of $53,503.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $15,544 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Invesco V.I. Core Plus Bond Fund
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 1,021,734 | $ | 646 | $ | — | $ | 1,022,380 | ||||||||
| U.S. Treasury Securities |
— | 1,476,223 | — | 1,476,223 | ||||||||||||
| Corporate Debt Securities |
— | 11,139,239 | — | 11,139,239 | ||||||||||||
| U.S. Government Sponsored Agency Securities |
— | 2,032,305 | — | 2,032,305 | ||||||||||||
| Asset-Backed Securities |
— | 1,721,432 | — | 1,721,432 | ||||||||||||
| Municipal Obligations |
— | 110,216 | — | 110,216 | ||||||||||||
| Foreign Sovereign Debt Securities |
— | 396,905 | — | 396,905 | ||||||||||||
| 1,021,734 | 16,876,966 | — | 17,898,700 | |||||||||||||
| Futures Contracts* |
(64,598 | ) | — | — | (64,598 | ) | ||||||||||
| Swap Agreements* |
— | (5,469 | ) | — | (5,469 | ) | ||||||||||
| Total Investments |
$ | 957,136 | $ | 16,871,497 | $ | — | $ | 17,828,633 | ||||||||
| * | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2016:
| Value | ||||||||
| Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
| Credit risk: |
||||||||
| Swap agreements(a) |
$ | — | $ | (5,469 | ) | |||
| Interest rate risk: |
||||||||
| Futures contracts(b) |
60,533 | (125,131 | ) | |||||
| Total |
$ | 60,533 | $ | (130,600 | ) | |||
| (a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Unrealized depreciation on swap agreements — OTC. |
| (b) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Investments for the six months ended June 30, 2016
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
| Location of Gain (Loss) on Statement of Operations |
||||||||
| Futures Contracts |
Swap Agreements |
|||||||
| Realized Gain (Loss): |
||||||||
| Credit risk |
$ | — | $ | (3,255 | ) | |||
| Interest rate risk |
(146,801 | ) | — | |||||
| Change in Net Unrealized Appreciation (Depreciation): |
||||||||
| Credit risk |
— | 2,837 | ||||||
| Interest rate risk |
(65,477 | ) | — | |||||
| Total |
$ | (212,278 | ) | $ | (418 | ) | ||
The table below summarizes the average notional value of futures contracts and swap agreements outstanding during the period.
| Futures Contracts |
Swap Agreements |
|||||||
| Average notional value |
$ | 6,733,244 | $ | 250,000 | ||||
Invesco V.I. Core Plus Bond Fund
| Open Futures Contracts | ||||||||||||||||||||
| Futures Contracts | Type of Contract |
Number of Contracts |
Expiration Month |
Notional Value |
Unrealized Appreciation (Depreciation) |
|||||||||||||||
| U.S. Treasury 2 Year Notes |
Long | 3 | September-2016 | $ | 657,984 | $ | 4,587 | |||||||||||||
| U.S. Treasury 5 Year Notes |
Long | 25 | September-2016 | 3,054,102 | 46,034 | |||||||||||||||
| U.S. Treasury 10 Year Notes |
Short | 12 | September-2016 | (1,595,813 | ) | (41,935 | ) | |||||||||||||
| U.S. Long Bonds |
Long | 1 | September-2016 | 172,344 | 9,912 | |||||||||||||||
| U.S. Ultra Bond |
Short | 7 | September-2016 | (1,304,625 | ) | (83,196 | ) | |||||||||||||
| Total Futures Contracts — Interest Rate Risk |
$ | (64,598 | ) | |||||||||||||||||
| Open Over-The-Counter Credit Default Swap Agreements – Credit Risk | ||||||||||||||||||||||||||||||
| Counterparty | Reference Entity | Buy/Sell Protection |
(Pay)/Receive Fixed Rate |
Expiration Date |
Implied Credit Spread(a) |
Notional Value |
Upfront Payments |
Unrealized Appreciation (Depreciation) |
||||||||||||||||||||||
| Bank of America Merrill Lynch |
Citigroup Inc. | Buy | (1.00 | )% | 06/20/17 | 0.39 | % | $ | (250,000 | ) | $ | 3,973 | $ | (5,469 | ) | |||||||||||||||
| (a) | Implied credit spreads represent the current level as of June 30, 2016 at which protection could be bought or sold given the terms of the existing credit default swap contract and serve as an indicator of the current status of the payment/performance risk of the credit default swap contract. An implied credit spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets generally. |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on the Fund’s financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2016.
| Gross Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||||
| Gross amounts of Recognized Assets |
Financial Instruments |
Collateral Received | Net Amount |
|||||||||||||||||
| Counterparty | Non-Cash | Cash | ||||||||||||||||||
| Bank of America Merrill Lynch |
$ | 3,973 | $ | (3,973 | ) | $ | — | $ | — | $ | — | |||||||||
| Gross Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||||
| Gross amounts of Recognized Liabilities |
Financial Instruments |
Collateral Pledged | Net Amount |
|||||||||||||||||
| Counterparty | Non-Cash | Cash | ||||||||||||||||||
| Bank of America Merrill Lynch |
$ | 5,545 | $ | (3,973 | ) | $ | — | $ | — | $ | 1,572 | |||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate. The Fund may not purchase additional securities when any borrowings from banks exceed 5% of the Fund’s total assets.
Invesco V.I. Core Plus Bond Fund
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2015, which expires as follows:
| Capital Loss Carryforward* | ||||||||||||
| Expiration | Short-Term | Long-Term | Total | |||||||||
| December 31, 2016 |
$ | 557,608 | $ | — | $ | 557,608 | ||||||
| December 31, 2017 |
7,359,092 | — | 7,359,092 | |||||||||
| $ | 7,916,700 | $ | — | $ | 7,916,700 | |||||||
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $37,208,515 and $38,682,107, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $12,533,798 and $13,175,080, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 710,493 | ||
| Aggregate unrealized (depreciation) of investment securities |
(206,691 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 503,802 | ||
Cost of investments for tax purposes is $17,394,898.
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
111,018 | $ | 694,619 | 109,942 | $ | 689,898 | ||||||||||
| Series II |
— | — | 1 | 8 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 121,962 | 743,970 | ||||||||||||
| Series II |
— | — | 1,080 | 6,568 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(217,580 | ) | (1,342,508 | ) | (451,515 | ) | (2,880,024 | ) | ||||||||
| Series II |
(1,626 | ) | (10,136 | ) | (515 | ) | (3,258 | ) | ||||||||
| Net increase (decrease) in share activity |
(108,188 | ) | $ | (658,025 | ) | (219,045 | ) | $ | (1,442,838 | ) | ||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 78% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Core Plus Bond Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 6.07 | $ | 0.11 | $ | 0.27 | $ | 0.38 | $ | — | $ | 6.45 | 6.26 | % | $ | 15,882 | 0.60 | %(d) | 1.74 | %(d) | 3.68 | %(d) | 276 | % | ||||||||||||||||||||||||
| Year ended 12/31/15 |
6.39 | 0.24 | (0.26 | ) | (0.02 | ) | (0.30 | ) | 6.07 | (0.37 | ) | 15,587 | 0.65 | 1.73 | 3.81 | 416 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
6.23 | 0.26 | 0.24 | 0.50 | (0.34 | ) | 6.39 | 8.03 | 17,821 | 0.75 | 1.77 | 4.04 | 255 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
6.54 | 0.27 | (0.27 | ) | 0.00 | (0.31 | ) | 6.23 | 0.05 | 19,671 | 0.75 | 1.76 | 4.18 | 150 | ||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
6.19 | 0.27 | 0.39 | 0.66 | (0.31 | ) | 6.54 | 10.71 | 22,741 | 0.75 | 1.49 | 4.19 | 66 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
6.10 | 0.29 | 0.13 | 0.42 | (0.33 | ) | 6.19 | 7.02 | 22,333 | 0.75 | 1.46 | 4.71 | 59 | |||||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
6.04 | 0.11 | 0.26 | 0.37 | — | 6.41 | 6.13 | 155 | 0.85 | (d) | 1.99 | (d) | 3.43 | (d) | 276 | |||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
6.36 | 0.22 | (0.26 | ) | (0.04 | ) | (0.28 | ) | 6.04 | (0.64 | ) | 156 | 0.90 | 1.98 | 3.56 | 416 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
6.19 | 0.24 | 0.24 | 0.48 | (0.31 | ) | 6.36 | 7.85 | 161 | 1.00 | 2.02 | 3.79 | 255 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
6.50 | 0.25 | (0.27 | ) | (0.02 | ) | (0.29 | ) | 6.19 | (0.26 | ) | 172 | 1.00 | 2.01 | 3.93 | 150 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
6.16 | 0.25 | 0.38 | 0.63 | (0.29 | ) | 6.50 | 10.38 | 277 | 1.00 | 1.74 | 3.94 | 66 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
6.07 | 0.28 | 0.13 | 0.41 | (0.32 | ) | 6.16 | 6.72 | 227 | 1.00 | 1.71 | 4.46 | 59 | |||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $15,423 and $155 for Series I and Series II, shares, respectively. |
Note 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Core Plus Bond Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 1,062.60 | $ | 3.08 | $ | 1,021.88 | $ | 3.02 | 0.60 | % | ||||||||||||
| Series II | 1,000.00 | 1,061.30 | 4.36 | 1,020.64 | 4.27 | 0.85 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Core Plus Bond Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Core Plus Bond Fund
Invesco V.I. Core Plus Bond Fund
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Semiannual Report to Shareholders
|
June 30, 2016 | ||
|
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| Invesco V.I. Diversified Dividend Fund | ||||
|
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| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
|
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIDDI-SAR-1 | ||||
|
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| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Diversified Dividend Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
Investment Abbreviations:
| REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Consumer Staples |
24.4 | % | ||
| Utilities |
13.6 | |||
| Financials |
13.4 | |||
| Consumer Discretionary |
8.0 | |||
| Industrials |
8.0 | |||
| Energy |
6.0 | |||
| Telecommunication Services |
4.6 | |||
| Health Care |
4.0 | |||
| Materials |
2.7 | |||
| Information Technology |
1.6 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
13.7 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 5,291,721 | $ | 7,976,386 | ||||
| Net realized gain |
14,298,164 | 22,522,521 | ||||||
| Change in net unrealized appreciation (depreciation) |
25,286,277 | (22,248,603 | ) | |||||
| Net increase in net assets resulting from operations |
44,876,162 | 8,250,304 | ||||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (5,638,058 | ) | |||||
| Series ll |
— | (1,865,729 | ) | |||||
| Total distributions from net investment income |
— | (7,503,787 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
35,373,574 | 2,294,083 | ||||||
| Series ll |
35,500,512 | 26,825,841 | ||||||
| Net increase in net assets resulting from share transactions |
70,874,086 | 29,119,924 | ||||||
| Net increase in net assets |
115,750,248 | 29,866,441 | ||||||
| Net assets: |
||||||||
| Beginning of period |
466,049,532 | 436,183,091 | ||||||
| End of period (includes undistributed net investment income of $12,532,502 and $7,240,781, respectively) |
$ | 581,799,780 | $ | 466,049,532 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Diversified Dividend Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide reasonable current income and long-term growth of income and capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. Diversified Dividend Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. Diversified Dividend Fund
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||||||
| First $250 million |
0 | .545% | ||||||
| Next $750 million |
0 | .42% | ||||||
| Next $1 billion |
0 | .395% | ||||||
| Over $2 billion |
0 | .37% | ||||||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.48%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s
Invesco V.I. Diversified Dividend Fund
obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $40,047.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $60,443 for accounting and fund administrative services and reimbursed $412,736 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2016, the Fund incurred $15 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 546,426,161 | $ | 41,858,276 | $ | — | $ | 588,284,437 | ||||||||
| Forward Foreign Currency Contracts* |
— | 320,828 | — | 320,828 | ||||||||||||
| Total Investments |
$ | 546,426,161 | $ | 42,179,104 | $ | — | $ | 588,605,265 | ||||||||
| * | Unrealized appreciation. |
Invesco V.I. Diversified Dividend Fund
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2016:
| Value | ||||||||
| Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
| Currency risk: |
||||||||
| Forward foreign currency contracts(a) |
$ | 320,828 | $ | — | ||||
| (a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Unrealized appreciation on forward foreign currency contracts outstanding. |
Effect of Derivative Investments for the six months ended June 30, 2016
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
| Location of Gain (Loss) on Statement of Operations |
||||
| Forward Foreign Currency Contracts |
||||
| Realized Gain (Loss): |
||||
| Currency risk |
$ | (914,780 | ) | |
| Change in Net Unrealized Appreciation: |
||||
| Currency risk |
490,040 | |||
| Total |
$ | (424,740 | ) | |
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
| Forward Foreign Currency Contracts |
||||
| Average notional value |
$ | 21,712,155 | ||
| Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
| Settlement Date
|
Counterparty |
Contract to | Notional Value |
Unrealized Appreciation |
||||||||||||||||||||||
| Deliver | Receive | |||||||||||||||||||||||||
| 07/22/16 |
Citigroup Global Markets Inc. |
CAD | 3,016,495 | USD | 2,337,543 | $ | 2,334,872 | $ | 2,671 | |||||||||||||||||
| 07/22/16 |
Deutsche Bank Securities Inc. |
CAD | 2,792,779 | USD | 2,164,270 | 2,161,709 | 2,561 | |||||||||||||||||||
| 07/22/16 |
Goldman Sachs International |
CAD | 2,745,046 | USD | 2,126,665 | 2,124,762 | 1,903 | |||||||||||||||||||
| 07/22/16 |
Citigroup Global Markets Inc. |
EUR | 5,385,541 | USD | 6,087,416 | 5,980,492 | 106,924 | |||||||||||||||||||
| 07/22/16 |
Deutsche Bank Securities Inc. |
EUR | 5,210,718 | USD | 5,890,612 | 5,786,355 | 104,257 | |||||||||||||||||||
| 07/22/16 |
Goldman Sachs International |
EUR | 5,426,786 | USD | 6,128,805 | 6,026,293 | 102,512 | |||||||||||||||||||
| Total Forward Foreign Currency Contracts — Currency Risk |
$ | 320,828 | ||||||||||||||||||||||||
Currency Abbreviations:
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on the Fund’s financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
Invesco V.I. Diversified Dividend Fund
The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2016.
| Gross amounts
|
Gross Amounts Not Offset in
the Statement of Assets and Liabilities |
|||||||||||||||||||
| Financial
|
Collateral Received | Net Amount
|
||||||||||||||||||
| Counterparty | Non-Cash | Cash | ||||||||||||||||||
| Citigroup Global Markets Inc. |
$ | 109,595 | $ | — | $ | — | $ | — | $ | 109,595 | ||||||||||
| Deutsche Bank Securities Inc. |
106,818 | — | — | — | 106,818 | |||||||||||||||
| Goldman Sachs International |
104,415 | — | — | — | 104,415 | |||||||||||||||
| Total |
$ | 320,828 | $ | — | $ | — | $ | — | $ | 320,828 | ||||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2015, which expires as follows:
| Capital Loss Carryforward* | ||||||||||||
| Expiration | Short-Term | Long-Term | Total | |||||||||
| December 31, 2017 |
$ | 6,679,413 | $ | — | $ | 6,679,413 | ||||||
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $83,929,415 and $43,123,694, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 130,722,940 | ||
| Aggregate unrealized (depreciation) of investment securities |
(12,010,746 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 118,712,194 | ||
Cost of investments for tax purposes is $469,572,243.
Invesco V.I. Diversified Dividend Fund
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
2,809,122 | $ | 67,729,579 | 3,012,818 | $ | 71,097,855 | ||||||||||
| Series II |
1,787,574 | 43,180,686 | 1,837,158 | 43,228,055 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 249,693 | 5,638,058 | ||||||||||||
| Series II |
— | — | 82,958 | 1,865,729 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(1,351,554 | ) | (32,356,005 | ) | (3,160,909 | ) | (74,441,830 | ) | ||||||||
| Series II |
(325,502 | ) | (7,680,174 | ) | (778,296 | ) | (18,267,943 | ) | ||||||||
| Net increase in share activity |
2,919,640 | $ | 70,874,086 | 1,243,422 | $ | 29,119,924 | ||||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 70% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||
| Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 23.27 | $ | 0.26 | $ | 1.84 | $ | 2.10 | $ | — | $ | 25.37 | 9.03 | % | $ | 400,666 | 0.69 | %(d) | 0.71 | %(d) | 2.18 | %(d) | 10 | % | ||||||||||||||||||||||||
| Year ended 12/31/15 |
23.21 | 0.43 | 0.04 | 0.47 | (0.41 | ) | 23.27 | 2.07 | 333,573 | 0.70 | 0.71 | 1.84 | 15 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
20.93 | 0.40 | 2.26 | 2.66 | (0.38 | ) | 23.21 | 12.83 | 330,370 | 0.72 | 0.73 | 1.80 | 6 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
16.34 | 0.33 | 4.70 | 5.03 | (0.44 | ) | 20.93 | 31.04 | 321,581 | 0.71 | 0.72 | 1.76 | 20 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
14.04 | 0.35 | 2.27 | 2.62 | (0.32 | ) | 16.34 | 18.72 | 271,407 | 0.67 | 0.68 | 2.29 | 11 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
14.24 | 0.31 | (0.27 | ) | 0.04 | (0.24 | ) | 14.04 | 0.20 | 253,850 | 0.66 | 0.67 | 2.24 | 38 | ||||||||||||||||||||||||||||||||||
| Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
23.16 | 0.23 | 1.83 | 2.06 | — | 25.22 | 8.89 | 181,134 | 0.94 | (d) | 0.96 | (d) | 1.93 | (d) | 10 | |||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
23.11 | 0.37 | 0.04 | 0.41 | (0.36 | ) | 23.16 | 1.82 | 132,477 | 0.95 | 0.96 | 1.59 | 15 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
20.85 | 0.34 | 2.25 | 2.59 | (0.33 | ) | 23.11 | 12.54 | 105,813 | 0.97 | 0.98 | 1.55 | 6 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
16.28 | 0.29 | 4.69 | 4.98 | (0.41 | ) | 20.85 | 30.76 | 97,628 | 0.96 | 0.97 | 1.51 | 20 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
14.00 | 0.31 | 2.26 | 2.57 | (0.29 | ) | 16.28 | 18.37 | 72,641 | 0.92 | 0.93 | 2.04 | 11 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
14.20 | 0.28 | (0.28 | ) | 0.00 | (0.20 | ) | 14.00 | (0.06 | ) | 68,424 | 0.91 | 0.92 | 1.99 | 38 | |||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $134,975,378 and sold of $57,441,776 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Select Dimensions Dividend Growth Fund and Invesco V.I. Financial Services Fund into the Fund. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $358,148 and $148,591 for Series I and Series II shares, respectively. |
Note 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Diversified Dividend Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before |
Annualized Expense Ratio |
||||||||||||||||||||
| Ending Account Value |
Expenses Paid During |
Ending Account Value |
Expenses Paid During |
|||||||||||||||||||||
|
Series I |
$ | 1,000.00 | $ | 1,090.30 | $ | 3.59 | $ | 1,021.43 | $ | 3.47 | 0.69 | % | ||||||||||||
|
Series II |
1,000.00 | 1,088.90 | 4.88 | 1,020.19 | 4.72 | 0.94 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Diversified Dividend Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Diversified Dividend Fund
Invesco V.I. Diversified Dividend Fund
|
| ||||
|
|
Semiannual Report to Shareholders
|
June 30, 2016 | ||
|
| ||||
| Invesco V.I. Equally-Weighted S&P 500 Fund | ||||
| ||||
| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. MS-VIEWSP-SAR-1 | ||||
|
| ||||
| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Equally-Weighted S&P 500 Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Investment Abbreviations:
| REIT | – Real Estate Investment Trust |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | The Fund’s Adviser is a subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. See Note 4. |
| (d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 5. |
| (e) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Financials |
18.0 | % | ||
| Consumer Discretionary |
16.3 | |||
| Industrials |
13.2 | |||
| Information Technology |
13.2 | |||
| Health Care |
11.1 | |||
| Energy |
7.7 | |||
| Consumer Staples |
7.4 | |||
| Utilities |
6.2 | |||
| Materials |
5.2 | |||
| Telecommunication Services |
1.0 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
0.7 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 490,695 | $ | 881,507 | ||||
| Net realized gain |
1,801,005 | 6,046,611 | ||||||
| Change in net unrealized appreciation (depreciation) |
2,409,295 | (8,879,331 | ) | |||||
| Net increase (decrease) in net assets resulting from operations |
4,700,995 | (1,951,213 | ) | |||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (415,027 | ) | |||||
| Series ll |
— | (486,441 | ) | |||||
| Total distributions from net investment income |
— | (901,468 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (4,799,257 | ) | |||||
| Series ll |
— | (6,706,618 | ) | |||||
| Total distributions from net realized gains |
— | (11,505,875 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
77,836,125 | 44,787 | ||||||
| Series ll |
239,858 | 9,847,549 | ||||||
| Net increase in net assets resulting from share transactions |
78,075,983 | 9,892,336 | ||||||
| Net increase (decrease) in net assets |
82,776,978 | (4,466,220 | ) | |||||
| Net assets: |
||||||||
| Beginning of period |
66,616,511 | 71,082,731 | ||||||
| End of period (includes undistributed net investment income of $1,297,295 and $806,600, respectively) |
$ | 149,393,489 | $ | 66,616,511 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Equally-Weighted S&P 500 Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to achieve a high level of total return on its assets through a combination of capital appreciation and current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Invesco V.I. Equally-Weighted S&P 500 Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s |
Invesco V.I. Equally-Weighted S&P 500 Fund
| taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties (“Counterparties”) to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal Counterparty risk since the exchange’s clearinghouse, as Counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
| J. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||
| First $2 billion |
0.12% | |||
| Over $2 billion |
0.10% | |||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.12%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Invesco V.I. Equally-Weighted S&P 500 Fund
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $366.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $24,864 for accounting and fund administrative services and reimbursed $66,829 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 228,770,494 | $ | — | $ | — | $ | 228,770,494 | ||||||||
| Futures Contracts* |
31,486 | — | — | 31,486 | ||||||||||||
| Total Investments |
$ | 228,801,980 | $ | — | $ | — | $ | 228,801,980 | ||||||||
| * | Unrealized appreciation. |
NOTE 4—Investments in Affiliates
The Fund’s Adviser is a subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. The following is a summary of the transactions in, and earnings from, investments in Invesco Ltd. for the six months ended June 30, 2016.
| Value 12/31/15 |
Purchases at Cost |
Proceeds from Sales |
Change in Unrealized Appreciation (Depreciation) |
Realized Gain (Loss) |
Value 06/30/16 |
Dividend Income |
||||||||||||||||||||||
| Invesco Ltd. |
$ | 138,708 | $ | 161,183 | $ | (2,455 | ) | $ | (30,391 | ) | $ | (1,123 | ) | $ | 265,922 | $ | 2,338 | |||||||||||
Invesco V.I. Equally-Weighted S&P 500 Fund
NOTE 5—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2016:
| Value | ||||||||
| Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
| Equity risk: |
||||||||
| Futures contracts(a) |
$ | 31,486 | $ | — | ||||
| (a) | Includes cumulative appreciation of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Investments for the six months ended June 30, 2016
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
| Location of Gain (Loss) on Statement of Operations |
||||
| Futures Contracts |
||||
| Realized Gain (Loss): |
||||
| Equity risk |
$ | (2,566 | ) | |
| Change in Net Unrealized Appreciation: |
||||
| Equity risk |
32,080 | |||
| Total |
$ | 29,514 | ||
The table below summarizes the average notional value of futures contracts outstanding during the period.
| Futures Contracts |
||||
| Average notional value |
$ | 735,705 | ||
| Open Futures Contracts | ||||||||||||||||||||
| Futures Contracts | Type of Contract |
Number of Contracts |
Expiration Month |
Notional Value |
Unrealized Appreciation |
|||||||||||||||
| E-Mini S&P 500 Index |
Long | 17 | September-2016 | $ | 1,776,670 | $ | 31,486 | |||||||||||||
NOTE 6—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 8—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
Invesco V.I. Equally-Weighted S&P 500 Fund
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $87,541,063 and $9,533,091, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 36,901,570 | ||
| Aggregate unrealized (depreciation) of investment securities |
(1,176,819 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 35,724,751 | ||
Cost of investments for tax purposes is $193,045,743.
NOTE 10—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
4,857,567 | $ | 79,757,575 | 22,265 | $ | 427,843 | ||||||||||
| Series II |
242,038 | 3,704,299 | 555,119 | 10,442,759 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 343,497 | 5,214,284 | ||||||||||||
| Series II |
— | — | 485,034 | 7,193,059 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(123,352 | ) | (1,921,450 | ) | (291,860 | ) | (5,597,340 | ) | ||||||||
| Series II |
(226,052 | ) | (3,464,441 | ) | (435,493 | ) | (7,788,269 | ) | ||||||||
| Net increase in share activity |
4,750,201 | $ | 78,075,983 | 678,562 | $ | 9,892,336 | ||||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 94% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
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| Series I |
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| Six months ended 06/30/16 |
$ | 15.81 | $ | 0.13 | $ | 0.73 | $ | 0.86 | $ | — | $ | — | $ | — | $ | 16.67 | 5.44 | % | $ | 108,426 | 0.56 | %(d) | 0.56 | %(d) | 1.64 | %(d) | 12 | % | ||||||||||||||||||||||||||||
| Year ended 12/31/15 |
19.98 | 0.26 | (0.94 | ) | (0.68 | ) | (0.28 | ) | (3.21 | ) | (3.49 | ) | 15.81 | (2.68 | ) | 27,974 | 0.55 | 0.55 | 1.38 | 25 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
21.18 | 0.29 | 2.41 | 2.70 | (0.33 | ) | (3.57 | ) | (3.90 | ) | 19.98 | 13.88 | 33,878 | 0.59 | 0.59 | 1.34 | 18 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
18.23 | 0.24 | 5.94 | 6.18 | (0.38 | ) | (2.85 | ) | (3.23 | ) | 21.18 | 35.42 | 38,144 | 0.59 | 0.59 | 1.16 | 18 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
18.33 | 0.33 | 2.73 | 3.06 | (0.37 | ) | (2.79 | ) | (3.16 | ) | 18.23 | 17.09 | 34,914 | 0.46 | 0.59 | 1.69 | 23 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
18.78 | 0.29 | (0.40 | ) | (0.11 | ) | (0.34 | ) | — | (0.34 | ) | 18.33 | (0.36 | ) | 35,998 | 0.37 | 0.51 | 1.50 | 21 | |||||||||||||||||||||||||||||||||||||
| Series II |
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| Six months ended 06/30/16 |
15.44 | 0.11 | 0.71 | 0.82 | — | — | — | 16.26 | 5.31 | 40,967 | 0.81 | (d) | 0.81 | (d) | 1.39 | (d) | 12 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
19.60 | 0.21 | (0.92 | ) | (0.71 | ) | (0.24 | ) | (3.21 | ) | (3.45 | ) | 15.44 | (2.92 | ) | 38,643 | 0.80 | 0.80 | 1.13 | 25 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
20.84 | 0.23 | 2.37 | 2.60 | (0.27 | ) | (3.57 | ) | (3.84 | ) | 19.60 | 13.61 | 37,205 | 0.84 | 0.84 | 1.09 | 18 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
17.98 | 0.19 | 5.84 | 6.03 | (0.32 | ) | (2.85 | ) | (3.17 | ) | 20.84 | 35.04 | 38,860 | 0.84 | 0.84 | 0.91 | 18 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
18.09 | 0.27 | 2.71 | 2.98 | (0.30 | ) | (2.79 | ) | (3.09 | ) | 17.98 | 16.88 | 36,362 | 0.71 | 0.84 | 1.44 | 23 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
18.53 | 0.23 | (0.38 | ) | (0.15 | ) | (0.29 | ) | — | (0.29 | ) | 18.09 | (0.66 | ) | 41,523 | 0.62 | 0.76 | 1.25 | 21 | |||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $27,292 and $38,832 for Series I and Series II shares, respectively. |
NOTE 12—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Equally-Weighted S&P 500 Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio |
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| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2 |
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| Series I | $ | 1,000.00 | $ | 1,054.40 | $ | 2.86 | $ | 1,022.08 | $ | 2.82 | 0.56 | % | ||||||||||||
| Series II | 1,000.00 | 1,053.10 | 4.13 | 1,020.84 | 4.07 | 0.81 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Equally-Weighted S&P 500 Fund
Invesco V.I. Equally-Weighted S&P 500 Fund
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Semiannual Report to Shareholders
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June 30, 2016 | ||
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| Invesco V.I. Equity and Income Fund | ||||
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| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIEQI-SAR-1 | ||||
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| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Equity and Income Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Investment Abbreviations:
| ADR | – American Depositary Receipt | |
| Conv. | – Convertible | |
| Ctfs. | – Certificates | |
| Deb. | – Debentures | |
| Gtd. | – Guaranteed | |
| Jr. | – Junior | |
| Pfd. | – Preferred | |
| REIT | – Real Estate Investment Trust | |
| Sec. | – Secured | |
| Sr. | – Senior | |
| Sub. | – Subordinated | |
| Unsec. | – Unsecured |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2016 was $53,244,397, which represented 4.07% of the Fund’s Net Assets. |
| (d) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. |
| (e) | Perpetual bond with no specified maturity date. |
| (f) | Step coupon bond. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. |
| (g) | Exchangeable for a basket of four common stocks and one ordinary share. |
| (h) | Exchangeable for a basket of five common stocks. |
| (i) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
| (j) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1K and Note 4. |
| (k) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By security type, based on Net Assets
as of June 30, 2016
| Common Stocks & Other Equity Interests |
63.2 | % | ||
| Bonds and Notes |
20.0 | |||
| U.S. Treasury Securities |
10.6 | |||
| Security Type Each Less Than 1% of Portfolio |
1.2 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
5.0 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
||||||||
| Net investment income |
$ | 9,566,146 | $ | 17,502,935 | ||||
| Net realized gain |
96,648 | 47,445,405 | ||||||
| Change in net unrealized appreciation (depreciation) |
10,817,562 | (100,913,849 | ) | |||||
| Net increase (decrease) in net assets resulting from operations |
20,480,356 | (35,965,509 | ) | |||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (2,355,976 | ) | |||||
| Series ll |
— | (27,649,010 | ) | |||||
| Total distributions from net investment income |
— | (30,004,986 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (8,165,729 | ) | |||||
| Series ll |
— | (106,824,586 | ) | |||||
| Total distributions from net realized gains |
— | (114,990,315 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
20,151,974 | 36,709,676 | ||||||
| Series ll |
43,524,609 | 6,488,787 | ||||||
| Net increase in net assets resulting from share transactions |
63,676,583 | 43,198,463 | ||||||
| Net increase (decrease) in net assets |
84,156,939 | (137,762,347 | ) | |||||
| Net assets: |
||||||||
| Beginning of period |
1,225,548,755 | 1,363,311,102 | ||||||
| End of period (includes undistributed net investment income of $27,655,397 and $18,089,251, respectively) |
$ | 1,309,705,694 | $ | 1,225,548,755 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Equity and Income Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objectives are both capital appreciation and current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded.
Invesco V.I. Equity and Income Fund
Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco V.I. Equity and Income Fund
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
| K. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between Counterparties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal Counterparty risk since the exchange’s clearinghouse, as Counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
Invesco V.I. Equity and Income Fund
| L. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||
| First $150 million |
0.50% | |||
| Next $100 million |
0.45% | |||
| Next $100 million |
0.40% | |||
| Over $350 million |
0.35% | |||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.38%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.50% and Series II shares to 1.75% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $55,204.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $141,414 for accounting and fund administrative services and reimbursed $1,391,741 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2016, the Fund incurred $1,542 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Invesco V.I. Equity and Income Fund
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 852,733,417 | $ | 47,319,569 | $ | — | $ | 900,052,986 | ||||||||
| U.S. Treasury Securities |
— | 138,250,198 | — | 138,250,198 | ||||||||||||
| U.S. Government Sponsored Agency Securities |
— | 3,952,329 | — | 3,952,329 | ||||||||||||
| Corporate Debt Securities |
— | 262,397,409 | — | 262,397,409 | ||||||||||||
| 852,733,417 | 451,919,505 | — | 1,304,652,922 | |||||||||||||
| Forward Foreign Currency Contracts* |
— | 2,393,015 | — | 2,393,015 | ||||||||||||
| Futures Contracts* |
(146,968 | ) | — | — | (146,968 | ) | ||||||||||
| Total Investments |
$ | 852,586,449 | $ | 454,312,520 | $ | — | $ | 1,306,898,969 | ||||||||
| * | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2016:
| Value | ||||||||
| Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
| Currency risk: |
||||||||
| Forward foreign currency contracts(a) |
$ | 2,805,439 | $ | (412,424 | ) | |||
| Interest rate risk: |
||||||||
| Futures contracts(b) |
— | (146,968 | ) | |||||
| Total |
$ | 2,805,439 | $ | (559,392 | ) | |||
| (a) | Values are disclosed on the Statement of Assets and Liabilities under the captions Unrealized appreciation on forward foreign currency contracts outstanding and Unrealized depreciation on forward foreign currency contracts outstanding. |
| (b) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Investments for the six months ended June 30, 2016
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
| Location of Gain (Loss) on Statement of Operations |
||||||||
| Forward Foreign Currency Contracts |
Futures Contracts |
|||||||
| Realized Gain (Loss): |
||||||||
| Currency risk |
$ | (836,231 | ) | $ | — | |||
| Interest rate risk |
— | (304,425 | ) | |||||
| Change in Net Unrealized Appreciation (Depreciation): |
||||||||
| Currency risk |
1,769,064 | — | ||||||
| Interest rate risk |
— | (165,218 | ) | |||||
| Total |
$ | 932,833 | $ | (469,643 | ) | |||
Invesco V.I. Equity and Income Fund
The table below summarizes the average notional value of forward foreign currency contracts and futures contracts outstanding during the period.
| Forward Foreign Currency Contracts |
Futures Contracts |
|||||||
| Average notional value |
$ | 78,175,426 | $ | 7,192,578 | ||||
| Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
| Settlement Date |
Contract to | Notional Value |
Unrealized Appreciation (Depreciation) |
|||||||||||||||||||||||
| Counterparty | Deliver | Receive | ||||||||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) | USD | 3,055,641 | CHF | 2,994,528 | $ | 3,067,269 | $ | 11,628 | |||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) | USD | 8,932,268 | EUR | 8,044,190 | 8,925,768 | (6,500 | ) | ||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) | USD | 11,139,502 | GBP | 8,257,600 | 10,993,852 | (145,650 | ) | ||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) | CHF | 2,727,756 | USD | 2,783,254 | 2,794,017 | (10,763 | ) | ||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) | EUR | 8,810,299 | USD | 9,952,113 | 9,775,836 | 176,277 | |||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) | GBP | 6,792,537 | USD | 9,930,621 | 9,043,323 | 887,298 | |||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. | USD | 2,733,180 | CHF | 2,679,200 | 2,744,281 | 11,101 | |||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. | USD | 11,679,131 | EUR | 10,520,382 | 11,673,331 | (5,800 | ) | ||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. | USD | 10,703,845 | GBP | 7,932,300 | 10,560,760 | (143,085 | ) | ||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. | CHF | 2,945,972 | USD | 3,010,191 | 3,017,534 | (7,343 | ) | ||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. | EUR | 9,754,274 | USD | 11,014,361 | 10,823,264 | 191,097 | |||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. | GBP | 9,397,363 | USD | 13,663,435 | 12,511,289 | 1,152,146 | |||||||||||||||||||
| 07/05/16 |
Bank of New York Mellon (The) | USD | 6,920,494 | CAD | 8,986,261 | 6,955,187 | 34,693 | |||||||||||||||||||
| 07/05/16 |
Bank of New York Mellon (The) | CAD | 8,775,462 | USD | 6,791,233 | 6,792,032 | (799 | ) | ||||||||||||||||||
| 07/05/16 |
State Street Bank and Trust Co. | USD | 7,054,754 | CAD | 9,158,484 | 7,088,484 | 33,730 | |||||||||||||||||||
| 07/05/16 |
State Street Bank and Trust Co. | CAD | 9,369,283 | USD | 7,253,602 | 7,251,638 | 1,964 | |||||||||||||||||||
| 08/12/16 |
Bank of New York Mellon (The) | CAD | 8,974,310 | USD | 6,911,662 | 6,946,716 | (35,054 | ) | ||||||||||||||||||
| 08/12/16 |
Bank of New York Mellon (The) | CHF | 2,989,560 | USD | 3,057,748 | 3,070,126 | (12,378 | ) | ||||||||||||||||||
| 08/12/16 |
Bank of New York Mellon (The) | EUR | 7,843,310 | USD | 8,722,153 | 8,716,482 | 5,671 | |||||||||||||||||||
| 08/12/16 |
Bank of New York Mellon (The) | GBP | 8,318,707 | USD | 11,224,473 | 11,079,505 | 144,968 | |||||||||||||||||||
| 08/12/16 |
State Street Bank and Trust Co. | CAD | 8,974,298 | USD | 6,914,689 | 6,946,707 | (32,018 | ) | ||||||||||||||||||
| 08/12/16 |
State Street Bank and Trust Co. | CHF | 2,989,560 | USD | 3,057,091 | 3,070,125 | (13,034 | ) | ||||||||||||||||||
| 08/12/16 |
State Street Bank and Trust Co. | EUR | 7,843,311 | USD | 8,723,095 | 8,716,483 | 6,612 | |||||||||||||||||||
| 08/12/16 |
State Street Bank and Trust Co. | GBP | 8,318,707 | USD | 11,227,759 | 11,079,505 | 148,254 | |||||||||||||||||||
| Total Open Forward Foreign Currency Contracts — Currency Risk |
|
$ | 2,393,015 | |||||||||||||||||||||||
Currency Abbreviations:
| Open Futures Contracts | ||||||||||||||||||||
| Futures Contracts | Type of Contract |
Number of Contracts |
Expiration Month |
Notional Value |
Unrealized Appreciation (Depreciation) |
|||||||||||||||
| U.S. Treasury 5 Year Notes |
Short | 30 | September-2016 | $ | (3,664,922 | ) | $ | (67,337 | ) | |||||||||||
| U.S. Treasury 10 Year Notes |
Short | 22 | September-2016 | (2,925,656 | ) | (79,631 | ) | |||||||||||||
| Total Futures Contracts — Interest Rate Risk |
|
$ | (146,968 | ) | ||||||||||||||||
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on the Fund’s financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
Invesco V.I. Equity and Income Fund
The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2016.
| Counterparty |
Gross amounts Assets |
Gross Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||
| Financial Instruments |
Collateral Received | Net Amount |
||||||||||||||||||
| Non-Cash | Cash | |||||||||||||||||||
| Bank of New York Mellon (The) |
$ | 1,260,535 | $ | (211,144 | ) | $ | — | $ | — | $ | 1,049,391 | |||||||||
| State Street Bank and Trust Co. |
1,544,904 | (201,280 | ) | — | — | 1,343,624 | ||||||||||||||
| Total |
$ | 2,805,439 | $ | (412,424 | ) | $ | — | $ | — | $ | 2,393,015 | |||||||||
| Counterparty |
Gross amounts Liabilities |
Gross Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||
| Financial Instruments |
Collateral Pledged | Net Amount |
||||||||||||||||||
| Non-Cash | Cash | |||||||||||||||||||
| Bank of New York Mellon (The) |
$ | 211,144 | $ | (211,144 | ) | $ | — | $ | — | $ | — | |||||||||
| State Street Bank and Trust Co. |
201,280 | (201,280 | ) | — | — | — | ||||||||||||||
| Total |
$ | 412,424 | $ | (412,424 | ) | $ | — | $ | — | $ | — | |||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2015, which expires as follows:
| Capital Loss Carryforward* | ||||||||||||
| Expiration | Short-Term | Long-Term | Total | |||||||||
| December 31, 2016 |
$ | 1,413,888 | $ | — | $ | 1,413,888 | ||||||
| December 31, 2017 |
524,023 | — | 524,023 | |||||||||
| $ | 1,937,911 | $ | — | $ | 1,937,911 | |||||||
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
Invesco V.I. Equity and Income Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $207,227,991 and $170,017,524, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $464,929,753 and $428,245,375, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 175,952,609 | ||
| Aggregate unrealized (depreciation) of investment securities |
(33,720,004 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 142,232,605 | ||
Cost of investments for tax purposes is $1,162,420,317.
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
1,493,234 | $ | 23,943,196 | 2,393,497 | $ | 43,442,791 | ||||||||||
| Series II |
7,997,362 | 130,807,326 | 4,982,232 | 91,088,229 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 666,352 | 10,521,705 | ||||||||||||
| Series II |
— | — | 8,548,862 | 134,473,596 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(238,248 | ) | (3,791,222 | ) | (949,803 | ) | (17,254,820 | ) | ||||||||
| Series II |
(5,494,739 | ) | (87,282,717 | ) | (12,109,186 | ) | (219,073,038 | ) | ||||||||
| Net increase in share activity |
3,757,609 | $ | 63,676,583 | 3,531,954 | $ | 43,198,463 | ||||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 78% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Equity and Income Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (both |
Total from operations |
Dividends income |
Distributions from net gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of to average net assets absorbed |
Ratio of fee waivers |
Ratio of net net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 16.23 | $ | 0.14 | $ | 0.17 | $ | 0.31 | $ | — | $ | — | $ | — | $ | 16.54 | 1.91 | % | $ | 118,906 | 0.65 | %(d) | 0.66 | %(d) | 1.82 | %(d) | 52 | % | ||||||||||||||||||||||||||||
| Year ended 12/31/15 |
18.93 | 0.28 | (0.78 | ) | (0.50 | ) | (0.49 | ) | (1.71 | ) | (2.20 | ) | 16.23 | (2.29 | ) | 96,287 | 0.64 | 0.65 | 1.55 | 87 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
18.58 | 0.37 | (e) | 1.28 | 1.65 | (0.35 | ) | (0.95 | ) | (1.30 | ) | 18.93 | 9.03 | 72,391 | 0.66 | 0.67 | 1.92 | (e) | 85 | |||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
15.08 | 0.27 | 3.51 | 3.78 | (0.28 | ) | — | (0.28 | ) | 18.58 | 25.18 | 60,288 | 0.66 | 0.67 | 1.59 | 41 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
13.65 | 0.28 | 1.42 | 1.70 | (0.27 | ) | — | (0.27 | ) | 15.08 | 12.49 | 53,990 | 0.66 | 0.67 | 1.85 | 31 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
14.06 | 0.25 | (0.41 | ) | (0.16 | ) | (0.25 | ) | — | (0.25 | ) | 13.65 | (1.19 | ) | 56,053 | 0.66 | 0.67 | 1.83 | 28 | |||||||||||||||||||||||||||||||||||||
| Series II |
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| Six months ended 06/30/16 |
16.16 | 0.12 | 0.17 | 0.29 | — | — | — | 16.45 | 1.79 | 1,190,800 | 0.90 | (d) | 0.91 | (d) | 1.57 | (d) | 52 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
18.86 | 0.23 | (0.78 | ) | (0.55 | ) | (0.44 | ) | (1.71 | ) | (2.15 | ) | 16.16 | (2.58 | ) | 1,129,261 | 0.89 | 0.90 | 1.30 | 87 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
18.52 | 0.32 | (e) | 1.28 | 1.60 | (0.31 | ) | (0.95 | ) | (1.26 | ) | 18.86 | 8.77 | 1,290,920 | 0.91 | 0.92 | 1.67 | (e) | 85 | |||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
15.05 | 0.23 | 3.50 | 3.73 | (0.26 | ) | — | (0.26 | ) | 18.52 | 24.88 | 1,244,045 | 0.91 | 0.92 | 1.34 | 41 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
13.63 | 0.25 | 1.44 | 1.69 | (0.27 | ) | — | (0.27 | ) | 15.05 | 12.39 | 962,938 | 0.81 | 0.92 | 1.70 | 31 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
14.05 | 0.25 | (0.42 | ) | (0.17 | ) | (0.25 | ) | — | (0.25 | ) | 13.63 | (1.30 | ) | 864,716 | 0.71 | 0.92 | 1.78 | 28 | |||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the year ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $84,964,454 and sold of $24,142,395 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund into the Fund. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $103,553 and $1,111,155 for Series I and Series II shares, respectively. |
| (e) | Net investment income per share and the ratio of net investment income to average net assets include significant dividends received during the period. Net investment income per share and the ratio of net investment income to average net assets excluding the significant dividends are $0.27 and 1.41% and $0.22 and 1.16% for Series I and Series II shares, respectively. |
NOTE 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Equity and Income Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio2 |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2,3 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2,4 |
|||||||||||||||||||||
|
Series I |
$ | 1,000.00 | $ | 1,019.10 | $ | 3.26 | $ | 1,021.63 | $ | 3.27 | 0.65 | % | ||||||||||||
|
Series II |
1,000.00 | 1,017.90 | 4.52 | 1,020.39 | 4.52 | 0.90 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2016, Invesco has agreed to limit administrative services fees reimbursed by the Fund. The annualized ratios restated as if this administrative services fee limitation had been in effect throughout the entire most recent fiscal half year are 0.57% and 0.82%, for Series I and Series II shares, respectively. |
| 3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $2.86 and $4.11 for Series I and Series II shares, respectively. |
| 4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $2.87 and $4.12 for Series I and Series II shares, respectively. |
Invesco V.I. Equity and Income Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Equity and Income Fund
Invesco V.I. Equity and Income Fund
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Semiannual Report to Shareholders
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June 30, 2016 | ||
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| Invesco V.I. Global Core Equity Fund | ||||
|
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| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIGCE-SAR-1 | ||||
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| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Global Core Equity Fund |
Schedule of Investments
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
Investment Abbreviations:
| ADR | – American Depositary Receipt | |
| REGS | – Regulation S |
Notes to Schedule of Investments:
| (a) | Non-income producing security. |
| (b) | Security purchased or received in transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at June 30, 2016 represented 1.24% of the Fund’s Net Assets. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By country, based on Net Assets as of June 30, 2016
| United States |
50.7 | % | ||
| United Kingdom |
16.1 | |||
| Japan |
5.6 | |||
| Netherlands |
4.6 | |||
| France |
4.6 | |||
| Switzerland |
4.3 | |||
| Hong Kong |
2.2 | |||
| Taiwan |
2.0 | |||
| Countries each less than 2.0% of portfolio |
7.9 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
2.0 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 571,500 | $ | 808,264 | ||||
| Net realized gain (loss) |
(1,106,656 | ) | 1,079,723 | |||||
| Change in net unrealized appreciation (depreciation) |
644,290 | (2,801,302 | ) | |||||
| Net increase (decrease) in net assets resulting from operations |
109,134 | (913,315 | ) | |||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (951,512 | ) | |||||
| Series ll |
— | (150,626 | ) | |||||
| Total distributions from net investment income |
— | (1,102,138 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (2,459,784 | ) | |||||
| Series ll |
— | (507,950 | ) | |||||
| Total distributions from net realized gains |
— | (2,967,734 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(4,080,439 | ) | (4,453,265 | ) | ||||
| Series ll |
(735,021 | ) | (1,936,288 | ) | ||||
| Net increase (decrease) in net assets resulting from share transactions |
(4,815,460 | ) | (6,389,553 | ) | ||||
| Net increase (decrease) in net assets |
(4,706,326 | ) | (11,372,740 | ) | ||||
| Net assets: |
||||||||
| Beginning of period |
78,453,246 | 89,825,986 | ||||||
| End of period (includes undistributed net investment income of $1,225,859 and $654,359, respectively) |
$ | 73,746,920 | $ | 78,453,246 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Core Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term capital appreciation by investing primarily in equity securities of issuers throughout the world, including U.S. issuers.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Invesco V.I. Global Core Equity Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s |
Invesco V.I. Global Core Equity Fund
| taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||||||
| First $1 billion |
0 | .67% | ||||||
| Next $500 million |
0 | .645% | ||||||
| Next $1 billion |
0 | .62% | ||||||
| Next $1 billion |
0 | .595% | ||||||
| Next $1 billion |
0 | .57% | ||||||
| Over $4.5 billion |
0 | .545% | ||||||
Invesco V.I. Global Core Equity Fund
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.67%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.25% and Series II shares to 2.50% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
The Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $244.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $74,461 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
Invesco V.I. Global Core Equity Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Australia |
$ | — | $ | 1,390,578 | $ | — | $ | 1,390,578 | ||||||||
| China |
836,815 | — | — | 836,815 | ||||||||||||
| Finland |
— | 638,912 | — | 638,912 | ||||||||||||
| France |
— | 3,394,414 | — | 3,394,414 | ||||||||||||
| Germany |
— | 926,773 | — | 926,773 | ||||||||||||
| Hong Kong |
— | 1,611,231 | — | 1,611,231 | ||||||||||||
| Israel |
700,407 | — | — | 700,407 | ||||||||||||
| Japan |
— | 4,128,296 | — | 4,128,296 | ||||||||||||
| Netherlands |
— | 3,396,669 | — | 3,396,669 | ||||||||||||
| Singapore |
— | 784,687 | — | 784,687 | ||||||||||||
| Sweden |
— | 563,853 | — | 563,853 | ||||||||||||
| Switzerland |
705,994 | 2,475,842 | — | 3,181,836 | ||||||||||||
| Taiwan |
— | 1,476,563 | — | 1,476,563 | ||||||||||||
| United Kingdom |
6,836,652 | 5,054,045 | — | 11,890,697 | ||||||||||||
| United States |
38,139,989 | — | — | 38,139,989 | ||||||||||||
| Total Investments |
$ | 47,219,857 | $ | 25,841,863 | $ | — | $ | 73,061,720 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2015, which expires as follows:
| Capital Loss Carryforward* | ||||||||||||
| Expiration | Short-Term | Long-Term | Total | |||||||||
| December 31, 2017 |
$ | 5,657,589 | $ | — | $ | 5,657,589 | ||||||
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
Invesco V.I. Global Core Equity Fund
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $16,469,268 and $22,006,988, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 5,693,785 | ||
| Aggregate unrealized (depreciation) of investment securities |
(5,599,451 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 94,334 | ||
Cost of investments for tax purposes is $72,967,386.
NOTE 8—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
149,953 | $ | 1,244,003 | 579,461 | $ | 5,386,251 | ||||||||||
| Series II |
20,426 | 173,704 | 16,698 | 149,459 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 421,668 | 3,411,296 | ||||||||||||
| Series II |
— | — | 81,327 | 657,932 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(652,980 | ) | (5,324,442 | ) | (1,455,728 | ) | (13,250,812 | ) | ||||||||
| Series II |
(110,439 | ) | (908,725 | ) | (299,886 | ) | (2,743,679 | ) | ||||||||
| Net increase (decrease) in share activity |
(593,040 | ) | $ | (4,815,460 | ) | (656,460 | ) | $ | (6,389,553 | ) | ||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 85% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 8.35 | $ | 0.06 | $ | (0.03 | ) | $ | 0.03 | $ | — | $ | — | $ | — | $ | 8.38 | 0.36 | % | $ | 61,183 | 1.09 | %(d) | 1.09 | %(d) | 1.60 | %(d) | 22 | % | |||||||||||||||||||||||||||
| Year ended 12/31/15 |
8.94 | 0.09 | (0.23 | ) | (0.14 | ) | (0.13 | ) | (0.32 | ) | (0.45 | ) | 8.35 | (1.42 | ) | 65,167 | 1.06 | 1.06 | 0.98 | 75 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
9.06 | 0.12 | (0.05 | ) | 0.07 | (0.19 | ) | — | (0.19 | ) | 8.94 | 0.69 | 73,816 | 1.06 | 1.06 | 1.26 | 123 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
7.54 | 0.15 | 1.54 | 1.69 | (0.17 | ) | — | (0.17 | ) | 9.06 | 22.50 | 83,982 | 1.08 | 1.08 | 1.81 | 32 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
6.80 | 0.14 | 0.79 | 0.93 | (0.19 | ) | — | (0.19 | ) | 7.54 | 13.75 | 74,517 | 1.00 | 1.08 | 1.98 | 23 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
7.87 | 0.20 | (1.02 | ) | (0.82 | ) | (0.25 | ) | — | (0.25 | ) | 6.80 | (10.89 | ) | 78,125 | 0.97 | 1.00 | 2.70 | 62 | |||||||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
8.35 | 0.05 | (0.03 | ) | 0.02 | — | — | — | 8.37 | 0.24 | 12,564 | 1.34 | (d) | 1.34 | (d) | 1.35 | (d) | 22 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
8.93 | 0.07 | (0.23 | ) | (0.16 | ) | (0.10 | ) | (0.32 | ) | (0.42 | ) | 8.35 | (1.65 | ) | 13,286 | 1.31 | 1.31 | 0.73 | 75 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
9.04 | 0.10 | (0.05 | ) | 0.05 | (0.16 | ) | — | (0.16 | ) | 8.93 | 0.48 | 16,010 | 1.31 | 1.31 | 1.01 | 123 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
7.52 | 0.13 | 1.53 | 1.66 | (0.14 | ) | — | (0.14 | ) | 9.04 | 22.25 | 21,279 | 1.33 | 1.33 | 1.56 | 32 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
6.79 | 0.12 | 0.78 | 0.90 | (0.17 | ) | — | (0.17 | ) | 7.52 | 13.41 | 21,001 | 1.25 | 1.33 | 1.73 | 23 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
7.86 | 0.18 | (1.02 | ) | (0.84 | ) | (0.23 | ) | — | (0.23 | ) | 6.79 | (11.12 | ) | 21,742 | 1.22 | 1.25 | 2.45 | 62 | |||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the year ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $68,458,544 and sold of $8,561,566 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Dividend Growth Fund into the Fund. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $61,256 and $12,667 for Series I and Series II, respectively. |
NOTE 10—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Global Core Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 1,003.60 | $ | 5.43 | $ | 1,019.44 | $ | 5.47 | 1.09 | % | ||||||||||||
| Series II | 1,000.00 | 1,002.40 | 6.67 | 1,018.20 | 6.72 | 1.34 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Global Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Global Core Equity Fund
Invesco V.I. Global Core Equity Fund
|
| ||||
|
Semiannual Report to Shareholders
|
June 30, 2016 | ||
|
Invesco V.I. Global Health Care Fund | ||||
|
| ||||
| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. I-VIGHC-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
| Fund Performance |
Invesco V.I. Global Health Care Fund
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Investment Abbreviations:
| ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By country, based on Net Assets
as of June 30, 2016
| United States |
76.3 | % | ||
| Switzerland |
7.1 | |||
| France |
5.0 | |||
| Japan |
2.5 | |||
| Israel |
2.4 | |||
| Countries each less than 2.0% of portfolio |
4.9 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
1.8 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income (loss) |
$ | 866,231 | $ | (216,046 | ) | |||
| Net realized gain |
1,510,776 | 37,074,438 | ||||||
| Change in net unrealized appreciation (depreciation) |
(32,958,302 | ) | (30,599,373 | ) | ||||
| Net increase (decrease) in net assets resulting from operations |
(30,581,295 | ) | 6,259,019 | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (20,284,975 | ) | |||||
| Series ll |
— | (9,450,446 | ) | |||||
| Total distributions from net realized gains |
— | (29,735,421 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(19,312,559 | ) | 3,788,123 | |||||
| Series ll |
(10,650,378 | ) | 34,032,284 | |||||
| Net increase (decrease) in net assets resulting from share transactions |
(29,962,937 | ) | 37,820,407 | |||||
| Net increase (decrease) in net assets |
(60,544,232 | ) | 14,344,005 | |||||
| Net assets: |
||||||||
| Beginning of period |
312,974,759 | 298,630,754 | ||||||
| End of period (includes undistributed net investment income (loss) of $787,015 and $(79,216), respectively) |
$ | 252,430,527 | $ | 312,974,759 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Health Care Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. Global Health Care Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. Global Health Care Fund
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
| K. | Other Risks — The Fund’s performance is vulnerable to factors affecting the health care industry, including government regulation, obsolescence caused by scientific advances and technological innovations. |
The Fund has invested in non-publicly traded companies, some of which are in the startup or development stages. These investments are inherently risky, as the market for the technologies or products these companies are developing are typically in the early stages and may never materialize. The Fund could lose its entire investment in these companies. These investments are valued at fair value as determined in good faith in accordance with procedures approved by the Board of Trustees. Investments in privately held venture capital securities are illiquid.
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% | |||
Invesco V.I. Global Health Care Fund
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.75%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $5,767.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $32,638 for accounting and fund administrative services and reimbursed $326,640 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2016, the Fund incurred $5 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 228,735,791 | $ | 23,085,096 | $ | — | $ | 251,820,887 | ||||||||
Invesco V.I. Global Health Care Fund
NOTE 4—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $25,068,002 and $46,812,440, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 54,396,838 | ||
| Aggregate unrealized (depreciation) of investment securities |
(20,382,982 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 34,013,856 | ||
Cost of investments is the same for tax and financial reporting purposes.
Invesco V.I. Global Health Care Fund
NOTE 8—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
429,585 | $ | 12,219,928 | 1,916,081 | $ | 69,260,617 | ||||||||||
| Series II |
96,027 | 2,600,812 | 907,124 | 31,689,711 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 636,492 | 20,284,975 | ||||||||||||
| Series II |
— | — | 307,032 | 9,450,446 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(1,119,965 | ) | (31,532,487 | ) | (2,481,998 | ) | (85,757,469 | ) | ||||||||
| Series II |
(486,829 | ) | (13,251,190 | ) | (218,560 | ) | (7,107,873 | ) | ||||||||
| Net increase (decrease) in share activity |
(1,081,182 | ) | $ | (29,962,937 | ) | 1,066,171 | $ | 37,820,407 | ||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 50% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income (loss)(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income (loss) to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 31.75 | $ | 0.10 | $ | (3.12 | ) | $ | (3.02 | ) | $ | — | $ | — | $ | — | $ | 28.73 | (9.51 | )% | $ | 169,749 | 1.09 | %(d) | 1.09 | %(d) | 0.74 | %(d) | 10 | % | ||||||||||||||||||||||||||
| Year ended 12/31/15 |
33.78 | 0.00 | 1.08 | 1.08 | — | (3.11 | ) | (3.11 | ) | 31.75 | 3.16 | 209,511 | 1.06 | 1.07 | 0.01 | 42 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
29.32 | (0.00 | ) | 5.71 | 5.71 | — | (1.25 | ) | (1.25 | ) | 33.78 | 19.67 | 220,561 | 1.08 | 1.09 | (0.01 | ) | 29 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
21.00 | 0.01 | 8.49 | 8.50 | (0.18 | ) | — | (0.18 | ) | 29.32 | 40.54 | 180,535 | 1.09 | 1.10 | 0.03 | 32 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
17.37 | 0.12 | (e) | 3.51 | 3.63 | — | — | — | 21.00 | 20.90 | 128,898 | 1.12 | 1.13 | 0.63 | (e) | 43 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
16.71 | 0.00 | 0.66 | 0.66 | — | — | — | 17.37 | 3.95 | 114,476 | 1.11 | 1.12 | 0.03 | 42 | ||||||||||||||||||||||||||||||||||||||||||
| Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
30.65 | 0.07 | (3.02 | ) | (2.95 | ) | — | — | — | 27.70 | (9.63 | ) | 82,681 | 1.34 | (d) | 1.34 | (d) | 0.49 | (d) | 10 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
32.80 | (0.08 | ) | 1.04 | 0.96 | — | (3.11 | ) | (3.11 | ) | 30.65 | 2.89 | 103,464 | 1.31 | 1.32 | (0.24 | ) | 42 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
28.57 | (0.08 | ) | 5.56 | 5.48 | — | (1.25 | ) | (1.25 | ) | 32.80 | 19.38 | 78,070 | 1.33 | 1.34 | (0.26 | ) | 29 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
20.49 | (0.05 | ) | 8.27 | 8.22 | (0.14 | ) | — | (0.14 | ) | 28.57 | 40.16 | 58,488 | 1.34 | 1.35 | (0.22 | ) | 32 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
16.99 | 0.07 | (e) | 3.43 | 3.50 | — | — | — | 20.49 | 20.60 | 32,823 | 1.37 | 1.38 | 0.38 | (e) | 43 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
16.38 | (0.04 | ) | 0.65 | 0.61 | — | — | — | 16.99 | 3.72 | 27,448 | 1.36 | 1.37 | (0.22 | ) | 42 | ||||||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $176,352 and $87,280 for Series I and Series II shares, respectively. |
| (e) | Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets includes significant dividends received during the period. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the significant dividends are $(0.01) and (0.02)% and $(0.06) and (0.27)% for Series I and Series II shares, respectively. |
NOTE 10—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Global Health Care Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before |
Annualized Expense Ratio2 |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2,3 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2,4 |
|||||||||||||||||||||
|
Series I |
$ | 1,000.00 | $ | 904.90 | $ | 5.16 | $ | 1,019.44 | $ | 5.47 | 1.09 | % | ||||||||||||
|
Series II |
1,000.00 | 903.70 | 6.34 | 1,018.20 | 6.72 | 1.34 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2016, Invesco has agreed to limit administrative services fees reimbursed by the Fund. The annualized expense ratios restated as if this administrative services fee limitation had been in effect throughout the entire most recent fiscal half year are 0.99% and 1.24% for Series I and Series II shares, respectively. |
| 3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.69 and $5.87 for Series I and Series II shares, respectively. |
| 4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.97 and $6.22 for Series I and Series II shares, respectively. |
Invesco V.I. Global Health Care Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Global Health Care Fund
Invesco V.I. Global Health Care Fund
|
| ||||
|
Semiannual Report to Shareholders
|
June 30, 2016 | ||
|
Invesco V.I. Global Real Estate Fund | ||||
|
| ||||
| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIGRE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
| Fund Performance |
Invesco V.I. Global Real Estate Fund
Schedule of Investments
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Investment Abbreviations:
| NVDR | — Non-Voting Depositary Receipt | |
| REGS | — Regulation S | |
| REIT | — Real Estate Investment Trust |
Notes to Schedule of Investments:
| (a) | Non-income producing security. |
| (b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2016 was $1,642,242, which represented less than 1% of the Fund’s Net Assets. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By country, based on Net Assets
as of June 30, 2016
| United States |
49.5 | % | ||
| Japan |
10.2 | |||
| Hong Kong |
6.5 | |||
| Australia |
5.6 | |||
| United Kingdom |
4.1 | |||
| China |
3.8 | |||
| France |
2.9 | |||
| Germany |
2.9 | |||
| Canada |
2.7 | |||
| Singapore |
2.4 | |||
| Countries each less than 2.0% of portfolio |
8.0 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
1.4 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 4,871,675 | $ | 7,103,762 | ||||
| Net realized gain |
2,748,242 | 21,831,384 | ||||||
| Change in net unrealized appreciation (depreciation) |
19,262,322 | (36,941,614 | ) | |||||
| Net increase (decrease) in net assets resulting from operations |
26,882,239 | (8,006,468 | ) | |||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (7,476,164 | ) | |||||
| Series ll |
— | (7,026,530 | ) | |||||
| Total distributions from net investment income |
— | (14,502,694 | ) | |||||
| Share transactions-net: |
||||||||
| Series l |
(43,146,737 | ) | 9,891,161 | |||||
| Series ll |
15,580,028 | 19,285,906 | ||||||
| Net increase (decrease) in net assets resulting from share transactions |
(27,566,709 | ) | 29,177,067 | |||||
| Net increase (decrease) in net assets |
(684,470 | ) | 6,667,905 | |||||
| Net assets: |
||||||||
| Beginning of period |
416,796,223 | 410,128,318 | ||||||
| End of period (includes undistributed net investment income of $3,810,791 and $(1,060,884), respectively) |
$ | 416,111,753 | $ | 416,796,223 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Real Estate Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return through growth of capital and current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. Global Real Estate Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
The Fund recharacterizes distributions received from REIT investments based on information provided by the REIT into the following categories: ordinary income, long-term and short-term capital gains, and return of capital. If information is not available on a timely basis from the REIT, the recharacterization will be based on available information which may include the previous year’s allocation. If new or additional information becomes available from the REIT at a later date, a recharacterization will be made in the following year. The Fund records as dividend income the amount recharacterized as ordinary income and as realized gain the amount recharacterized as capital gain in the Statement of Operations, and the amount recharacterized as return of capital as a reduction to the cost of investments in the Statement of Assets and Liabilities. These recharacterizations are reflected in the accompanying financial statements.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco V.I. Global Real Estate Fund
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
| K. | Other Risks — The Fund’s investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund’s investments may tend to rise and fall more rapidly. |
Because the Fund concentrates its assets in the real estate industry, an investment in the Fund will be closely linked to the performance of the real estate markets. Property values may fall due to increasing vacancies or declining rents resulting from economic, legal, cultural or technological developments.
Invesco V.I. Global Real Estate Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||
| First $250 million |
0.75% | |||
| Next $250 million |
0.74% | |||
| Next $500 million |
0.73% | |||
| Next $1.5 billion |
0.72% | |||
| Next $2.5 billion |
0.71% | |||
| Next $2.5 billion |
0.70% | |||
| Next $2.5 billion |
0.69% | |||
| Over $10 billion |
0.68% | |||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.75%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $3,429.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $50,059 for accounting and fund administrative services and reimbursed $511,359 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Invesco V.I. Global Real Estate Fund
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2016, there were transfers from Level 1 to Level 2 of $14,875,681and from Level 2 to Level 1 of $7,139,307, due to foreign fair value adjustments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Australia |
$ | — | $ | 23,346,093 | $ | — | $ | 23,346,093 | ||||||||
| Brazil |
1,922,446 | — | — | 1,922,446 | ||||||||||||
| Canada |
11,148,622 | — | — | 11,148,622 | ||||||||||||
| China |
— | 15,697,656 | — | 15,697,656 | ||||||||||||
| France |
— | 12,212,833 | — | 12,212,833 | ||||||||||||
| Germany |
— | 12,094,417 | — | 12,094,417 | ||||||||||||
| Hong Kong |
— | 26,957,157 | — | 26,957,157 | ||||||||||||
| Indonesia |
49,055 | 1,964,535 | — | 2,013,590 | ||||||||||||
| Ireland |
— | 1,595,704 | — | 1,595,704 | ||||||||||||
| Japan |
4,245,210 | 38,337,397 | — | 42,582,607 | ||||||||||||
| Malaysia |
1,006,937 | 629,156 | — | 1,636,093 | ||||||||||||
| Malta |
— | — | 0 | 0 | ||||||||||||
| Mexico |
2,389,778 | — | — | 2,389,778 | ||||||||||||
| Netherlands |
— | 2,574,571 | — | 2,574,571 | ||||||||||||
| Philippines |
728,704 | 2,725,194 | — | 3,453,898 | ||||||||||||
| Singapore |
1,342,893 | 8,577,485 | — | 9,920,378 | ||||||||||||
| South Africa |
628,547 | 3,681,613 | — | 4,310,160 | ||||||||||||
| Spain |
— | 3,556,400 | — | 3,556,400 | ||||||||||||
| Sweden |
2,528,695 | 1,144,569 | — | 3,673,264 | ||||||||||||
| Switzerland |
— | 3,421,769 | — | 3,421,769 | ||||||||||||
| Taiwan |
— | 1,352,968 | — | 1,352,968 | ||||||||||||
| United Arab Emirates |
414,570 | 896,287 | — | 1,310,857 | ||||||||||||
| United Kingdom |
— | 16,916,432 | — | 16,916,432 | ||||||||||||
| United States |
207,214,451 | — | — | 207,214,451 | ||||||||||||
| Total Investments |
$ | 233,619,908 | $ | 177,682,236 | $ | 0 | $ | 411,302,144 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Invesco V.I. Global Real Estate Fund
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $167,452,141 and $190,435,009, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 58,752,602 | ||
| Aggregate unrealized (depreciation) of investment securities |
(11,385,084 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 47,367,518 | ||
Cost of investments for tax purposes is $363,934,626.
NOTE 8—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
787,198 | $ | 12,815,817 | 3,027,072 | $ | 52,252,851 | ||||||||||
| Series II |
1,615,536 | 26,154,837 | 2,517,858 | 42,781,073 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 478,321 | 7,476,164 | ||||||||||||
| Series II |
— | — | 461,968 | 7,026,530 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(3,341,216 | ) | (55,962,554 | ) | (2,911,646 | ) | (49,837,854 | ) | ||||||||
| Series II |
(665,652 | ) | (10,574,809 | ) | (1,836,058 | ) | (30,521,697 | ) | ||||||||
| Net increase (decrease) in share activity |
(1,604,134 | ) | $ | (27,566,709 | ) | 1,737,515 | $ | 29,177,067 | ||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 59% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Global Real Estate Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||
| Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 16.36 | $ | 0.20 | $ | 0.90 | $ | 1.10 | $ | — | $ | 17.46 | 6.72 | % | $ | 178,270 | 1.10 | %(d) | 1.10 | %(d) | 2.48 | %(d) | 41 | % | ||||||||||||||||||||||||
| Year ended 12/31/15 |
17.24 | 0.31 | (0.59 | ) | (0.28 | ) | (0.60 | ) | 16.36 | (1.48 | ) | 208,796 | 1.11 | 1.11 | 1.79 | 72 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
15.29 | 0.33 | 1.89 | 2.22 | (0.27 | ) | 17.24 | 14.62 | 209,829 | 1.10 | 1.10 | 1.99 | 44 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
15.47 | 0.22 | 0.21 | 0.43 | (0.61 | ) | 15.29 | 2.71 | 189,835 | 1.10 | 1.10 | 1.41 | 49 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
12.14 | 0.27 | 3.14 | 3.41 | (0.08 | ) | 15.47 | 28.12 | 176,933 | 1.14 | 1.14 | 1.94 | 51 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
13.58 | 0.24 | (1.16 | ) | (0.92 | ) | (0.52 | ) | 12.14 | (6.51 | ) | 134,254 | 1.14 | 1.14 | 1.77 | 47 | ||||||||||||||||||||||||||||||||
| Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
15.91 | 0.18 | 0.87 | 1.05 | — | 16.96 | 6.60 | 237,842 | 1.35 | (d) | 1.35 | (d) | 2.23 | (d) | 41 | |||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
16.79 | 0.26 | (0.58 | ) | (0.32 | ) | (0.56 | ) | 15.91 | (1.74 | ) | 208,000 | 1.36 | 1.36 | 1.54 | 72 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
14.90 | 0.28 | 1.84 | 2.12 | (0.23 | ) | 16.79 | 14.34 | 200,299 | 1.35 | 1.35 | 1.74 | 44 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
15.11 | 0.18 | 0.20 | 0.38 | (0.59 | ) | 14.90 | 2.44 | 170,145 | 1.35 | 1.35 | 1.16 | 49 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
11.87 | 0.23 | 3.07 | 3.30 | (0.06 | ) | 15.11 | 27.85 | 124,219 | 1.39 | 1.39 | 1.69 | 51 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
13.31 | 0.20 | (1.13 | ) | (0.93 | ) | (0.51 | ) | 11.87 | (6.73 | ) | 62,349 | 1.39 | 1.39 | 1.52 | 47 | ||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized based on average daily net assets (000’s omitted) of $200,667 and $215,284 for Series I and Series II shares, respectively. |
NOTE 10—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Global Real Estate Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before |
Annualized Expense Ratio2 |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2,3 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2,4 |
|||||||||||||||||||||
|
Series I |
$ | 1,000.00 | $ | 1,067.20 | $ | 5.65 | $ | 1,019.39 | $ | 5.52 | 1.10 | % | ||||||||||||
|
Series II |
1,000.00 | 1,066.00 | 6.93 | 1,018.15 | 6.77 | 1.35 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2016, Invesco has agreed to limit administrative services fees reimbursed by the Fund. The annualized ratios restated as if this administrative services fee limitation had been in effect throughout the entire most recent fiscal half year are 1.00% and 1.25%, for Series I and Series II shares, respectively. |
| 3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.14 and $6.42 for Series I and Series II shares, respectively. |
| 4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.02 and $6.27 for Series I and Series II shares, respectively. |
Invesco V.I. Global Real Estate Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Global Real Estate Fund
Invesco V.I. Global Real Estate Fund
About your Fund
| Invesco V.I. Government Money Market Fund |
Schedule of Investments
June 30, 2016
(Unaudited)
| Interest Rate |
Maturity Date |
Principal Amount (000) |
Value |
|||||||||||||
| U.S. Government Sponsored Agency Securities–58.98% |
| |||||||||||||||
| Federal Farm Credit Bank (FFCB)–8.68% | ||||||||||||||||
| Disc. Notes(a) |
0.33 | % | 08/15/2016 | $ | 2,000 | $ | 1,999,175 | |||||||||
| Unsec. Bonds |
4.82 | % | 12/12/2016 | 5,000 | 5,096,864 | |||||||||||
| Unsec. Bonds(b) |
0.55 | % | 04/25/2017 | 12,000 | 11,999,980 | |||||||||||
| Unsec. Bonds(b) |
0.49 | % | 06/05/2017 | 3,000 | 2,997,197 | |||||||||||
| Unsec. Bonds(b) |
0.50 | % | 07/06/2017 | 10,000 | 9,997,450 | |||||||||||
| Unsec. Bonds(b) |
0.48 | % | 07/14/2017 | 6,000 | 6,001,236 | |||||||||||
| Unsec. Bonds(b) |
0.50 | % | 08/29/2017 | 15,525 | 15,514,807 | |||||||||||
| Unsec. Bonds(b) |
0.48 | % | 11/13/2017 | 4,480 | 4,472,892 | |||||||||||
| Unsec. Bonds(b) |
0.50 | % | 11/13/2017 | 5,000 | 4,993,433 | |||||||||||
| Unsec. Bonds(b) |
0.48 | % | 11/22/2017 | 7,000 | 6,988,210 | |||||||||||
| Unsec. Bonds(b) |
0.48 | % | 01/17/2018 | 3,000 | 2,997,428 | |||||||||||
| 73,058,672 | ||||||||||||||||
| Federal Home Loan Bank (FHLB)–39.90% | ||||||||||||||||
| Unsec. Bonds |
0.47 | % | 08/26/2016 | 4,000 | 4,000,537 | |||||||||||
| Unsec. Bonds |
0.38 | % | 09/28/2016 | 1,000 | 999,892 | |||||||||||
| Unsec. Bonds |
5.13 | % | 10/19/2016 | 2,000 | 2,027,876 | |||||||||||
| Unsec. Bonds |
1.63 | % | 12/09/2016 | 2,000 | 2,010,037 | |||||||||||
| Unsec. Bonds |
0.75 | % | 01/06/2017 | 3,500 | 3,504,662 | |||||||||||
| Unsec. Bonds |
0.54 | % | 01/26/2017 | 5,000 | 4,998,557 | |||||||||||
| Unsec. Bonds(b) |
0.50 | % | 06/22/2017 | 10,000 | 10,000,000 | |||||||||||
| Unsec. Bonds(b) |
0.44 | % | 08/18/2017 | 4,000 | 3,997,722 | |||||||||||
| Unsec. Disc. Notes(a) |
0.33 | % | 07/22/2016 | 3,938 | 3,937,242 | |||||||||||
| Unsec. Disc. Notes(a) |
0.34 | % | 08/03/2016 | 5,700 | 5,698,250 | |||||||||||
| Unsec. Disc. Notes(a) |
0.33 | % | 08/05/2016 | 15,000 | 14,995,173 | |||||||||||
| Unsec. Disc. Notes(a) |
0.34 | % | 08/05/2016 | 15,000 | 14,995,066 | |||||||||||
| Unsec. Disc. Notes(a) |
0.47 | % | 08/12/2016 | 20,000 | 19,989,173 | |||||||||||
| Unsec. Disc. Notes(a) |
0.34 | % | 08/15/2016 | 4,300 | 4,298,199 | |||||||||||
| Unsec. Disc. Notes(a) |
0.47 | % | 08/17/2016 | 15,000 | 14,990,796 | |||||||||||
| Unsec. Disc. Notes(a) |
0.36 | % | 08/24/2016 | 2,000 | 1,998,920 | |||||||||||
| Unsec. Disc. Notes(a) |
0.36 | % | 08/31/2016 | 18,000 | 17,989,020 | |||||||||||
| Unsec. Disc. Notes(a) |
0.40 | % | 09/16/2016 | 35,000 | 34,970,056 | |||||||||||
| Unsec. Disc. Notes(a) |
0.42 | % | 10/07/2016 | 2,300 | 2,297,370 | |||||||||||
| Unsec. Disc. Notes(a) |
0.48 | % | 10/07/2016 | 2,000 | 1,997,387 | |||||||||||
| Unsec. Disc. Notes(a) |
0.48 | % | 10/14/2016 | 8,000 | 7,988,870 | |||||||||||
| Unsec. Disc. Notes(a) |
0.45 | % | 10/19/2016 | 6,000 | 5,991,750 | |||||||||||
| Unsec. Disc. Notes(a) |
0.52 | % | 10/24/2016 | 14,000 | 13,976,744 | |||||||||||
| Unsec. Disc. Notes(a) |
0.46 | % | 10/26/2016 | 20,000 | 19,970,100 | |||||||||||
| Unsec. Disc. Notes(a) |
0.46 | % | 10/28/2016 | 4,000 | 3,993,918 | |||||||||||
| Unsec. Disc. Notes(a) |
0.47 | % | 10/28/2016 | 8,430 | 8,417,182 | |||||||||||
| Unsec. Disc. Notes(a) |
0.45 | % | 11/02/2016 | 8,000 | 7,987,600 | |||||||||||
| Unsec. Disc. Notes(a) |
0.46 | % | 11/04/2016 | 8,000 | 7,987,120 | |||||||||||
| Unsec. Disc. Notes(a) |
0.45 | % | 11/09/2016 | 10,000 | 9,983,807 | |||||||||||
| Unsec. Disc. Notes(a) |
0.46 | % | 11/10/2016 | 6,491 | 6,480,052 | |||||||||||
| Unsec. Disc. Notes(a) |
0.45 | % | 11/14/2016 | 6,000 | 5,989,845 | |||||||||||
| Unsec. Disc. Notes(a) |
0.55 | % | 11/18/2016 | 10,000 | 9,978,689 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Money Market Fund
| Interest Rate |
Maturity Date |
Principal Amount (000) |
Value |
|||||||||||||
| Federal Home Loan Bank (FHLB)—(continued) | ||||||||||||||||
| Unsec. Global Bonds |
0.51 | % | 09/09/2016 | $ | 5,000 | $ | 5,000,372 | |||||||||
| Unsec. Global Bonds |
0.50 | % | 09/28/2016 | 5,500 | 5,501,066 | |||||||||||
| Unsec. Global Bonds(b) |
0.53 | % | 11/03/2016 | 14,000 | 14,000,000 | |||||||||||
| Unsec. Global Bonds |
0.55 | % | 11/10/2016 | 6,455 | 6,456,594 | |||||||||||
| Unsec. Global Bonds |
0.63 | % | 11/23/2016 | 2,540 | 2,541,551 | |||||||||||
| Unsec. Global Bonds(b) |
0.54 | % | 01/23/2017 | 12,000 | 12,000,000 | |||||||||||
| Unsec. Global Bonds(b) |
0.54 | % | 02/24/2017 | 12,000 | 12,000,000 | |||||||||||
| 335,941,195 | ||||||||||||||||
| Federal Home Loan Mortgage Corp. (FHLMC)–4.98% | ||||||||||||||||
| Unsec. Disc. Notes(a) |
0.46 | % | 08/12/2016 | 15,000 | 14,992,038 | |||||||||||
| Unsec. Disc. Notes(a) |
0.33 | % | 08/19/2016 | 2,500 | 2,498,877 | |||||||||||
| Unsec. Global Notes |
1.00 | % | 03/08/2017 | 5,000 | 5,015,508 | |||||||||||
| Unsec. Global Notes(b) |
0.45 | % | 04/20/2017 | 2,400 | 2,397,757 | |||||||||||
| Unsec. Global Notes(b) |
0.49 | % | 04/27/2017 | 5,000 | 4,997,735 | |||||||||||
| Unsec. Global Notes(b) |
0.58 | % | 07/21/2017 | 12,000 | 11,998,698 | |||||||||||
| 41,900,613 | ||||||||||||||||
| Federal National Mortgage Association (FNMA)–3.64% | ||||||||||||||||
| Unsec. Disc. Notes(a) |
0.34 | % | 08/17/2016 | 3,870 | 3,868,282 | |||||||||||
| Unsec. Global Notes |
4.88 | % | 12/15/2016 | 6,680 | 6,811,243 | |||||||||||
| Unsec. Global Notes |
0.75 | % | 04/20/2017 | 2,000 | 2,003,083 | |||||||||||
| Unsec. Global Notes |
1.13 | % | 04/27/2017 | 2,000 | 2,009,305 | |||||||||||
| Unsec. Global Notes(b) |
0.46 | % | 09/08/2017 | 10,000 | 9,986,228 | |||||||||||
| Unsec. Notes(b) |
0.45 | % | 08/16/2017 | 6,000 | 5,998,636 | |||||||||||
| 30,676,777 | ||||||||||||||||
| Overseas Private Investment Corp. (OPIC)–1.78% | ||||||||||||||||
| Sr. Unsec. Gtd. VRD COP Bonds(c) |
0.42 | % | 02/15/2028 | 10,000 | 10,000,000 | |||||||||||
| Unsec. Gtd. VRD COP Bonds(c) |
0.42 | % | 09/15/2020 | 5,000 | 5,000,000 | |||||||||||
| 15,000,000 | ||||||||||||||||
| Total U.S. Government Sponsored Agency Securities (Cost $496,577,257) |
496,577,257 | |||||||||||||||
| U.S. Treasury Securities–2.97% |
| |||||||||||||||
| U.S. Treasury Bills(a) |
0.42 | % | 08/18/2016 | 10,000 | 9,994,533 | |||||||||||
| U.S. Treasury Bills(a) |
0.34 | % | 09/01/2016 | 15,000 | 14,991,282 | |||||||||||
| Total U.S. Treasury Securities (Cost $24,985,815) |
24,985,815 | |||||||||||||||
| TOTAL INVESTMENTS (excluding Repurchase Agreements)–61.95% (Cost $521,563,072) |
521,563,072 | |||||||||||||||
| Repurchase Amount |
||||||||||||||||
| Repurchase Agreements–41.58%(d) |
||||||||||||||||
| Bank of Nova Scotia (The), joint agreement dated 06/30/2016, aggregate maturing value of $300,003,500 (collateralized by U.S government sponsored agency obligations and U.S. government sponsored agency mortgage-backed securities valued at $306,000,000; 1.79%-7.25%, 04/01/2026-05/20/2046) |
0.42 | % | 07/01/2016 | 30,000,350 | 30,000,000 | |||||||||||
| BNP Paribas Securities Corp., agreement dated 06/30/2016, maturing value of $60,000,733 (collateralized by a U.S. Treasury obligation valued at $60,737,244; 2.00%, 01/15/2026) |
0.44 | % | 07/01/2016 | 60,000,733 | 60,000,000 | |||||||||||
| Credit Agricole Corp. & Investment Bank, joint agreement dated 06/30/2016, aggregate maturing value of $100,001,333 (collateralized by U.S. Treasury obligations valued at $102,000,096; 0%-3.38%, 07/21/2016-05/15/2045) |
0.48 | % | 07/01/2016 | 5,969,992 | 5,969,912 | |||||||||||
| HSBC Securities (USA) Inc., agreement dated 06/30/2016, maturing value of $30,000,431 (collateralized by a U.S. Treasury obligation valued at $30,586,778; 0.13%, 04/15/2017) |
0.47 | % | 07/01/2016 | 30,000,431 | 30,000,040 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Money Market Fund
| Interest Rate |
Maturity Date |
Repurchase Amount |
Value |
|||||||||||||
| ING Financial Markets, LLC, agreement dated 06/30/2016, maturing value of $40,110,320 (collateralized by a U.S. Treasury obligation valued at $40,924,106; 2.88%, 08/15/2045) |
0.46 | % | 07/01/2016 | $ | 40,110,320 | $ | 40,109,807 | |||||||||
| ING Financial Markets, LLC, term agreement dated 06/10/2016, maturing value of $15,017,600 (collateralized by U.S. government sponsored agency mortgage-backed securities valued at $15,304,826; 3.50%, 06/01/2042-08/01/2045) |
0.48 | % | 09/06/2016 | 15,017,600 | 15,000,000 | |||||||||||
| RBC Capital Markets, LLC, joint term agreement dated 05/18/2016, aggregate maturing value of $345,188,983 (collateralized by U.S. government sponsored agency mortgage-backed securities valued at $351,900,001; 3.00%-5.50%, 05/01/2025-07/01/2046)(e) |
0.34 | % | 07/15/2016 | 30,016,433 | 30,000,000 | |||||||||||
| RBC Capital Markets, LLC, joint term agreement dated 05/20/2016, aggregate maturing value of $520,338,000 (collateralized by U.S. government sponsored agency mortgage-backed securities and U.S. Treasury obligations valued at $530,400,000; 0.75%-8.50%, 02/15/2017-05/20/2061)(e) |
0.39 | % | 07/19/2016 | 40,026,000 | 40,000,000 | |||||||||||
| Societe Generale, agreement dated 06/30/2016, maturing value of $39,988,834 (collateralized by a U.S. Treasury obligation valued at $40,622,391; 3.75%, 11/15/2043) |
0.47 | % | 07/01/2016 | 39,988,834 | 39,988,312 | |||||||||||
| Societe Generale, open agreement dated 05/03/2016, (collateralized by a U.S. government sponsored agency mortgage-backed security valued at $4,080,001; 3.00%, 09/15/2041)(f) |
0.28 | % | — | — | 4,000,000 | |||||||||||
| Wells Fargo Bank, N.A., joint agreement dated 06/30/2016, aggregate maturing value of $500,005,972 (collateralized by U.S. government sponsored agency mortgage-backed securities valued at $510,000,000; 2.50%-3.00%, 08/01/2030-06/01/2043) |
0.43 | % | 07/01/2016 | 40,000,478 | 40,000,000 | |||||||||||
| Wells Fargo Securities, LLC, term agreement dated 05/09/2016, maturing value of $15,017,063 (collateralized by U.S. government sponsored agency mortgage-backed securities valued at $15,300,001; 2.50%-3.50%, 03/20/2045-09/20/2045) |
0.45 | % | 08/08/2016 | 15,017,063 | 15,000,000 | |||||||||||
| Total Repurchase Agreements (Cost $350,068,071) |
350,068,071 | |||||||||||||||
| TOTAL INVESTMENTS(g)–103.53% (Cost $871,631,143) |
871,631,143 | |||||||||||||||
| OTHER ASSETS LESS LIABILITIES–(3.53)% |
(29,736,921 | ) | ||||||||||||||
| NET ASSETS–100.00% |
$ | 841,894,222 | ||||||||||||||
Investment Abbreviations:
| COP | – Certificates of Participation | |
| Disc. | – Discount | |
| Gtd. | – Guaranteed | |
| Sr. | – Senior | |
| Unsec. | – Unsecured | |
| VRD | – Variable Rate Demand |
Notes to Schedule of Investments:
| (a) | Security may be traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
| (b) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2016. |
| (c) | Demand security payable upon demand by the Fund at specified time intervals no greater than thirteen months. Interest rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2016. |
| (d) | Principal amount equals value at period end. See Note 1I. |
| (e) | The Fund may demand payment of the term repurchase agreement upon one to seven business days’ notice depending on the timing of the demand. |
| (f) | Either party may terminate the agreement upon demand. Interest rates, principal amount and collateral are redetermined daily. |
| (g) | Also represents cost for federal income tax purposes. |
Portfolio Composition by Maturity*
In days, as of June 30, 2016
| 1-7 |
38.5 | % | ||||
| 8-30 |
0.5 | |||||
| 31-60 |
14.8 | |||||
| 61-90 |
10.8 | |||||
| 91-180 |
17.4 | |||||
| 181+ |
18.0 | |||||
| * | The number of days to maturity of each holding is determined in accordance with the provisions of Rule 2a-7 of the Investment Company Act of 1940. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Money Market Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Money Market Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 123,094 | $ | 71,644 | ||||
| Net realized gain |
3,730 | 5,582 | ||||||
| Net increase in net assets resulting from operations |
126,824 | 77,226 | ||||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
(120,493 | ) | (69,408 | ) | ||||
| Series ll |
(2,601 | ) | (2,236 | ) | ||||
| Total distributions from net investment income |
(123,094 | ) | (71,644 | ) | ||||
| Share transactions–net: |
||||||||
| Series l |
(1,444,206 | ) | 131,299,685 | |||||
| Series ll |
81,536,805 | 6,443,746 | ||||||
| Net increase in net assets resulting from share transactions |
80,092,599 | 137,743,431 | ||||||
| Net increase in net assets |
80,096,329 | 137,749,013 | ||||||
| Net assets: |
||||||||
| Beginning of period |
761,797,893 | 624,048,880 | ||||||
| End of period (includes undistributed net investment income of $(11,145) and $(11,145), respectively) |
$ | 841,894,222 | $ | 761,797,893 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Government Money Market Fund (the “Fund”), formerly Invesco V.I. Money Market Fund, is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Effective April 29, 2016, the Fund changed from a prime money market fund to a government money market fund. This change was made in connection with the U.S. Securities and Exchange Commission amendments to Rule 2a-7 under the 1940 Act, as amended.
The Fund’s investment objective is to provide current income consistent with preservation of capital and liquidity.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — The Fund’s securities are recorded on the basis of amortized cost which approximates value as permitted by Rule 2a-7 under the 1940 Act. This method values a security at its cost on the date of purchase and, thereafter, assumes a constant amortization to maturity of any premiums or accretion of any discounts. |
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any), adjusted for amortization of premiums and accretion of discounts on investments, is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Invesco V.I. Government Money Market Fund
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income, if any, are declared daily and paid monthly to separate accounts of participating insurance companies. Distributions from net realized gain, if any, are generally declared and paid annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Repurchase Agreements — The Fund may enter into repurchase agreements. Collateral on repurchase agreements, including the Fund’s pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. Collateral consisting of U.S. Government Securities and U.S. Government Sponsored Agency Securities is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements, pursuant to procedures approved by the Board of Trustees, are through participation with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates (“Joint repurchase agreements”). The principal amount of the repurchase agreement is equal to the value at period-end. If the seller of a repurchase agreement fails to repurchase the security in accordance with the terms of the agreement, the Fund might incur expenses in enforcing its rights, and could experience losses, including a decline in the value of the collateral and loss of income. |
| J. | Other Risks — Investments in obligations issued by agencies and instrumentalities of the U.S. Government may vary in the level of support they receive from the government. The government may choose not to provide financial support to government sponsored agencies or instrumentalities if it is not legally obligated to do so. In this case, if the issuer defaulted, the Fund may not be able to recover its investment in such issuer from the U.S. Government. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
Effective May 1, 2016, the Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of 0.15% of the Fund’s average daily net assets.
Prior to May 1, 2016, the Fund paid an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||||||
| First $250 million |
0 | .40% | ||||||
| Over $250 million |
0 | .35% | ||||||
Invesco V.I. Government Money Market Fund
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 1.50% and Series II shares to 1.75% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after fee waivers and/or expense reimbursements to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. To the extent that the annualized expense ratio does not exceed the expense limits, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
The Adviser and/or Invesco Distributors, Inc., (“IDI”) voluntarily agreed to waive fees and/or reimburse expenses in order to increase the Fund’s yield. Voluntary fee waivers and/or reimbursements may be modified at any time upon consultation with the Board of Trustees without further notice to investors.
For the six months ended June 30, 2016, Invesco voluntarily waived advisory fees of $238,474 and reimbursed class level expenses of $52,331 for Series II shares in order to increase the Fund’s yield.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $128,752 for accounting and fund administrative services and reimbursed $372,487 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with IDI to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
As of June 30, 2016, all of the securities in this Fund were valued based on Level 2 inputs (see the Schedule of Investments for security categories). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment
Invesco V.I. Government Money Market Fund
advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2016, the Fund engaged in securities sales of $85,462,722, which did not result in net realized gains (losses).
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The Bank of New York Mellon, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
NOTE 8—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
509,079,275 | $ | 509,079,275 | 1,241,321,035 | $ | 1,241,321,035 | ||||||||||
| Series II |
110,623,200 | 110,623,200 | 34,663,428 | 34,663,428 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
117,514 | 117,514 | 67,722 | 67,722 | ||||||||||||
| Series II |
2,601 | 2,601 | 2,236 | 2,236 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(510,640,995 | ) | (510,640,995 | ) | (1,110,089,072 | ) | (1,110,089,072 | ) | ||||||||
| Series II |
(29,088,996 | ) | (29,088,996 | ) | (28,221,918 | ) | (28,221,918 | ) | ||||||||
| Net increase in share activity |
80,092,599 | $ | 80,092,599 | 137,743,431 | $ | 137,743,431 | ||||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 91% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Government Money Market Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net realized (both |
Total from investment operations |
Dividends from net investment income |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio
of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio
of assets without |
Ratio of net investment income to average net assets |
||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 1.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | (0.00 | ) | $ | 1.00 | 0.02 | % | $ | 736,416 | 0.38 | %(c) | 0.44 | %(c) | 0.04 | %(c) | |||||||||||||||||||||
| Year ended 12/31/15 |
1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.01 | 737,858 | 0.21 | 0.51 | 0.01 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.01 | 606,553 | 0.16 | 0.50 | 0.01 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
1.00 | 0.00 | (0.00 | ) | 0.00 | (0.00 | ) | 1.00 | 0.03 | 422,491 | 0.16 | 0.70 | 0.03 | |||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.03 | 156,931 | 0.23 | 0.54 | 0.03 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
1.00 | 0.00 | — | 0.00 | (0.00 | ) | 1.00 | 0.05 | 198,533 | 0.17 | 0.57 | 0.05 | ||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 1.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | (0.00 | ) | $ | 1.00 | 0.00 | % | $ | 105,478 | 0.43 | %(c) | 0.69 | %(c) | (0.01 | )%(c) | |||||||||||||||||||||
| Year ended 12/31/15 |
1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.01 | 23,940 | 0.21 | 0.76 | 0.01 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.01 | 17,496 | 0.16 | 0.75 | 0.01 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
1.00 | 0.00 | (0.00 | ) | 0.00 | (0.00 | ) | 1.00 | 0.03 | 15,883 | 0.16 | 0.95 | 0.03 | |||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.03 | 746 | 0.23 | 0.79 | 0.03 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
1.00 | 0.00 | — | 0.00 | (0.00 | ) | 1.00 | 0.05 | 1,022 | 0.17 | 0.82 | 0.05 | ||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $708,149 and $52,946 for Series I and Series II shares, respectively. |
NOTE 10—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Government Money Market Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before |
Annualized Expense Ratio2 |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2,3 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2,4 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 1,000.20 | $ | 1.89 | $ | 1,023.04 | $ | 1.92 | 0.38 | % | ||||||||||||
| Series II | 1,000.00 | 1,000.00 | 2.14 | 1,022.79 | 2.17 | 0.43 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective May 1, 2016, the advisory fee paid by the Fund was reduced to 0.15% of the Fund’s average net assets. In addition, effective May 1, 2016, the administrative services fees increased. The annualized ratios restated as if this administrative services fees limitation had been in effect throughout the entire most recent fiscal half year are 0.26% and 0.31% for Series I and Series II shares, respectively. |
| 3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $1.29 and $1.54 for Series I and Series II shares, respectively. |
| 4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $1.31 and $1.56 for Series I and Series II shares, respectively. |
Invesco V.I. Government Money Market Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Government Money Market Fund
Invesco V.I. Government Money Market Fund
|
| ||||
|
Semiannual Report to Shareholders
|
June 30, 2016 | ||
|
Invesco V.I. Government Securities Fund | ||||
|
| ||||
| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIGOV-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
| Fund Performance |
Invesco V.I. Government Securities Fund
Schedule of Investments
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Investment Abbreviations:
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Notes to Schedule of Investments:
| (a) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2016. |
| (b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2016 was $76,973,225, which represented 12.43% of the Fund’s Net Assets. |
| (c) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
| (d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1J and Note 4. |
| (e) | Principal amount of security and interest payments are adjusted for inflation. See Note 1I. |
| (f) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
| (g) | The table below details options purchased. |
| Open Over-The-Counter Interest Rate Swaptions Purchased | ||||||||||||||||||||||||||
| Description | Type of Contract |
Counterparty | Exercise Rate |
Pay/Receive Exercise Rate |
Floating Rate Index |
Expiration Date |
Notional Value |
Value | ||||||||||||||||||
| 30 Year Interest Rate Swap |
Call | Deutsche Bank Securities Inc. | 1.67 | % | Receive | 3 Month USD LIBOR | 05/16/2017 | $ | 5,000,000 | $ | 231,325 | |||||||||||||||
| 30 Year Interest Rate Swap |
Put | Deutsche Bank Securities Inc. | 2.67 | Pay | 3 Month USD LIBOR | 05/16/2017 | 5,000,000 | 63,423 | ||||||||||||||||||
| Total Options Purchased — Interest Rate Risk (Cost $295,000) |
|
$ | 294,748 | |||||||||||||||||||||||
Abbreviations:
| LIBOR | – London Interbank Offered Rate | |
| USD | – U.S. Dollar |
Portfolio Composition
By security type, based on Net Assets
as of June 30, 2016
| U.S. Government Sponsored Agency Mortgage-Backed Securities |
44.8 | % | ||
| U.S. Treasury Securities |
28.2 | |||
| Non-U.S. Government Sponsored Agency Securities |
17.0 | |||
| U.S. Government Sponsored Agency Securities |
8.5 | |||
| Options Purchased |
0.1 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
1.4 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 5,604,295 | $ | 8,746,964 | ||||
| Net realized gain |
4,839,300 | 3,331,844 | ||||||
| Change in net unrealized appreciation (depreciation) |
13,293,208 | (9,886,504 | ) | |||||
| Net increase in net assets resulting from operations |
23,736,803 | 2,192,304 | ||||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (9,684,904 | ) | |||||
| Series ll |
— | (3,821,202 | ) | |||||
| Total distributions from net investment income |
— | (13,506,106 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(2,246,449 | ) | (73,711,835 | ) | ||||
| Series ll |
9,212,429 | (13,837,280 | ) | |||||
| Net increase (decrease) in net assets resulting from share transactions |
6,965,980 | (87,549,115 | ) | |||||
| Net increase (decrease) in net assets |
30,702,783 | (98,862,917 | ) | |||||
| Net assets: |
||||||||
| Beginning of period |
588,481,248 | 687,344,165 | ||||||
| End of period (includes undistributed net investment income of $16,911,178 and $11,306,883, respectively) |
$ | 619,184,031 | $ | 588,481,248 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Government Securities Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return, comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Invesco V.I. Government Securities Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
Invesco V.I. Government Securities Fund
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Treasury Inflation-Protected Securities — The Fund may invest in Treasury Inflation-Protected Securities (“TIPS”). TIPS are fixed income securities whose principal value is periodically adjusted to the rate of inflation. The principal value of TIPS will be adjusted upward or downward, and any increase or decrease in the principal amount of TIPS will be included as interest income in the Statement of Operations, even though investors do not receive their principal until maturity. |
| J. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties (“Counterparties”) to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal Counterparty risk since the exchange’s clearinghouse, as Counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
| K. | Dollar Rolls and Forward Commitment Transactions — The Fund may enter into dollar roll transactions to enhance the Fund’s performance. The Fund executes its dollar roll transactions in the to be announced (“TBA”) market whereby the Fund makes a forward commitment to purchase a security and, instead of accepting delivery, the position is offset by the sale of the security with a simultaneous agreement to repurchase at a future date. |
The Fund accounts for dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions increase the Fund’s portfolio turnover rate. The Fund will segregate liquid assets in an amount equal to its dollar roll commitments. Dollar roll transactions are considered borrowings under the 1940 Act.
Dollar roll transactions involve the risk that a Counterparty to the transaction may fail to complete the transaction. If this occurs, the Fund may lose the opportunity to purchase or sell the security at the agreed upon price. Dollar roll transactions also involve the risk that the value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to purchase under the agreement.
| L. | Call Options Written and Purchased — The Fund may write covered call options and/or buy call options. A covered call option gives the purchaser of such option the right to buy, and the writer the obligation to sell, the underlying security or foreign currency at the stated exercise price during the option period. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. |
Additionally, the Fund may enter into an option on a swap agreement, also called a “swaption”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based premium. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the Counterparties.
When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently “marked-to-market” to reflect the current market value of the option written. If a written covered call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written covered call option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. A risk in writing a covered call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised.
When the Fund buys a call option, an amount equal to the premium paid by the Fund is recorded as an investment on the Statement of Assets and Liabilities. The amount of the investment is subsequently “marked-to-market” to reflect the current value of the option purchased. Realized
Invesco V.I. Government Securities Fund
and unrealized gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased.
| M. | Put Options Purchased and Written — The Fund may purchase and write put options including options on securities indexes, or foreign currency and/or futures contracts. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option’s underlying instrument at a fixed strike price. In return for this right, the Fund pays an option premium. The option’s underlying instrument may be a security, securities index, or a futures contract. |
Additionally, the Fund may enter into an option on a swap agreement, also called a “swaption”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based premium. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the Counterparties.
Put options may be used by the Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund’s resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the underlying portfolio securities. The Fund may write put options to earn additional income in the form of option premiums if it expects the price of the underlying instrument to remain stable or rise during the option period so that the option will not be exercised. The risk in this strategy is that the price of the underlying securities may decline by an amount greater than the premium received. Put options written are reported as a liability in the Statement of Assets and Liabilities. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations as Net realized gain from Investment securities. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased.
| N. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between Counterparties. A swap agreement may be negotiated bilaterally and traded over-the-counter (“OTC”) between two parties (“uncleared/OTC”) or, in some instances, must be transacted through a future commission merchant (“FCM”) and cleared through a clearinghouse that serves as a central Counterparty (“centrally cleared swap”). These agreements may contain among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index.
In a centrally cleared swap, the Fund’s ultimate Counterparty is a central clearinghouse. The Fund initially will enter into centrally cleared swaps through an executing broker. When a fund enters into a centrally cleared swap, it must deliver to the central Counterparty (via the FCM) an amount referred to as “initial margin.” Initial margin requirements are determined by the central Counterparty, but an FCM may require additional initial margin above the amount required by the central Counterparty. Initial margin deposits required upon entering into centrally cleared swaps are satisfied by cash or securities as collateral at the FCM. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities. During the term of a cleared swap agreement, a “variation margin” amount may be required to be paid by the Fund or may be received by the Fund, based on the daily change in price of the underlying reference instrument subject to the swap agreement and is recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities until the centrally cleared swap is terminated at which time a realized gain or loss is recorded.
A CDS is an agreement between Counterparties to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value”, of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its Counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. If a Counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund’s maximum risk of loss from Counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the Counterparty and by the designation of collateral by the Counterparty to cover the Fund’s exposure to the Counterparty.
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since
Invesco V.I. Government Securities Fund
entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets.
An interest rate swap is an agreement between Counterparties pursuant to which the parties exchange a floating rate payment for a fixed rate payment based on a specified notional amount.
Changes in the value of centrally cleared and OTC swap agreements are recognized as unrealized gains (losses) in the Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Statement of Operations. The Fund segregates cash or liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Cash held as collateral is recorded as deposits with brokers on the Statement of Assets and Liabilities. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and Counterparty risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the Counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements. A short position in a security poses more risk than holding the same security long. As there is no limit on how much the price of the security can increase, the Fund’s exposure is unlimited.
| O. | Other Risks — The Fund may invest in obligations issued by agencies and instrumentalities of the U.S. Government that may vary in the level of support they receive from the government. The government may choose not to provide financial support to government sponsored agencies or instrumentalities if it is not legally obligated to do so. In this case, if the issuer defaulted, the Fund may not be able to recover its investment in such issuer from the U.S. Government. Many securities purchased by the Fund are not guaranteed by the U.S. Government. |
| P. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||
| First $250 million |
0.50% | |||
| Over $250 million |
0.45% | |||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.47%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 1.50% and Series II shares to 1.75% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waivers and/or expense reimbursements to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $3,097.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $71,654 for accounting and fund administrative services and reimbursed $723,672 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
Invesco V.I. Government Securities Fund
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 9,346,410 | $ | — | $ | — | $ | 9,346,410 | ||||||||
| U.S. Treasury Securities |
— | 174,721,753 | — | 174,721,753 | ||||||||||||
| U.S. Government Sponsored Agency Securities |
— | 330,372,550 | — | 330,372,550 | ||||||||||||
| Corporate Debt Securities |
— | 16,882,436 | — | 16,882,436 | ||||||||||||
| Collateralized Municipal Obligations |
— | 83,605,940 | — | 83,605,940 | ||||||||||||
| Foreign Sovereign Debt Securities |
— | 4,770,258 | — | 4,770,258 | ||||||||||||
| Options Purchased |
— | 294,748 | — | 294,748 | ||||||||||||
| 9,346,410 | 610,647,685 | — | 619,994,095 | |||||||||||||
| Futures Contracts* |
3,495,254 | — | — | 3,495,254 | ||||||||||||
| Total |
$ | 12,841,664 | $ | 610,647,685 | $ | — | $ | 623,489,349 | ||||||||
| * | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2016:
| Value | ||||||||
| Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
| Interest rate risk: |
||||||||
| Futures contracts(a) |
$ | 3,802,906 | $ | (307,652 | ) | |||
| Options purchased(b) |
294,748 | — | ||||||
| Total |
$ | 4,097,654 | $ | (307,652 | ) | |||
| (a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
| (b) | Options purchased at value as reported in the Schedule of Investments. |
Invesco V.I. Government Securities Fund
Effect of Derivative Investments for the six months ended June 30, 2016
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
| Location of Gain (Loss) on Statement of Operations |
||||||||
| Futures Contracts |
Options Purchased(a) |
|||||||
| Realized Gain (Loss): |
||||||||
| Interest rate risk |
$ | 5,263,334 | $ | (140,000 | ) | |||
| Change in Net Unrealized Appreciation (Depreciation): |
||||||||
| Interest rate risk |
3,215,053 | (252 | ) | |||||
| Total |
$ | 8,478,387 | $ | (140,252 | ) | |||
| (a) | Options purchased are included in the net realized gain (loss) from investment securities and the change in net unrealized appreciation (depreciation) of investment securities. |
The table below summarizes the six month average notional value of futures contracts and the four month average notional value of options purchased.
| Futures Contracts |
Options Purchased |
|||||||
| Average notional value |
$ | 113,673,551 | $ | 22,500,000 | ||||
| Open Futures Contracts | ||||||||||||||||||||
| Futures Contracts | Type of Contract |
Number of Contracts |
Expiration Month |
Notional Value |
Unrealized Appreciation (Depreciation) |
|||||||||||||||
| U.S. Treasury 2 Year Notes |
Long | 66 | September–2016 | $ | 14,475,656 | $ | 92,922 | |||||||||||||
| U.S. Treasury 5 Year Notes |
Long | 79 | September–2016 | 9,650,961 | 109,304 | |||||||||||||||
| U.S. Treasury 10 Year Notes |
Long | 98 | September–2016 | 13,032,469 | 342,767 | |||||||||||||||
| U.S. Treasury 30 Year Bonds |
Short | 31 | September–2016 | (5,342,656 | ) | (307,652 | ) | |||||||||||||
| U.S. Treasury Ultra Bonds |
Long | 276 | September–2016 | 51,439,500 | 3,257,913 | |||||||||||||||
| Total Futures Contracts — Interest Rate Risk |
|
$ | 3,495,254 | |||||||||||||||||
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on the Fund’s financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2016.
| Gross Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||||
| Gross amounts Assets |
Financial Instruments |
Collateral Received | Net Amount |
|||||||||||||||||
| Counterparty | Non-Cash | Cash | ||||||||||||||||||
| Deutsche Bank Securities Inc.(a) |
$ | 294,748 | $ | — | $ | — | $ | (290,000 | ) | $ | 4,748 | |||||||||
| (a) | Swaptions purchased — OTC Counterparty. |
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
Invesco V.I. Government Securities Fund
NOTE 6—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate. The Fund may not purchase additional securities when any borrowings from banks exceed 5% of the Fund’s total assets.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2015, which expires as follows:
| Capital Loss Carryforward* | ||||||||||||
| Expiration | Short-Term | Long-Term | Total | |||||||||
| February 28, 2017 |
$ | 3,845,837 | $ | — | $ | 3,845,837 | ||||||
| Not subject to expiration |
9,837,916 | 6,973,821 | 16,811,737 | |||||||||
| $ | 13,683,753 | $ | 6,973,821 | $ | 20,657,574 | |||||||
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $23,763,810 and $53,715,641, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $96,814,366 and $43,000,749, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 20,336,015 | ||
| Aggregate unrealized (depreciation) of investment securities |
(1,592,473 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 18,743,542 | ||
Cost of investments for tax purposes is $601,250,553.
Invesco V.I. Government Securities Fund
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
3,713,590 | $ | 43,606,883 | 5,071,141 | $ | 59,701,741 | ||||||||||
| Series II |
2,556,295 | 29,713,633 | 2,597,649 | 30,202,874 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 834,905 | 9,684,904 | ||||||||||||
| Series II |
— | — | 331,990 | 3,821,202 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(3,897,305 | ) | (45,853,332 | ) | (12,198,556 | ) | (143,098,480 | ) | ||||||||
| Series II |
(1,760,815 | ) | (20,501,204 | ) | (4,103,260 | ) | (47,861,356 | ) | ||||||||
| Net increase (decrease) in share activity |
611,765 | $ | 6,965,980 | (7,466,131 | ) | $ | (87,549,115 | ) | ||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 78% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains on securities (both |
Total from operations |
Dividends income |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of to average net assets absorbed |
Ratio of assets without fee waivers |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 11.52 | $ | 0.11 | $ | 0.35 | $ | 0.46 | $ | — | $ | 11.98 | 3.99 | % | $ | 406,729 | 0.78 | %(d) | 0.78 | %(d) | 1.94 | %(d) | 16 | % | ||||||||||||||||||||||||
| Year ended 12/31/15 |
11.74 | 0.17 | (0.13 | ) | 0.04 | (0.26 | ) | 11.52 | 0.34 | 393,090 | 0.77 | 0.77 | 1.44 | 59 | ||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
11.64 | 0.16 | 0.32 | 0.48 | (0.38 | ) | 11.74 | 4.14 | 474,556 | 0.78 | 0.78 | 1.36 | 55 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
12.40 | 0.13 | (0.45 | ) | (0.32 | ) | (0.44 | ) | 11.64 | (2.62 | ) | 565,690 | 0.74 | 0.76 | 1.10 | 139 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
12.49 | 0.19 | 0.12 | 0.31 | (0.40 | ) | 12.40 | 2.47 | 873,212 | 0.65 | 0.76 | 1.49 | 118 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
12.00 | 0.25 | 0.67 | 0.92 | (0.43 | ) | 12.49 | 7.91 | 970,029 | 0.63 | 0.75 | 2.03 | 85 | |||||||||||||||||||||||||||||||||||
| Series II |
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| Six months ended 06/30/16 |
11.42 | 0.10 | 0.35 | 0.45 | — | 11.87 | 3.94 | 212,455 | 1.03 | (d) | 1.03 | (d) | 1.69 | (d) | 16 | |||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
11.64 | 0.14 | (0.13 | ) | 0.01 | (0.23 | ) | 11.42 | 0.06 | 195,392 | 1.02 | 1.02 | 1.19 | 59 | ||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
11.54 | 0.13 | 0.31 | 0.44 | (0.34 | ) | 11.64 | 3.88 | 212,788 | 1.03 | 1.03 | 1.11 | 55 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
12.29 | 0.10 | (0.45 | ) | (0.35 | ) | (0.40 | ) | 11.54 | (2.85 | ) | 227,237 | 0.99 | 1.01 | 0.85 | 139 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
12.39 | 0.16 | 0.12 | 0.28 | (0.38 | ) | 12.29 | 2.22 | 261,083 | 0.90 | 1.01 | 1.24 | 118 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
11.92 | 0.21 | 0.67 | 0.88 | (0.41 | ) | 12.39 | 7.63 | 295,318 | 0.88 | 1.00 | 1.78 | 85 | |||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the year ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $309,171,077 and sold of $25,033,352 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. Government Fund into the Fund. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $400,509 and $204,252 for Series I and Series II shares, respectively. |
Note 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Government Securities Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio2 |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2,3 |
Ending Account Value (06/30/16)1 |
Expenses Paid During Period2,4 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 1,039.90 | $ | 3.96 | $ | 1,020.98 | $ | 3.92 | 0.78 | % | ||||||||||||
| Series II | 1,000.00 | 1,039.40 | 5.22 | 1,019.74 | 5.17 | 1.03 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2016, Invesco has agreed to limit administrative services fees reimbursed by the Fund. The annualized ratios restated as if this administrative services fees limitation had been in effect throughout the entire most recent fiscal half year are 0.69% and 0.94% for Series I and Series II shares, respectively. |
| 3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.50 and $4.77 for Series I and Series II shares, respectively. |
| 4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.47 and $4.72 for Series I and Series II shares, respectively. |
Invesco V.I. Government Securities Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Government Securities Fund
Invesco V.I. Government Securities Fund
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Semiannual Report to Shareholders
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June 30, 2016 | ||
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| Invesco V.I. Growth and Income Fund | ||||
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| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIGRI-SAR-1 | ||||
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| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Growth and Income Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Investment Abbreviations:
| ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Financials |
28.7 | % | ||
| Energy |
13.6 | |||
| Health Care |
13.4 | |||
| Information Technology |
13.4 | |||
| Consumer Discretionary |
8.8 | |||
| Industrials |
8.0 | |||
| Consumer Staples |
5.6 | |||
| Telecommunication Services |
2.4 | |||
| Utilities |
1.6 | |||
| Materials |
1.1 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
3.4 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
||||||||
| Net investment income |
$ | 12,308,968 | $ | 22,301,531 | ||||
| Net realized gain |
10,965,805 | 178,601,705 | ||||||
| Change in net unrealized appreciation (depreciation) |
(19,075,077 | ) | (270,962,701 | ) | ||||
| Net increase (decrease) in net assets resulting from operations |
4,199,696 | (70,059,465 | ) | |||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (4,613,558 | ) | |||||
| Series ll |
— | (39,391,652 | ) | |||||
| Total distributions from net investment income |
— | (44,005,210 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (23,975,128 | ) | |||||
| Series ll |
— | (230,492,529 | ) | |||||
| Total distributions from net realized gains |
— | (254,467,657 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(2,913,574 | ) | 20,537,185 | |||||
| Series ll |
171,135,337 | (58,547,345 | ) | |||||
| Net increase (decrease) in net assets resulting from share transactions |
168,221,763 | (38,010,160 | ) | |||||
| Net increase (decrease) in net assets |
172,421,459 | (406,542,492 | ) | |||||
| Net assets: |
||||||||
| Beginning of period |
1,584,177,086 | 1,990,719,578 | ||||||
| End of period (includes undistributed net investment income of $29,551,611 and $17,242,643, respectively) |
$ | 1,756,598,545 | $ | 1,584,177,086 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Growth and Income Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to seek long-term growth of capital and income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Growth and Income Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain
Invesco V.I. Growth and Income Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||
| First $500 million |
0.60% | |||
| Over $500 million |
0.55% | |||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.57%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
Invesco V.I. Growth and Income Fund
The Adviser has contractually agreed, through at least April 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.78% and Series II shares to 1.03% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on April 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase the expense limits without approval of the Board of Trustees. To the extent that the annualized expense ratio does not exceed the expense limits, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $532,961.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $178,121 for accounting and fund administrative services and reimbursed $1,859,104 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2016, the Fund incurred $3,003 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 – | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 1,655,809,101 | $ | 95,460,739 | $ | — | $ | 1,751,269,840 | ||||||||
| Forward Foreign Currency Contracts* |
— | 4,881,226 | — | 4,881,226 | ||||||||||||
| Total Investments |
$ | 1,655,809,101 | $ | 100,341,965 | $ | — | $ | 1,756,151,066 | ||||||||
| * | Unrealized appreciation. |
Invesco V.I. Growth and Income Fund
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2016:
| Value | ||||||||
| Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
| Currency risk |
$ | 5,752,038 | $ | (870,812 | ) | |||
| (a) | Values are disclosed on the Statement of Assets and Liabilities under the captions Unrealized appreciation on forward foreign currency contracts outstanding and Unrealized depreciation on forward foreign currency contracts outstanding. |
Effect of Derivative Investments for the six months ended June 30, 2016
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
| Location of Gain (Loss) on Statement of Operations |
||||
| Forward Foreign Currency Contracts |
||||
| Realized Gain: |
||||
| Currency risk |
$ | (1,573,959 | ) | |
| Change in Net Unrealized Appreciation: |
||||
| Currency risk |
3,575,657 | |||
| Total |
$ | 2,001,698 | ||
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
| Forward Foreign Currency |
||||
| Average notional value |
$ | 160,058,988 | ||
| Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
| Settlement |
Counterparty |
Contract to | Notional Value |
Unrealized Appreciation (Depreciation) |
||||||||||||||||||||||
| Deliver | Receive | |||||||||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) | CHF | 6,080,208 | USD | 6,203,914 | $ | 6,227,905 | $ | (23,991 | ) | ||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) | EUR | 16,147,142 | USD | 18,239,812 | 17,916,738 | 323,074 | |||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) | GBP | 13,835,673 | USD | 20,227,616 | 18,420,285 | 1,807,331 | |||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) | USD | 7,024,665 | CHF | 6,884,172 | 7,051,398 | 26,733 | |||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) | USD | 16,791,964 | EUR | 15,122,446 | 16,779,744 | (12,220 | ) | ||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) | USD | 23,245,725 | GBP | 17,231,820 | 22,941,785 | (303,940 | ) | ||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. | CHF | 6,963,225 | USD | 7,120,822 | 7,132,372 | (11,550 | ) | ||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. | EUR | 18,909,245 | USD | 21,344,688 | 20,981,545 | 363,143 | |||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. | GBP | 19,949,135 | USD | 28,967,352 | 26,559,515 | 2,407,837 | |||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. | USD | 6,283,357 | CHF | 6,159,261 | 6,308,878 | 25,521 | |||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. | USD | 22,129,138 | EUR | 19,933,940 | 22,118,539 | (10,599 | ) | ||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. | USD | 22,336,602 | GBP | 16,552,988 | 22,038,014 | (298,588 | ) | ||||||||||||||||||
| 07/05/16 |
Bank of New York Mellon (The) | CAD | 19,099,389 | USD | 14,780,807 | 14,782,546 | (1,739 | ) | ||||||||||||||||||
| 07/05/16 |
Bank of New York Mellon (The) | USD | 15,425,489 | CAD | 20,029,998 | 15,502,818 | 77,329 | |||||||||||||||||||
| 07/05/16 |
State Street Bank and Trust Co. | CAD | 21,356,305 | USD | 16,535,915 | 16,529,354 | 6,561 | |||||||||||||||||||
| 07/05/16 |
State Street Bank and Trust Co. | USD | 15,733,771 | CAD | 20,425,695 | 15,809,080 | 75,309 | |||||||||||||||||||
| 08/12/16 |
Bank of New York Mellon (The) | CAD | 20,043,485 | USD | 15,436,708 | 15,514,998 | (78,290 | ) | ||||||||||||||||||
| 08/12/16 |
Bank of New York Mellon (The) | CHF | 6,868,499 | USD | 7,025,160 | 7,053,598 | (28,438 | ) | ||||||||||||||||||
| 08/12/16 |
Bank of New York Mellon (The) | EUR | 15,590,610 | USD | 17,337,538 | 17,326,266 | 11,272 | |||||||||||||||||||
| 08/12/16 |
Bank of New York Mellon (The) | GBP | 17,441,441 | USD | 23,533,824 | 23,229,876 | 303,948 | |||||||||||||||||||
| 08/12/16 |
State Street Bank and Trust Co. | CAD | 20,043,460 | USD | 15,443,469 | 15,514,979 | (71,510 | ) | ||||||||||||||||||
| 08/12/16 |
State Street Bank and Trust Co. | CHF | 6,868,498 | USD | 7,023,650 | 7,053,597 | (29,947 | ) | ||||||||||||||||||
| 08/12/16 |
State Street Bank and Trust Co. | EUR | 15,590,611 | USD | 17,339,410 | 17,326,267 | 13,143 | |||||||||||||||||||
| 08/12/16 |
State Street Bank and Trust Co. | GBP | 17,441,442 | USD | 23,540,714 | 23,229,877 | 310,837 | |||||||||||||||||||
| Total Open Forward Foreign Currency Contracts — Currency Risk |
|
$ | 4,881,226 | |||||||||||||||||||||||
Currency Abbreviations:
Invesco V.I. Growth and Income Fund
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on the Fund’s financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2016.
| Counterparty |
Gross amounts |
Gross Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||
| Financial |
Collateral Received | Net Amount |
||||||||||||||||||
| Non-Cash | Cash | |||||||||||||||||||
| Bank of New York Mellon (The) |
$ | 2,549,687 | $ | (448,618 | ) | $ | — | $ | — | $ | 2,101,069 | |||||||||
| State Street Bank and Trust Co. |
3,202,351 | (422,194 | ) | — | — | 2,780,157 | ||||||||||||||
| Total |
$ | 5,752,038 | $ | (870,812 | ) | $ | — | $ | — | $ | 4,881,226 | |||||||||
| Counterparty |
Gross amounts |
Gross Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||
| Financial |
Collateral Pledged | Net Amount |
||||||||||||||||||
| Non-Cash | Cash | |||||||||||||||||||
| Bank of New York Mellon (The) |
$ | 448,618 | $ | (448,618 | ) | $ | — | $ | — | $ | — | |||||||||
| State Street Bank and Trust Co. |
422,194 | (422,194 | ) | — | — | — | ||||||||||||||
| Total |
$ | 870,812 | $ | (870,812 | ) | $ | — | $ | — | $ | — | |||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
Invesco V.I. Growth and Income Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $385,903,441 and $226,094,544, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 212,668,886 | ||
| Aggregate unrealized (depreciation) of investment securities |
(97,557,042 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 115,111,844 | ||
Cost of investments for tax purposes is $1,636,157,996.
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
521,927 | $ | 9,735,399 | 873,247 | $ | 20,855,550 | ||||||||||
| Series II |
18,907,271 | 374,632,311 | 9,865,909 | 222,630,272 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 1,523,917 | 28,588,686 | ||||||||||||
| Series II |
— | — | 14,393,823 | 269,884,181 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(668,445 | ) | (12,648,973 | ) | (1,228,356 | ) | (28,907,051 | ) | ||||||||
| Series II |
(10,668,483 | ) | (203,496,974 | ) | (23,832,436 | ) | (551,061,798 | ) | ||||||||
| Net increase (decrease) in share activity |
8,092,270 | $ | 168,221,763 | 1,596,104 | $ | (38,010,160 | ) | |||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 79% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio
of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 19.60 | $ | 0.17 | $ | 0.01 | $ | 0.18 | $ | — | $ | — | $ | — | $ | 19.78 | 0.92 | % | $ | 147,539 | 0.77 | %(d) | 0.84 | %(d) | 1.81 | %(d) | 15 | % | ||||||||||||||||||||||||||||
| Year ended 12/31/15 |
25.15 | 0.33 | (1.30 | ) | (0.97 | ) | (0.74 | ) | (3.84 | ) | (4.58 | ) | 19.60 | (3.06 | ) | 149,066 | 0.78 | 0.84 | 1.41 | 22 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
26.29 | 0.59 | (e) | 2.02 | 2.61 | (0.50 | ) | (3.25 | ) | (3.75 | ) | 25.15 | 10.28 | 161,866 | 0.78 | 0.83 | 2.22 | (e) | 31 | |||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
20.07 | 0.32 | 6.47 | 6.79 | (0.36 | ) | (0.21 | ) | (0.57 | ) | 26.29 | 34.08 | 170,637 | 0.75 | 0.83 | 1.37 | 29 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
17.77 | 0.33 | 2.27 | 2.60 | (0.30 | ) | — | (0.30 | ) | 20.07 | 14.63 | 139,947 | 0.66 | 0.84 | 1.72 | 31 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
18.40 | 0.30 | (0.70 | ) | (0.40 | ) | (0.23 | ) | — | (0.23 | ) | 17.77 | (2.01 | ) | 156,617 | 0.61 | 0.84 | 1.65 | 28 | |||||||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
19.58 | 0.15 | 0.00 | 0.15 | — | — | — | 19.73 | 0.77 | 1,609,060 | 1.02 | (d) | 1.09 | (d) | 1.56 | (d) | 15 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
25.09 | 0.27 | (1.29 | ) | (1.02 | ) | (0.65 | ) | (3.84 | ) | (4.49 | ) | 19.58 | (3.26 | ) | 1,435,111 | 1.03 | 1.09 | 1.16 | 22 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
26.23 | 0.52 | (e) | 2.01 | 2.53 | (0.42 | ) | (3.25 | ) | (3.67 | ) | 25.09 | 9.96 | 1,828,854 | 1.03 | 1.08 | 1.97 | (e) | 31 | |||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
20.03 | 0.26 | 6.46 | 6.72 | (0.31 | ) | (0.21 | ) | (0.52 | ) | 26.23 | 33.77 | 2,335,747 | 1.00 | 1.08 | 1.12 | 29 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
17.74 | 0.28 | 2.27 | 2.55 | (0.26 | ) | — | (0.26 | ) | 20.03 | 14.35 | 1,946,286 | 0.91 | 1.09 | 1.47 | 31 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
18.37 | 0.25 | (0.69 | ) | (0.44 | ) | (0.19 | ) | — | (0.19 | ) | 17.74 | (2.26 | ) | 1,724,830 | 0.86 | 1.09 | 1.40 | 28 | |||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $144,255 and $1,418,824 for Series I and Series II shares, respectively. |
| (e) | Net investment income per share and the ratio of net investment income to average net assets include significant dividends received during the period. Net investment income per share and the ratio of net investment income to average net assets excluding the significant dividends are $0.35 and 1.29%, and $0.28 and 1.04%, for Series I and Series II, respectively. |
NOTE 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Growth and Income Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL expenses) |
Annualized Expense Ratio |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2 |
|||||||||||||||||||||
|
Series I |
$ | 1,000.00 | $ | 1,009.20 | $ | 3.85 | $ | 1,021.03 | $ | 3.87 | 0.77 | % | ||||||||||||
|
Series II |
1,000.00 | 1,008.20 | 5.09 | 1,019.79 | 5.12 | 1.02 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Growth and Income Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Growth and Income Fund
Invesco V.I. Growth and Income Fund
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Semiannual Report to Shareholders
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June 30, 2016 | ||
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| Invesco V.I. High Yield Fund | ||||
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| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIHYI-SAR-1 | ||||
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| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. High Yield Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Investment Abbreviations:
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2016 was $66,705,842, which represented 45.16% of the Fund’s Net Assets. |
| (c) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The value of this security at June 30, 2016 was $200, which represented less than 1% of the Fund’s Net Assets. |
| (d) | Acquired as part of the Sino-Forest Corp. reorganization. |
| (e) | Foreign denominated security. Principal amount is denominated in the currency indicated. |
| (f) | Acquired as part of the Adelphia Communications bankruptcy reorganization. |
| (g) | Non-income producing security. |
| (h) | Non-income producing security acquired as part of the Hawaiian Telcom bankruptcy reorganization. |
Portfolio Composition†
By credit quality, based on Net Assets* as of June 30, 2016
| BBB |
1.6 | % | ||
| BB |
40.3 | |||
| B |
44.4 | |||
| CCC |
12.7 | |||
| Cash |
1.0 |
| † | Source: Standard & Poor’s. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest); ratings are subject to change without notice. “Non-Rated” indicates the debtor was not rated, and should not be interpreted as indicating low quality. For more information on Standard and Poor’s rating methodology, please visit standardandpoors.com and select “Understanding Ratings” under Rating Resources on the homepage. |
| * | Excluding U.S. Treasury Bills and money market fund holdings, if any. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
||||||||
| Net investment income |
$ | 3,971,635 | $ | 8,117,818 | ||||
| Net realized gain (loss) |
(5,739,481 | ) | (6,275,709 | ) | ||||
| Change in net unrealized appreciation (depreciation) |
10,089,258 | (6,509,168 | ) | |||||
| Net increase (decrease) in net assets resulting from operations |
8,321,412 | (4,667,059 | ) | |||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (4,255,607 | ) | |||||
| Series ll |
— | (3,746,705 | ) | |||||
| Total distributions from net investment income |
— | (8,002,312 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(2,836,153 | ) | (14,390,517 | ) | ||||
| Series ll |
(2,194,123 | ) | 17,464,885 | |||||
| Net increase (decrease) in net assets resulting from share transactions |
(5,030,276 | ) | 3,074,368 | |||||
| Net increase (decrease) in net assets |
3,291,136 | (9,595,003 | ) | |||||
| Net assets: |
||||||||
| Beginning of period |
144,433,600 | 154,028,603 | ||||||
| End of period (includes undistributed net investment income of $11,018,921 and $7,047,286, respectively) |
$ | 147,724,736 | $ | 144,433,600 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. High Yield Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return, comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Variable rate senior loan interests are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may reflect appropriate factors such as ratings, tranche type, industry, company performance, spread, individual trading characteristics, institution-size trading in similar groups of securities and other market data.
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net
Invesco V.I. High Yield Fund
asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote, if available, provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end-of-day net present values, spreads, ratings, industry, company performance and returns of referenced assets.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s |
Invesco V.I. High Yield Fund
| taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications – Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Lower-Rated Securities — The Fund normally invests at least 80% of its net assets in lower-quality debt securities, i.e., “junk bonds”. Investments in lower-rated securities or unrated securities of comparable quality tend to be more sensitive to economic conditions than higher rated securities. Junk bonds involve a greater risk of default by the issuer because such securities are generally unsecured and are often subordinated to other creditors’ claims. |
| J. | Securities Purchased on a When-Issued and Delayed Delivery Basis — The Fund may purchase and sell interests in corporate loans and corporate debt securities and other portfolio securities on a when-issued and delayed delivery basis, with payment and delivery scheduled for a future date. No income accrues to the Fund on such interests or securities in connection with such transactions prior to the date the Fund actually takes delivery of such interests or securities. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of acquiring such securities, they may sell such securities prior to the settlement date. |
| K. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| L. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
| M. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between Counterparties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only |
Invesco V.I. High Yield Fund
| in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal Counterparty risk since the exchange’s clearinghouse, as Counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
| N. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between Counterparties. A swap agreement may be negotiated bilaterally and traded over-the-counter (“OTC”) between two parties (“uncleared/OTC”) or, in some instances, must be transacted through a future commission merchant (“FCM”) and cleared through a clearinghouse that serves as a central Counterparty (“centrally cleared swap”). These agreements may contain among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index.
In a centrally cleared swap, the Fund’s ultimate Counterparty is a central clearinghouse. The Fund initially will enter into centrally cleared swaps through an executing broker. When a fund enters into a centrally cleared swap, it must deliver to the central Counterparty (via the FCM) an amount referred to as “initial margin.” Initial margin requirements are determined by the central Counterparty, but an FCM may require additional initial margin above the amount required by the central Counterparty. Initial margin deposits required upon entering into centrally cleared swaps are satisfied by cash or securities as collateral at the FCM. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities. During the term of a cleared swap agreement, a “variation margin” amount may be required to be paid by the Fund or may be received by the Fund, based on the daily change in price of the underlying reference instrument subject to the swap agreement and is recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities until the centrally cleared swap is terminated at which time a realized gain or loss is recorded.
A CDS is an agreement between Counterparties to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value”, of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its Counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. If a Counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund’s maximum risk of loss from Counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the Counterparty and by the designation of collateral by the Counterparty to cover the Fund’s exposure to the Counterparty.
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets.
An interest rate swap is an agreement between Counterparties pursuant to which the parties exchange a floating rate payment for a fixed rate payment based on a specified notional amount.
Changes in the value of centrally cleared and OTC swap agreements are recognized as unrealized gains (losses) in the Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at
Invesco V.I. High Yield Fund
the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Statement of Operations. The Fund segregates cash or liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Cash held as collateral is recorded as deposits with brokers on the Statement of Assets and Liabilities. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and Counterparty risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the Counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements. A short position in a security poses more risk than holding the same security long. As there is no limit on how much the price of the security can increase, the Fund’s exposure is unlimited.
| O. | Bank Loan Risk — Although the resale, or secondary market for floating rate loans has grown substantially over the past decade, both in overall size and number of market participants, there is no organized exchange or board of trade on which floating rate loans are traded. Instead, the secondary market for floating rate loans is a private, unregulated interdealer or interbank resale market. Such a market may therefore be subject to irregular trading activity, wide bid/ask spreads, and extended trade settlement periods, which may impair the Fund’s ability to sell bank loans within its desired time frame or at an acceptable price and its ability to accurately value existing and prospective investments. Extended trade settlement periods may result in cash not being immediately available to the Fund. As a result, the Fund may have to sell other investments or engage in borrowing transactions to raise cash to meet its obligations. Similar to other asset classes, bank loan funds may be exposed to counterparty credit risk, or the risk than an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. |
| P. | Leverage Risk — Leverage exists when the Fund can lose more than it originally invests because it purchases or sells an instrument or enters into a transaction without investing an amount equal to the full economic exposure of the instrument or transaction. |
| Q. | Other Risks — The Fund invests in corporate loans from U.S. or non-U.S. companies (the “Borrowers”). The investment of the Fund in a corporate loan may take the form of participation interests or assignments. If the Fund purchases a participation interest from a syndicate of lenders (“Lenders”) or one of the participants in the syndicate (“Participant”), one or more of which administers the loan on behalf of all the Lenders (the “Agent Bank”), the Fund would be required to rely on the Lender that sold the participation interest not only for the enforcement of the Fund’s rights against the Borrower but also for the receipt and processing of payments due to the Fund under the corporate loans. As such, the Fund is subject to the credit risk of the Borrower and the Participant. Lenders and Participants interposed between the Fund and a Borrower, together with Agent Banks, are referred to as “Intermediate Participants”. |
| R. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||||||
| First $200 million |
0 | .625% | ||||||
| Next $300 million |
0 | .55% | ||||||
| Next $500 million |
0 | .50% | ||||||
| Over $1 billion |
0 | .45% | ||||||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.63%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.50% and Series II shares to 1.75% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
Invesco V.I. High Yield Fund
For the six months ended June 30, 2016, the Adviser waived advisory fees of $2,568.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $170,465 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 11 | $ | 54,113 | $ | — | $ | 54,124 | ||||||||
| Corporate Debt Securities |
— | 138,032,925 | 200 | 138,033,125 | ||||||||||||
| Foreign Debt Securities |
— | 4,955,142 | — | 4,955,142 | ||||||||||||
| 11 | 143,042,180 | 200 | 143,042,391 | |||||||||||||
| Forward Foreign Currency Contracts* |
— | 267,310 | — | 267,310 | ||||||||||||
| Total Investments |
$ | 11 | $ | 143,309,490 | $ | 200 | $ | 143,309,701 | ||||||||
| * | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2016:
| Value | ||||||||
| Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
| Currency risk: |
||||||||
| Forward foreign currency contracts(a) |
$ | 329,369 | $ | (62,059 | ) | |||
| (a) | Values are disclosed on the Statement of Assets and Liabilities under the captions Unrealized appreciation on forward foreign currency contracts outstanding and Unrealized depreciation on forward foreign currency contracts outstanding. |
Invesco V.I. High Yield Fund
Effect of Derivative Investments for the six months ended June 30, 2016
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
| Location of Gain (Loss) on Statement of Operations |
||||||||||||
| Forward Foreign Currency Contracts |
Futures Contracts |
Swap Agreements |
||||||||||
| Realized Gain (Loss): |
||||||||||||
| Credit risk |
$ | — | $ | — | $ | (168,162 | ) | |||||
| Currency risk |
64,644 | — | — | |||||||||
| Interest rate risk |
— | (251,715 | ) | — | ||||||||
| Change in Net Unrealized Appreciation (Depreciation): |
||||||||||||
| Credit risk |
— | — | 81,941 | |||||||||
| Currency risk |
220,802 | — | — | |||||||||
| Interest rate risk |
— | (34,435 | ) | — | ||||||||
| Total |
$ | 285,446 | $ | (286,150 | ) | $ | (86,221 | ) | ||||
The table below summarizes the six month average notional value of forward foreign currency contracts, two month average notional value of futures contracts and four month average notional value of swap agreements outstanding during the period.
| Forward Foreign Currency Contracts |
Futures Contracts |
Swap Agreements |
||||||||||
| Average notional value |
$ | 8,011,090 | $ | 7,797,188 | $ | 7,785,000 | ||||||
| Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
| Settlement |
Counterparty | Contract to | Notional Value |
Unrealized Appreciation (Depreciation) |
||||||||||||||||||||||
| Deliver | Receive | |||||||||||||||||||||||||
| 09/09/16 |
Citigroup Global Markets |
EUR | 2,559,800 | USD | 2,906,295 | $ | 2,847,776 | $ | 58,519 | |||||||||||||||||
| 09/09/16 |
Citigroup Global Markets |
USD | 243,146 | EUR | 218,000 | 242,525 | (621 | ) | ||||||||||||||||||
| 09/09/16 |
Citigroup Global Markets |
GBP | 2,065,000 | USD | 2,987,115 | 2,751,151 | 235,964 | |||||||||||||||||||
| 09/09/16 |
Deutsche Bank Securities Inc. |
EUR | 34,000 | USD | 38,743 | 37,825 | 918 | |||||||||||||||||||
| 09/09/16 |
Deutsche Bank Securities Inc. |
USD | 305,352 | EUR | 269,300 | 299,596 | (5,756 | ) | ||||||||||||||||||
| 09/09/16 |
Goldman Sachs International |
GBP | 297,900 | USD | 430,853 | 396,885 | 33,968 | |||||||||||||||||||
| 09/09/16 |
Goldman Sachs International |
USD | 611,742 | GBP | 417,376 | 556,060 | (55,682 | ) | ||||||||||||||||||
| Total Open Forward Foreign Currency Contracts — Currency Risk |
$ | 267,310 | ||||||||||||||||||||||||
Currency Abbreviations:
| EUR | – Euro | |
| GBP | – British Pound Sterling | |
| USD | – U.S. Dollar |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on the Fund’s financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
Invesco V.I. High Yield Fund
The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2016.
| Counterparty |
Gross amounts |
Gross Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||
| Financial |
Collateral Received | Net
|
||||||||||||||||||
| Non-Cash | Cash | |||||||||||||||||||
| Citigroup Global Markets |
$ | 294,483 | $ | (621 | ) | $ | — | $ | — | $ | 293,862 | |||||||||
| Deutsche Bank Securities Inc. |
918 | (918 | ) | — | — | — | ||||||||||||||
| Goldman Sachs International |
33,968 | (33,968 | ) | — | — | — | ||||||||||||||
| Total |
$ | 329,369 | $ | (35,507 | ) | $ | — | $ | — | $ | 293,862 | |||||||||
| Counterparty |
Gross amounts |
Gross Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||
| Financial
|
Collateral Pledged | Net Amount
|
||||||||||||||||||
| Non-Cash | Cash | |||||||||||||||||||
| Citigroup Global Markets |
$ | 621 | $ | (621 | ) | $ | — | $ | — | $ | — | |||||||||
| Deutsche Bank Securities Inc. |
5,756 | (918 | ) | — | — | 4,838 | ||||||||||||||
| Goldman Sachs International |
55,682 | (33,968 | ) | — | — | 21,714 | ||||||||||||||
| Total |
$ | 62,059 | $ | (35,507 | ) | $ | — | $ | — | $ | 26,552 | |||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate. The Fund may not purchase additional securities when any borrowings from banks exceed 5% of the Fund’s total assets.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2015, which expires as follows:
| Capital Loss Carryforward* | ||||||||||||
| Expiration | Short-Term | Long-Term | Total | |||||||||
| December 31, 2016 |
$ | 2,969,049 | $ | — | $ | 2,969,049 | ||||||
| December 31, 2017 |
3,028,860 | — | 3,028,860 | |||||||||
| Not subject to expiration |
4,625,679 | 2,103,016 | 6,728,695 | |||||||||
| $ | 10,623,588 | $ | 2,103,016 | $ | 12,726,604 | |||||||
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
Invesco V.I. High Yield Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $80,221,739 and $83,880,138, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 3,217,856 | ||
| Aggregate unrealized (depreciation) of investment securities |
(11,476,004 | ) | ||
| Net unrealized appreciation (depreciation) of investment securities |
$ | (8,258,148 | ) | |
Cost of investments for tax purposes is $151,300,539.
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
6,140,003 | $ | 31,971,181 | 8,771,889 | $ | 47,952,255 | ||||||||||
| Series II |
1,845,194 | 9,357,601 | 9,834,516 | 53,843,244 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 819,963 | 4,255,608 | ||||||||||||
| Series II |
— | — | 726,105 | 3,746,705 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(6,650,752 | ) | (34,807,334 | ) | (12,114,611 | ) | (66,598,380 | ) | ||||||||
| Series II |
(2,260,964 | ) | (11,551,724 | ) | (7,329,220 | ) | (40,125,064 | ) | ||||||||
| Net increase (decrease) in share activity |
(926,519 | ) | $ | (5,030,276 | ) | 708,642 | $ | 3,074,368 | ||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 70% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. High Yield Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 5.06 | $ | 0.14 | $ | 0.15 | $ | 0.29 | $ | — | $ | 5.35 | 5.73 | % | $ | 75,104 | 1.03 | %(d) | 1.03 | %(d) | 5.43 | %(d) | 56 | % | ||||||||||||||||||||||||
| Year ended 12/31/15 |
5.53 | 0.29 | (0.46 | ) | (0.17 | ) | (0.30 | ) | 5.06 | (3.17 | ) | 73,594 | 1.03 | 1.03 | 5.23 | 99 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
5.70 | 0.29 | (0.19 | ) | 0.10 | (0.27 | ) | 5.53 | 1.73 | 94,345 | 0.92 | 0.98 | 5.11 | 103 | ||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
5.61 | 0.33 | 0.05 | 0.38 | (0.29 | ) | 5.70 | 7.01 | 98,455 | 0.81 | 1.03 | 5.79 | 74 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
5.04 | 0.33 | 0.53 | 0.86 | (0.29 | ) | 5.61 | 17.17 | 93,529 | 0.79 | 1.04 | 6.10 | 58 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
5.35 | 0.35 | (0.29 | ) | 0.06 | (0.37 | ) | 5.04 | 0.96 | 106,557 | 0.83 | 1.06 | 6.84 | 71 | ||||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
5.03 | 0.13 | 0.15 | 0.28 | — | 5.31 | 5.57 | 72,621 | 1.28 | (d) | 1.28 | (d) | 5.18 | (d) | 56 | |||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
5.50 | 0.27 | (0.45 | ) | (0.18 | ) | (0.29 | ) | 5.03 | (3.37 | ) | 70,840 | 1.28 | 1.28 | 4.98 | 99 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
5.67 | 0.28 | (0.19 | ) | 0.09 | (0.26 | ) | 5.50 | 1.59 | 59,683 | 1.17 | 1.23 | 4.86 | 103 | ||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
5.59 | 0.32 | 0.05 | 0.37 | (0.29 | ) | 5.67 | 6.76 | 44,416 | 1.06 | 1.28 | 5.54 | 74 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
5.03 | 0.32 | 0.52 | 0.84 | (0.28 | ) | 5.59 | 16.96 | 21,004 | 1.04 | 1.29 | 5.85 | 58 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
5.35 | 0.33 | (0.29 | ) | 0.04 | (0.36 | ) | 5.03 | 0.61 | 5,363 | 1.08 | 1.31 | 6.59 | 71 | ||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ended December 31, 2013, the portfolio turnover calculation excludes the value of securities purchased of $32,385,318 and sold of $10,521,731 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. High Yield Securities Fund into the Fund. For the period ending December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $30,901,742 and sold of $8,109,618 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. High Yield Fund into the Fund. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $79,214 and $71,037 for Series I and Series II shares, respectively. |
NOTE 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. High Yield Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio |
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| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2 |
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|
Series I |
$ | 1,000.00 | $ | 1,057.30 | $ | 5.27 | $ | 1,019.74 | $ | 5.17 | 1.03 | % | ||||||||||||
|
Series II |
1,000.00 | 1,055.70 | 6.54 | 1,018.50 | 6.42 | 1.28 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. High Yield Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. High Yield Fund
Invesco V.I. High Yield Fund
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Semiannual Report to Shareholders
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June 30, 2016 | ||
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| Invesco V.I. International Growth Fund | ||||
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| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIIGR-SAR-1 | ||||
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| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. International Growth Fund |
Schedule of Investments
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Investment Abbreviations:
| ADR | – American Depositary Receipt | |
| NVDR | – Non-Voting Depositary Receipt |
Notes to Schedule of Investments:
| (a) | Non-income producing security. |
| (b) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets as of June 30, 2016
| Consumer Discretionary |
22.4 | % | ||
| Financials |
17.9 | |||
| Information Technology |
16.8 | |||
| Consumer Staples |
11.0 | |||
| Health Care |
10.1 | |||
| Industrials |
8.3 | |||
| Energy |
4.0 | |||
| Materials |
2.9 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
6.6 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 18,657,037 | $ | 21,825,023 | ||||
| Net realized gain (loss) |
(2,373,601 | ) | 6,174,066 | |||||
| Change in net unrealized appreciation (depreciation) |
(31,304,817 | ) | (80,546,010 | ) | ||||
| Net increase (decrease) in net assets resulting from operations |
(15,021,381 | ) | (52,546,921 | ) | ||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (9,305,810 | ) | |||||
| Series ll |
— | (15,698,757 | ) | |||||
| Total distributions from net investment income |
— | (25,004,567 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(38,134,373 | ) | (22,289,286 | ) | ||||
| Series ll |
26,997,357 | 144,406,516 | ||||||
| Net increase (decrease) in net assets resulting from share transactions |
(11,137,016 | ) | 122,117,230 | |||||
| Net increase (decrease) in net assets |
(26,158,397 | ) | 44,565,742 | |||||
| Net assets: |
||||||||
| Beginning of period |
1,771,583,236 | 1,727,017,494 | ||||||
| End of period (includes undistributed net investment income of $29,898,390 and $11,241,353, respectively) |
$ | 1,745,424,839 | $ | 1,771,583,236 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. International Growth Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. International Growth Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. International Growth Fund
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||
| First $250 million |
0.75% | |||
| Over $250 million |
0.70% | |||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.71%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.25% and Series II shares to 2.50% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend
Invesco V.I. International Growth Fund
expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. To the extent that the annualized expense ratio does not exceed the expense limits, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $87,294.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $189,183 for accounting and fund administrative services and reimbursed $2,079,169 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2016, there were transfers from Level 1 to Level 2 of $193,695,323 and from Level 2 to Level 1 of $53,168,692, due to foreign fair value adjustments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Australia |
$ | — | $ | 71,052,629 | $ | — | $ | 71,052,629 | ||||||||
| Brazil |
36,096,007 | — | — | 36,096,007 | ||||||||||||
| Canada |
138,644,002 | — | — | 138,644,002 | ||||||||||||
| China |
28,268,560 | 34,661,440 | — | 62,930,000 | ||||||||||||
| Denmark |
— | 48,698,670 | — | 48,698,670 | ||||||||||||
| France |
— | 59,725,007 | — | 59,725,007 | ||||||||||||
| Germany |
17,072,685 | 131,202,820 | — | 148,275,505 | ||||||||||||
| Hong Kong |
— | 56,856,054 | — | 56,856,054 | ||||||||||||
| Israel |
43,822,963 | — | — | 43,822,963 | ||||||||||||
| Japan |
— | 135,833,334 | — | 135,833,334 | ||||||||||||
| Mexico |
45,772,233 | — | — | 45,772,233 | ||||||||||||
Invesco V.I. International Growth Fund
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Netherlands |
$ | — | $ | 1,914,488 | $ | — | $ | 1,914,488 | ||||||||
| Singapore |
39,326,457 | 21,791,633 | — | 61,118,090 | ||||||||||||
| South Korea |
— | 12,586,068 | — | 12,586,068 | ||||||||||||
| Spain |
— | 22,677,939 | — | 22,677,939 | ||||||||||||
| Sweden |
— | 78,683,516 | — | 78,683,516 | ||||||||||||
| Switzerland |
— | 124,798,057 | — | 124,798,057 | ||||||||||||
| Taiwan |
41,492,240 | — | — | 41,492,240 | ||||||||||||
| Thailand |
— | 24,685,670 | — | 24,685,670 | ||||||||||||
| Turkey |
— | 19,188,464 | — | 19,188,464 | ||||||||||||
| United Kingdom |
— | 395,639,443 | — | 395,639,443 | ||||||||||||
| United States |
— | 115,355,851 | — | 115,355,851 | ||||||||||||
| Total Investments |
$ | 390,495,147 | $ | 1,355,351,083 | $ | — | $ | 1,745,846,230 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2015, which expires as follows:
| Capital Loss Carryforward* | ||||||||||||
| Expiration | Short-Term | Long-Term | Total | |||||||||
| December 31, 2016 |
$ | 3,949,297 | $ | — | $ | 3,949,297 | ||||||
| December 31, 2017 |
9,904,769 | — | 9,904,769 | |||||||||
| December 31, 2018 |
37,802,555 | — | 37,802,555 | |||||||||
| $ | 51,656,621 | $ | — | $ | 51,656,621 | |||||||
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
Invesco V.I. International Growth Fund
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $159,296,884 and $182,581,139, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 360,684,177 | ||
| Aggregate unrealized (depreciation) of investment securities |
(69,789,830 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 290,894,347 | ||
Cost of investments for tax purposes is $1,454,951,883.
NOTE 8—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
1,328,390 | $ | 43,640,538 | 2,880,432 | $ | 101,462,241 | ||||||||||
| Series II |
3,930,311 | 130,078,205 | 9,692,762 | 342,834,084 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 294,235 | 9,253,708 | ||||||||||||
| Series II |
— | — | 505,433 | 15,698,757 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(2,478,381 | ) | (81,774,911 | ) | (3,775,855 | ) | (133,005,235 | ) | ||||||||
| Series II |
(3,173,836 | ) | (103,080,848 | ) | (6,163,474 | ) | (214,126,325 | ) | ||||||||
| Net increase (decrease) in share activity |
(393,516 | ) | $ | (11,137,016 | ) | 3,433,533 | $ | 122,117,230 | ||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 29% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. International Growth Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 33.49 | $ | 0.38 | $ | (0.60 | ) | $ | (0.22 | ) | $ | — | $ | 33.27 | (0.66 | )% | $ | 559,672 | 1.02 | %(d) | 1.03 | %(d) | 2.33 | %(d) | 10 | % | ||||||||||||||||||||||
| Year ended 12/31/15 |
34.87 | 0.48 | (1.33 | ) | (0.85 | ) | (0.53 | ) | 33.49 | (2.34 | ) | 601,760 | 1.00 | 1.01 | 1.35 | 22 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
35.32 | 0.56 | (0.44 | ) | 0.12 | (0.57 | ) | 34.87 | 0.33 | 647,530 | 1.01 | 1.02 | 1.58 | 26 | ||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
30.03 | 0.44 | 5.25 | 5.69 | (0.40 | ) | 35.32 | 19.01 | 686,305 | 1.01 | 1.02 | 1.37 | 24 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
26.37 | 0.35 | 3.73 | 4.08 | (0.42 | ) | 30.03 | 15.53 | 591,491 | 1.00 | 1.01 | 1.24 | 24 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
28.69 | 0.50 | (2.38 | ) | (1.88 | ) | (0.44 | ) | 26.37 | (6.74 | ) | 544,143 | 1.02 | 1.03 | 1.75 | 26 | ||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
33.04 | 0.34 | (0.59 | ) | (0.25 | ) | — | 32.79 | (0.76 | ) | 1,185,753 | 1.27 | (d) | 1.28 | (d) | 2.08 | (d) | 10 | ||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
34.42 | 0.38 | (1.31 | ) | (0.93 | ) | (0.45 | ) | 33.04 | (2.61 | ) | 1,169,823 | 1.25 | 1.26 | 1.10 | 22 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
34.88 | 0.47 | (0.43 | ) | 0.04 | (0.50 | ) | 34.42 | 0.09 | 1,079,488 | 1.26 | 1.27 | 1.33 | 26 | ||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
29.68 | 0.36 | 5.18 | 5.54 | (0.34 | ) | 34.88 | 18.72 | 1,062,929 | 1.26 | 1.27 | 1.12 | 24 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
26.08 | 0.28 | 3.69 | 3.97 | (0.37 | ) | 29.68 | 15.26 | 827,361 | 1.25 | 1.26 | 0.99 | 24 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
28.35 | 0.42 | (2.36 | ) | (1.94 | ) | (0.33 | ) | 26.08 | (6.99 | ) | 607,269 | 1.27 | 1.28 | 1.50 | 26 | ||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $23,376,285 and sold of $8,831,296 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. International Growth Equity Fund into the Fund. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $576,265 and $1,157,923 for Series I and Series II shares, respectively. |
NOTE 10—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. International Growth Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before |
Annualized Expense Ratio2 |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2,3 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2,4 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 993.40 | $ | 5.06 | $ | 1,019.79 | $ | 5.12 | 1.02 | % | ||||||||||||
| Series II | 1,000.00 | 992.40 | 6.29 | 1,018.55 | 6.37 | 1.27 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2016, Invesco has agreed to limit administrative services fees reimbursed by the Fund. The annualized ratios restated as if this administrative services fee limitation had been in effect throughout the entire most recent fiscal half year are 0.93% and 1.18%, for Series I and Series II shares, respectively. |
| 3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.61 and $5.85 for Series I and Series II shares, respectively. |
| 4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.67 and $5.92 for Series I and Series II shares, respectively. |
Invesco V.I. International Growth Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. International Growth Fund
Invesco V.I. International Growth Fund
|
| ||||
|
|
Semiannual Report to Shareholders
|
June 30, 2016 | ||
|
| ||||
| Invesco V.I. Managed Volatility Fund | ||||
| ||||
| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. I-VIMGV-SAR-1 | ||||
|
| ||||
| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Managed Volatility Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Investment Abbreviations:
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1K and Note 4. |
| (d) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2016 was $2,259,505, which represented 4.64% of the Fund’s Net Assets. |
| (e) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. |
| (f) | Perpetual bond with no specified maturity date. |
| (g) | Step coupon bond. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. |
| (h) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Financials |
26.5 | % | ||
| Information Technology |
14.2 | |||
| Health Care |
13.6 | |||
| Energy |
9.8 | |||
| Consumer Discretionary |
8.7 | |||
| U.S.Treasury Securities |
6.9 | |||
| Industrials |
6.1 | |||
| Consumer Staples |
5.2 | |||
| Telecommunication Services |
3.3 | |||
| Utilities |
1.9 | |||
| Materials |
0.9 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
2.9 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
||||||||
| Net investment income |
$ | 316,195 | $ | 693,062 | ||||
| Net realized gain (loss) |
(1,082,609 | ) | 1,602,685 | |||||
| Change in net unrealized appreciation (depreciation) |
275,655 | (3,511,913 | ) | |||||
| Net increase (decrease) in net assets resulting from operations |
(490,759 | ) | (1,216,166 | ) | ||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (883,070 | ) | |||||
| Series ll |
— | (18,185 | ) | |||||
| Total distributions from net investment income |
— | (901,255 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (22,008,256 | ) | |||||
| Series ll |
— | (561,485 | ) | |||||
| Total distributions from net realized gains |
— | (22,569,741 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(4,611,141 | ) | 5,715,114 | |||||
| Series ll |
(100,703 | ) | 321,994 | |||||
| Net increase (decrease) in net assets resulting from share transactions |
(4,711,844 | ) | 6,037,108 | |||||
| Net increase (decrease) in net assets |
(5,202,603 | ) | (18,650,054 | ) | ||||
| Net assets: |
||||||||
| Beginning of period |
53,860,747 | 72,510,801 | ||||||
| End of period (includes undistributed net investment income of $1,095,746 and $779,551, respectively) |
$ | 48,658,144 | $ | 53,860,747 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Managed Volatility Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is both capital appreciation and current income while managing portfolio volatility.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Managed Volatility Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco V.I. Managed Volatility Fund
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
| K. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between Counterparties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal Counterparty risk since the exchange’s clearinghouse, as Counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
Invesco V.I. Managed Volatility Fund
| L. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of 0.60% of the Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $1,740.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $24,864 for accounting and fund administrative services and reimbursed $56,456 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2016, the Fund incurred $54 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
Invesco V.I. Managed Volatility Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 31,136,366 | $ | 1,831,824 | $ | — | $ | 32,968,190 | ||||||||
| U.S. Treasury Securities |
— | 3,365,414 | — | 3,365,414 | ||||||||||||
| Corporate Debt Securities |
— | 12,403,089 | — | 12,403,089 | ||||||||||||
| 31,136,366 | 17,600,327 | — | 48,736,693 | |||||||||||||
| Forward Foreign Currency Contracts* |
— | 91,298 | — | 91,298 | ||||||||||||
| Futures Contracts* |
(597,886 | ) | — | — | (597,886 | ) | ||||||||||
| Total Investments |
$ | 30,538,480 | $ | 17,691,625 | $ | — | $ | 48,230,105 | ||||||||
| * | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2016:
| Value | ||||||||
| Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
| Currency risk: |
||||||||
| Forward foreign currency contracts(a) |
$ | 107,517 | $ | (16,219 | ) | |||
| Equity risk: |
||||||||
| Futures contracts(b) |
— | (597,886 | ) | |||||
| Total |
$ | 107,517 | $ | (614,105 | ) | |||
| (a) | Values are disclosed on the Statement of Assets and Liabilities under the captions Unrealized appreciation on forward foreign currency contracts outstanding and Unrealized depreciation on forward foreign currency contracts outstanding. |
| (b) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Investments for the six months ended June 30, 2016
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
| Location of Gain (Loss) on Statement of Operations |
||||||||
| Forward Foreign Currency |
Futures Contracts |
|||||||
| Realized Gain (Loss): |
||||||||
| Currency risk |
$ | (33,088 | ) | $ | — | |||
| Equity risk |
— | (559,738 | ) | |||||
| Change in Net Unrealized Appreciation (Depreciation): |
||||||||
| Currency risk |
62,408 | — | ||||||
| Equity risk |
— | (597,662 | ) | |||||
| Total |
$ | 29,320 | $ | (1,157,400 | ) | |||
The table below summarizes the average notional value of forward foreign currency contracts and the four month average notional value of futures contracts, outstanding during the period.
| Forward Foreign Currency Contracts |
Futures Contracts |
|||||||
| Average notional value |
$ | 3,235,695 | $ | 10,824,118 | ||||
Invesco V.I. Managed Volatility Fund
| Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
| Settlement Date |
Counterparty |
Contract to | Notional Value |
Unrealized Appreciation |
||||||||||||||||||||||
| Deliver | Receive | |||||||||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) |
CHF | 116,765 | USD | 119,141 | $ | 119,601 | $ | (460 | ) | ||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. |
CHF | 116,763 | USD | 119,140 | 119,599 | (459 | ) | ||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) |
EUR | 351,223 | USD | 396,741 | 389,714 | 7,027 | |||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. |
EUR | 364,131 | USD | 411,104 | 404,036 | 7,068 | |||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) |
GBP | 268,828 | USD | 393,024 | 357,907 | 35,117 | |||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. |
GBP | 349,614 | USD | 508,676 | 465,460 | 43,216 | |||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) |
USD | 425,519 | GBP | 315,433 | 419,955 | (5,564 | ) | ||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) |
USD | 343,473 | EUR | 309,324 | 343,223 | (250 | ) | ||||||||||||||||||
| 07/01/16 |
Bank of New York Mellon (The) |
USD | 125,768 | CHF | 123,253 | 126,247 | 479 | |||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. |
USD | 450,747 | EUR | 406,030 | 450,527 | (220 | ) | ||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. |
USD | 408,878 | GBP | 303,007 | 403,412 | (5,466 | ) | ||||||||||||||||||
| 07/01/16 |
State Street Bank and Trust Co. |
USD | 112,497 | CHF | 110,275 | 112,954 | 457 | |||||||||||||||||||
| 07/05/16 |
Bank of New York Mellon (The) |
CAD | 346,562 | USD | 268,200 | 268,232 | (32 | ) | ||||||||||||||||||
| 07/05/16 |
State Street Bank and Trust Co. |
CAD | 346,564 | USD | 268,058 | 268,234 | (176 | ) | ||||||||||||||||||
| 07/05/16 |
Bank of New York Mellon (The) |
USD | 262,196 | CAD | 340,461 | 263,510 | 1,314 | |||||||||||||||||||
| 07/05/16 |
State Street Bank and Trust Co. |
USD | 271,711 | CAD | 352,665 | 272,955 | 1,244 | |||||||||||||||||||
| 08/12/16 |
Bank of New York Mellon (The) |
CAD | 340,248 | USD | 262,046 | 263,375 | (1,329 | ) | ||||||||||||||||||
| 08/12/16 |
State Street Bank and Trust Co. |
CAD | 340,247 | USD | 262,160 | 263,374 | (1,214 | ) | ||||||||||||||||||
| 08/12/16 |
Bank of New York Mellon (The) |
CHF | 123,291 | USD | 126,103 | 126,614 | (511 | ) | ||||||||||||||||||
| 08/12/16 |
State Street Bank and Trust Co. |
CHF | 123,290 | USD | 126,075 | 126,613 | (538 | ) | ||||||||||||||||||
| 08/12/16 |
Bank of New York Mellon (The) |
EUR | 301,438 | USD | 335,214 | 334,996 | 218 | |||||||||||||||||||
| 08/12/16 |
State Street Bank and Trust Co. |
EUR | 301,438 | USD | 335,250 | 334,996 | 254 | |||||||||||||||||||
| 08/12/16 |
Bank of New York Mellon (The) |
GBP | 315,560 | USD | 425,786 | 420,287 | 5,499 | |||||||||||||||||||
| 08/12/16 |
State Street Bank and Trust Co. |
GBP | 315,560 | USD | 425,911 | 420,287 | 5,624 | |||||||||||||||||||
| Total Forward Foreign Currency Contracts — Currency Risk |
|
$ | 91,298 | |||||||||||||||||||||||
Currency Abbreviations:
| Open Futures Contracts — Equity Risk | ||||||||||||||||||||
| Futures Contracts | Type of Contract |
Number of Contracts |
Expiration Month |
Notional Value |
Unrealized Appreciation (Depreciation) |
|||||||||||||||
| E-Mini S&P 500 Index |
Short | 207 | September-2016 | $ | (21,633,570 | ) | $ | (597,886 | ) | |||||||||||
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on the Fund’s financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
Invesco V.I. Managed Volatility Fund
The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2016.
| Gross amounts of Recognized Assets |
Gross Amounts Not Offset in the Statement of Assets and Liabilities |
|||||||||||||||||||
| Counterparty | Financial Instruments |
Collateral Received | Net Amount |
|||||||||||||||||
| Non-Cash | Cash | |||||||||||||||||||
| Bank of New York Mellon (The) |
$ | 49,654 | $ | (8,146 | ) | $ | — | $ | — | $ | 41,508 | |||||||||
| State Street Bank and Trust Co. |
57,863 | (8,073 | ) | — | — | 49,790 | ||||||||||||||
| Total |
$ | 107,517 | $ | (16,219 | ) | $ | — | $ | — | $ | 91,298 | |||||||||
| Gross amounts of Recognized Liabilities |
Gross Amounts Not Offset in the Statement of Assets and Liabilities |
|||||||||||||||||||
| Counterparty | Financial Instruments |
Collateral Pledged | Net Amount |
|||||||||||||||||
| Non-Cash | Cash | |||||||||||||||||||
| Bank of New York Mellon (The) |
$ | 8,146 | $ | (8,146) | $ | — | $ | — | $ | — | ||||||||||
| State Street Bank and Trust Co. |
8,073 | (8,073 | ) | — | — | — | ||||||||||||||
| Total |
$ | 16,219 | $ | (16,219 | ) | $ | — | $ | — | $ | — | |||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $5,266,617 and $10,833,564, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $20,129,934 and $19,663,549, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 3,150,397 | ||
| Aggregate unrealized (depreciation) of investment securities |
(2,759,003 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 391,394 | ||
Cost of investments for tax purposes is $48,345,299.
Invesco V.I. Managed Volatility Fund
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
116,830 | $ | 1,282,943 | 281,770 | $ | 4,951,536 | ||||||||||
| Series II |
2,927 | 31,853 | 4,400 | 73,277 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 2,053,034 | 22,891,326 | ||||||||||||
| Series II |
— | — | 52,506 | 579,670 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(534,585 | ) | (5,894,084 | ) | (1,451,733 | ) | (22,127,748 | ) | ||||||||
| Series II |
(12,082 | ) | (132,556 | ) | (18,649 | ) | (330,953 | ) | ||||||||
| Net increase (decrease) in share activity |
(426,910 | ) | $ | (4,711,844 | ) | 921,328 | $ | 6,037,108 | ||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 61% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio
of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio
of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 11.38 | $ | 0.07 | $ | (0.15 | ) | $ | (0.08 | ) | $ | — | $ | — | $ | — | $ | 11.30 | (0.70 | )% | $ | 47,272 | 1.21 | %(d) | 1.22 | %(d) | 1.29 | %(d) | 53 | % | ||||||||||||||||||||||||||
| Year ended 12/31/15 |
19.02 | 0.18 | (0.74 | ) | (0.56 | ) | (0.27 | ) | (6.81 | ) | (7.08 | ) | 11.38 | (2.15 | ) | 52,360 | 1.08 | 1.10 | 1.07 | 117 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
17.03 | 0.24 | 3.23 | 3.47 | (0.56 | ) | (0.92 | ) | (1.48 | ) | 19.02 | 20.57 | 70,717 | 1.03 | 1.10 | 1.26 | 201 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
16.20 | 0.47 | 1.25 | 1.72 | (0.52 | ) | (0.37 | ) | (0.89 | ) | 17.03 | 10.76 | 61,806 | 1.07 | 1.08 | 2.73 | 15 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
16.74 | 0.52 | 0.10 | 0.62 | (0.54 | ) | (0.62 | ) | (1.16 | ) | 16.20 | 3.61 | 64,158 | 0.99 | 1.03 | 3.10 | 3 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
14.87 | 0.51 | 1.90 | 2.41 | (0.54 | ) | — | (0.54 | ) | 16.74 | 16.45 | 70,956 | 0.92 | 1.04 | 3.23 | 14 | ||||||||||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
11.26 | 0.06 | (0.15 | ) | (0.09 | ) | — | — | — | 11.17 | (0.80 | ) | 1,386 | 1.46 | (d) | 1.47 | (d) | 1.04 | (d) | 53 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
18.88 | 0.13 | (0.72 | ) | (0.59 | ) | (0.22 | ) | (6.81 | ) | (7.03 | ) | 11.26 | (2.37 | ) | 1,500 | 1.33 | 1.35 | 0.82 | 117 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
16.91 | 0.19 | 3.21 | 3.40 | (0.51 | ) | (0.92 | ) | (1.43 | ) | 18.88 | 20.30 | 1,794 | 1.28 | 1.35 | 1.01 | 201 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
16.09 | 0.43 | 1.23 | 1.66 | (0.47 | ) | (0.37 | ) | (0.84 | ) | 16.91 | 10.45 | 1,664 | 1.32 | 1.33 | 2.48 | 15 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
16.63 | 0.47 | 0.10 | 0.57 | (0.49 | ) | (0.62 | ) | (1.11 | ) | 16.09 | 3.34 | 1,637 | 1.24 | 1.28 | 2.85 | 3 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
14.78 | 0.47 | 1.88 | 2.35 | (0.50 | ) | — | (0.50 | ) | 16.63 | 16.15 | 1,878 | 1.17 | 1.29 | 2.98 | 14 | ||||||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $48,195 and $1,414 for Series I and Series II shares, respectively. |
NOTE 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Managed Volatility Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2 |
|||||||||||||||||||||
|
Series I |
$ | 1,000.00 | $ | 993.00 | $ | 6.00 | $ | 1,018.85 | $ | 6.07 | 1.21 | % | ||||||||||||
|
Series II |
1,000.00 | 992.00 | 7.23 | 1,017.60 | 7.32 | 1.46 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Managed Volatility Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Managed Volatility Fund
Invesco V.I. Managed Volatility Fund
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|
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Semiannual Report to Shareholders
|
June 30, 2016 | ||
|
| ||||
| Invesco V.I. Mid Cap Core Equity Fund | ||||
| ||||
| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIMCCE-SAR-1 | ||||
|
| ||||
| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Mid Cap Core Equity Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Investment Abbreviations:
| REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Financials |
23.0 | % | ||
| Consumer Discretionary |
15.1 | |||
| Information Technology |
14.4 | |||
| Industrials |
11.8 | |||
| Materials |
7.5 | |||
| Health Care |
7.2 | |||
| Energy |
4.4 | |||
| Consumer Staples |
4.2 | |||
| Utilities |
4.0 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
8.4 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 1,000,511 | $ | 292,761 | ||||
| Net realized gain (loss) |
(3,214,263 | ) | 20,810,499 | |||||
| Change in net unrealized appreciation (depreciation) |
15,328,174 | (34,095,627 | ) | |||||
| Net increase (decrease) in net assets resulting from operations |
13,114,422 | (12,992,367 | ) | |||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (774,992 | ) | |||||
| Series ll |
— | (130,328 | ) | |||||
| Total distributions from net investment income |
— | (905,320 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (20,812,280 | ) | |||||
| Series ll |
— | (11,890,260 | ) | |||||
| Total distributions from net realized gains |
— | (32,702,540 | ) | |||||
| Share transactions-net: |
||||||||
| Series l |
(14,965,240 | ) | (23,442,519 | ) | ||||
| Series ll |
(2,177,127 | ) | 7,145,332 | |||||
| Net increase (decrease) in net assets resulting from share transactions |
(17,142,367 | ) | (16,297,187 | ) | ||||
| Net increase (decrease) in net assets |
(4,027,945 | ) | (62,897,414 | ) | ||||
| Net assets: |
||||||||
| Beginning of period |
319,960,673 | 382,858,087 | ||||||
| End of period (includes undistributed net investment income of $1,035,635 and $35,124, respectively) |
$ | 315,932,728 | $ | 319,960,673 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Mid Cap Core Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Mid Cap Core Equity Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain
Invesco V.I. Mid Cap Core Equity Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||||||
| First $500 million |
0 | .725% | ||||||
| Next $500 million |
0 | .70% | ||||||
| Next $500 million |
0 | .675% | ||||||
| Over $1.5 billion |
0 | .65% | ||||||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.725%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such
Invesco V.I. Mid Cap Core Equity Fund
Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $25,497.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $38,282 for accounting and fund administrative services and reimbursed $387,492 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 302,761,417 | $ | 13,282,273 | $ | — | $ | 316,043,690 | ||||||||
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2016, the Fund engaged in securities purchases of $1,840,842.
Invesco V.I. Mid Cap Core Equity Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $39,325,023 and $45,445,040, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 79,323,411 | ||
| Aggregate unrealized (depreciation) of investment securities |
(20,103,187 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 59,220,224 | ||
Cost of investments for tax purposes is $256,823,466.
Invesco V.I. Mid Cap Core Equity Fund
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
365,518 | $ | 4,497,223 | 482,475 | $ | 6,548,148 | ||||||||||
| Series II |
717,335 | 8,469,454 | 1,781,612 | 24,401,427 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 1,770,900 | 21,587,272 | ||||||||||||
| Series II |
— | — | 1,002,551 | 12,020,588 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(1,600,960 | ) | (19,462,463 | ) | (3,723,891 | ) | (51,577,939 | ) | ||||||||
| Series II |
(884,501 | ) | (10,646,581 | ) | (2,128,890 | ) | (29,276,683 | ) | ||||||||
| Net increase (decrease) in share activity |
(1,402,608 | ) | $ | (17,142,367 | ) | (815,243 | ) | $ | (16,297,187 | ) | ||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 58% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income (loss)(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income (loss) to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 12.12 | $ | 0.04 | $ | 0.48 | $ | 0.52 | $ | — | $ | — | $ | — | $ | 12.64 | 4.29 | % | $ | 194,776 | 1.04 | %(d) | 1.06 | %(d) | 0.74 | %(d) | 14 | % | ||||||||||||||||||||||||||||
| Year ended 12/31/15 |
14.06 | 0.02 | (0.58 | ) | (0.56 | ) | (0.05 | ) | (1.33 | ) | (1.38 | ) | 12.12 | (4.03 | ) | 201,685 | 1.01 | 1.03 | 0.17 | 44 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
15.13 | 0.05 | 0.64 | 0.69 | (0.01 | ) | (1.75 | ) | (1.76 | ) | 14.06 | 4.43 | 254,553 | 1.01 | 1.04 | 0.29 | 38 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
12.71 | 0.01 | 3.59 | 3.60 | (0.11 | ) | (1.07 | ) | (1.18 | ) | 15.13 | 28.81 | 290,550 | 1.01 | 1.04 | 0.09 | 34 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
11.56 | 0.09 | 1.18 | 1.27 | (0.01 | ) | (0.11 | ) | (0.12 | ) | 12.71 | 10.96 | 286,607 | 1.02 | 1.05 | 0.69 | 59 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
12.39 | 0.01 | (0.80 | ) | (0.79 | ) | (0.04 | ) | — | (0.04 | ) | 11.56 | (6.38 | ) | 322,102 | 1.01 | 1.03 | 0.08 | 57 | |||||||||||||||||||||||||||||||||||||
| Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
11.91 | 0.03 | 0.47 | 0.50 | — | — | — | 12.41 | 4.20 | 121,156 | 1.29 | (d) | 1.31 | (d) | 0.49 | (d) | 14 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
13.84 | (0.01 | ) | (0.57 | ) | (0.58 | ) | (0.02 | ) | (1.33 | ) | (1.35 | ) | 11.91 | (4.28 | ) | 118,276 | 1.26 | 1.28 | (0.08 | ) | 44 | ||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
14.95 | 0.01 | 0.63 | 0.64 | — | (1.75 | ) | (1.75 | ) | 13.84 | 4.17 | 128,305 | 1.26 | 1.29 | 0.04 | 38 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
12.58 | (0.02 | ) | 3.54 | 3.52 | (0.08 | ) | (1.07 | ) | (1.15 | ) | 14.95 | 28.46 | 117,219 | 1.26 | 1.29 | (0.16 | ) | 34 | |||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
11.47 | 0.06 | 1.16 | 1.22 | — | (0.11 | ) | (0.11 | ) | 12.58 | 10.62 | 90,648 | 1.27 | 1.30 | 0.44 | 59 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
12.28 | (0.02 | ) | (0.78 | ) | (0.80 | ) | (0.01 | ) | — | (0.01 | ) | 11.47 | (6.50 | ) | 65,196 | 1.26 | 1.28 | (0.17 | ) | 57 | |||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $194,169 and $118,806 for Series I and Series II shares, respectively. |
NOTE 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Mid Cap Core Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio2 |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2,3 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2,4 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 1,042.90 | $ | 5.28 | $ | 1,019.69 | $ | 5.22 | 1.04 | % | ||||||||||||
| Series II | 1,000.00 | 1,042.00 | 6.55 | 1,018.45 | 6.47 | 1.29 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2016, Invesco has agreed to limit administrative services fees reimbursed by the Fund. The annualized ratios restated as if this administrative services fee limitation had been in effect throughout the entire most recent fiscal half year are 0.94% and 1.19%, for Series I and Series II shares, respectively. |
| 3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.77 and $6.04 for Series I and Series II shares, respectively. |
| 4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.72 and $5.97 for Series I and Series II shares, respectively. |
Invesco V.I. Mid Cap Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Mid Cap Core Equity Fund
Invesco V.I. Mid Cap Core Equity Fund
|
| ||||
|
|
Semiannual Report to Shareholders
|
June 30, 2016 | ||
|
| ||||
| Invesco V.I. Mid Cap Growth Fund | ||||
| ||||
| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIMCG-SAR-1 | ||||
|
| ||||
| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Mid Cap Growth Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Investment Abbreviations:
| REIT | – Real Estate Investment Trust |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | All or a portion of this security was out on loan at June 30, 2016. |
| (d) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
| (e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
Portfolio Composition
By sector, based on Net Assets as of June 30, 2016
| Consumer Discretionary |
21.5 | % | ||
| Information Technology |
19.5 | |||
| Health Care |
16.8 | |||
| Industrials |
15.1 | |||
| Financials |
10.0 | |||
| Consumer Staples |
6.0 | |||
| Materials |
3.6 | |||
| Energy |
2.7 | |||
| Telecommunication Services |
2.1 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
2.7 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income (loss) |
$ | (663,209 | ) | $ | (1,340,723 | ) | ||
| Net realized gain (loss) |
(4,441,446 | ) | 27,134,624 | |||||
| Change in net unrealized appreciation (depreciation) |
(1,920,393 | ) | (22,951,719 | ) | ||||
| Net increase (decrease) in net assets resulting from operations |
(7,025,048 | ) | 2,842,182 | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (8,511,702 | ) | |||||
| Series ll |
— | (12,748,108 | ) | |||||
| Total distributions from net realized gains |
— | (21,259,810 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
1,581,998 | 4,687,810 | ||||||
| Series ll |
(18,883,720 | ) | 7,356,724 | |||||
| Net increase (decrease) in net assets resulting from share transactions |
(17,301,722 | ) | 12,044,534 | |||||
| Net increase (decrease) in net assets |
(24,326,770 | ) | (6,373,094 | ) | ||||
| Net assets: |
||||||||
| Beginning of period |
262,316,384 | 268,689,478 | ||||||
| End of period (includes undistributed net investment income (loss) of $(787,616) and $(124,407), respectively) |
$ | 237,989,614 | $ | 262,316,384 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Mid Cap Growth Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to seek capital growth.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. Mid Cap Growth Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. Mid Cap Growth Fund
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. The Fund bears the risk of loss with respect to the investment of collateral. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. When loaning securities, the Fund retains certain benefits of owning the securities, including the economic equivalent of dividends or interest generated by the security. Lending securities entails a risk of loss to the Fund if, and to the extent that, the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower failed to return the securities. The securities loaned are subject to termination at the option of the borrower or the Fund. Upon termination, the borrower will return to the Fund the securities loaned and the Fund will return the collateral. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral and the securities may lose value during the delay which could result in potential losses to the Fund. Some of these losses may be indemnified by the lending agent. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, are included in Dividends from affiliated money market funds on the Statement of Operations. The aggregate value of securities out on loan, if any, is shown as a footnote on the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||
| First $500 million |
0.75% | |||
| Next $500 million |
0.70% | |||
| Over $1 billion |
0.65% | |||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.75%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $3,203.
Invesco V.I. Mid Cap Growth Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $29,420 for accounting and fund administrative services and reimbursed $282,683 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2016, the Fund incurred $478 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
As of June 30, 2016, all of the securities in this Fund were valued based on Level 1 inputs (see the Schedule of Investments for security categories). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2016, the Fund engaged in securities sales of $21,173, which resulted in net realized gains of $6,949.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
Invesco V.I. Mid Cap Growth Fund
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $73,626,095 and $92,790,076, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 55,656,046 | ||
| Aggregate unrealized (depreciation) of investment securities |
(6,268,088 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 49,387,958 | ||
Cost of investments for tax purposes is $193,177,885.
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
2,845,981 | $ | 14,657,688 | 3,619,346 | $ | 21,736,576 | ||||||||||
| Series II |
2,122,622 | 10,710,857 | 6,398,975 | 37,748,394 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 1,612,065 | 8,511,702 | ||||||||||||
| Series II |
— | — | 2,437,497 | 12,748,108 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(2,598,308 | ) | (13,075,690 | ) | (4,381,375 | ) | (25,560,468 | ) | ||||||||
| Series II |
(5,859,696 | ) | (29,594,577 | ) | (7,323,786 | ) | (43,139,778 | ) | ||||||||
| Net increase (decrease) in share activity |
(3,489,401 | ) | $ | (17,301,722 | ) | 2,362,722 | $ | 12,044,534 | ||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 63% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Mid Cap Growth Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income (loss)(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio
of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income (loss) to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 5.38 | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.12 | ) | $ | — | $ | — | $ | — | $ | 5.26 | (2.23 | )% | $ | 102,565 | 1.08 | %(d) | 1.08 | %(d) | (0.42 | )%(d) | 31 | % | |||||||||||||||||||||||||
| Year ended 12/31/15 |
5.78 | (0.02 | ) | 0.08 | 0.06 | — | (0.46 | ) | (0.46 | ) | 5.38 | 1.21 | 103,632 | 1.07 | 1.07 | (0.33 | ) | 62 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
5.35 | (0.02 | ) | 0.45 | 0.43 | — | — | — | 5.78 | 8.04 | 106,390 | 1.07 | 1.07 | (0.36 | ) | 71 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
3.92 | (0.02 | ) | 1.47 | 1.45 | (0.02 | ) | — | (0.02 | ) | 5.35 | 37.01 | 115,319 | 1.08 | 1.08 | (0.41 | ) | 76 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
3.69 | 0.02 | (e) | 0.41 | 0.43 | — | (0.20 | ) | (0.20 | ) | 3.92 | 11.60 | 88,091 | 1.06 | 1.12 | 0.54 | (e) | 92 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
4.05 | (0.01 | ) | (0.35 | ) | (0.36 | ) | — | — | — | 3.69 | (8.89 | ) | 11 | 1.00 | 1.14 | (0.36 | ) | 137 | |||||||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
5.33 | (0.02 | ) | (0.11 | ) | (0.13 | ) | — | — | — | 5.20 | (2.44 | ) | 135,425 | 1.33 | (d) | 1.33 | (d) | (0.67 | )(d) | 31 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
5.74 | (0.03 | ) | 0.08 | 0.05 | — | (0.46 | ) | (0.46 | ) | 5.33 | 1.04 | 158,684 | 1.32 | 1.32 | (0.58 | ) | 62 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
5.33 | (0.03 | ) | 0.44 | 0.41 | — | — | — | 5.74 | 7.69 | 162,299 | 1.32 | 1.32 | (0.61 | ) | 71 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
3.91 | (0.03 | ) | 1.46 | 1.43 | (0.01 | ) | — | (0.01 | ) | 5.33 | 36.60 | 172,478 | 1.33 | 1.33 | (0.66 | ) | 76 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
3.68 | 0.01 | (e) | 0.42 | 0.43 | — | (0.20 | ) | (0.20 | ) | 3.91 | 11.63 | 143,588 | 1.31 | 1.37 | 0.29 | (e) | 92 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
4.06 | (0.02 | ) | (0.36 | ) | (0.38 | ) | — | — | — | 3.68 | (9.36 | ) | 65,080 | 1.25 | 1.39 | (0.61 | ) | 137 | |||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the year ended December 31, 2012, the portfolio turnover calculation excludes the value of securities purchased of $158,450,343 and sold of $99,449,268 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Capital Development Fund into the Fund. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $96,153 and $139,336 for Series I and Series II shares, respectively. |
| (e) | Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets includes special cash dividends received of $3.92 per share owned of Aveta Inc. on August 16, 2012. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $0.01 and 0.28% and $0.00 and 0.03% for Series I and Series II shares, respectively. |
NOTE 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Mid Cap Growth Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 977.70 | $ | 5.31 | $ | 1,019.49 | $ | 5.42 | 1.08 | % | ||||||||||||
| Series II | 1,000.00 | 975.60 | 6.53 | 1,018.25 | 6.67 | 1.33 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Mid Cap Growth Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Mid Cap Growth Fund
Invesco V.I. Mid Cap Growth Fund
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Semiannual Report to Shareholders
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June 30, 2016 | ||
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| Invesco V.I. S&P 500 Index Fund | ||||
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| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. MS-VISPI-SAR-1 | ||||
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| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. S&P 500 Index Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Investment Abbreviations:
| REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | The Fund’s Adviser is a subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. See Note 5. |
| (d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 4. |
| (e) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Information Technology |
19.6 | % | ||
| Financials |
15.6 | |||
| Health Care |
14.5 | |||
| Consumer Discretionary |
12.1 | |||
| Consumer Staples |
10.4 | |||
| Industrials |
10.1 | |||
| Energy |
7.3 | |||
| Utilities |
3.6 | |||
| Telecommunication Services |
2.9 | |||
| Materials |
2.8 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
1.1 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 759,917 | $ | 1,460,671 | ||||
| Net realized gain |
3,787,549 | 6,973,678 | ||||||
| Change in net unrealized appreciation (depreciation) |
(1,690,888 | ) | (7,733,614 | ) | ||||
| Net increase in net assets resulting from operations |
2,856,578 | 700,735 | ||||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (638,662 | ) | |||||
| Series ll |
— | (862,269 | ) | |||||
| Total distributions from net investment income |
— | (1,500,931 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (3,192,162 | ) | |||||
| Series ll |
— | (5,107,570 | ) | |||||
| Total distributions from net realized gains |
— | (8,299,732 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(2,398,277 | ) | 1,353,111 | |||||
| Series ll |
(6,923,552 | ) | 249,473 | |||||
| Net increase (decrease) in net assets resulting from share transactions |
(9,321,829 | ) | 1,602,584 | |||||
| Net increase (decrease) in net assets |
(6,465,251 | ) | (7,497,344 | ) | ||||
| Net assets: |
||||||||
| Beginning of period |
93,854,552 | 101,351,896 | ||||||
| End of period (includes undistributed net investment income of $2,070,883 and $1,310,966, respectively) |
$ | 87,389,301 | $ | 93,854,552 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. S&P 500 Index Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide investment results that, before expenses, correspond to the total return (i.e., the combination of capital changes and income) of the Standard & Poor’s 500® Composite Stock Price Index.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Invesco V.I. S&P 500 Index Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s |
Invesco V.I. S&P 500 Index Fund
| taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties (“Counterparties”) to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal Counterparty risk since the exchange’s clearinghouse, as Counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
| J. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||
| First $2 billion |
0.12% | |||
| Over $2 billion |
0.10% | |||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.12%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Invesco V.I. S&P 500 Index Fund
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $980.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $48,309 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 87,506,781 | $ | — | $ | — | $ | 87,506,781 | ||||||||
| Futures Contracts* |
5,805 | — | — | 5,805 | ||||||||||||
| Total Investments |
$ | 87,512,586 | $ | — | $ | — | $ | 87,512,586 | ||||||||
| * | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2016:
| Value | ||||||||
| Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
| Equity Risk: |
||||||||
| Futures contracts(a) |
$ | 5,805 | $ | — | ||||
| (a) | Includes cumulative appreciation of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
Invesco V.I. S&P 500 Index Fund
Effect of Derivative Investments for the six months ended June 30, 2016
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
| Location of Gain (Loss) on Statement of Operations |
||||
| Futures Contracts |
||||
| Realized Gain (Loss): |
||||
| Equity risk |
$ | (103,005 | ) | |
| Change in Unrealized Appreciation: |
||||
| Equity risk |
14,294 | |||
| Total |
$ | (88,711 | ) | |
The table below summarizes the average notional value of futures contracts outstanding during the period.
| Futures Contracts |
||||
| Average notional value |
$ | 1,257,211 | ||
| Open Futures Contracts — Equity Risk | ||||||||||||||||||||
| Futures Contracts | Type of Contract |
Number of Contracts |
Expiration Month |
Notional Value |
Unrealized Appreciation |
|||||||||||||||
| E-Mini S&P 500 Index |
Long | 10 | September-2016 | $ | 1,045,100 | $ | 5,805 | |||||||||||||
NOTE 5—Investments in Affiliates
The Fund’s Adviser is a subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. The following is a summary of the transactions in, and earnings from, investments in Invesco Ltd. for the six months ended June 30, 2016.
| Value 12/31/15 |
Purchases at Cost |
Proceeds from Sales |
Change in Unrealized Appreciation (Depreciation) |
Realized Gain |
Value 06/30/16 |
Dividend Income |
||||||||||||||||||||||
| Invesco Ltd. |
$ | 72,551 | $ | — | $ | (4,653 | ) | $ | (17,173 | ) | $ | 534 | $ | 51,259 | $ | 1,147 | ||||||||||||
NOTE 6—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 8—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
Invesco V.I. S&P 500 Index Fund
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $1,735,400 and $8,300,499, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 50,407,519 | ||
| Aggregate unrealized (depreciation) of investment securities |
(1,155,203 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 49,252,316 | ||
Cost of investments for tax purposes is $38,254,465.
NOTE 10—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
22,509 | $ | 365,903 | 198,942 | $ | 3,658,032 | ||||||||||
| Series II |
80,428 | 1,291,709 | 829,156 | 14,909,372 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 245,490 | 3,829,645 | ||||||||||||
| Series II |
— | — | 384,407 | 5,969,839 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(167,429 | ) | (2,764,180 | ) | (332,597 | ) | (6,134,566 | ) | ||||||||
| Series II |
(507,379 | ) | (8,215,261 | ) | (1,135,870 | ) | (20,629,738 | ) | ||||||||
| Net increase (decrease) in share activity |
(571,871 | ) | $ | (9,321,829 | ) | 189,528 | $ | 1,602,584 | ||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 89% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio
of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 16.58 | $ | 0.15 | $ | 0.45 | $ | 0.60 | $ | — | $ | — | $ | — | $ | 17.18 | 3.62 | % | $ | 34,381 | 0.40 | %(d) | 0.40 | %(d) | 1.88 | %(d) | 2 | % | ||||||||||||||||||||||||||||
| Year ended 12/31/15 |
18.52 | 0.30 | (0.24 | ) | 0.06 | (0.33 | ) | (1.67 | ) | (2.00 | ) | 16.58 | 1.03 | 35,586 | 0.41 | 0.41 | 1.66 | 7 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
16.66 | 0.28 | 1.92 | 2.20 | (0.34 | ) | — | (0.34 | ) | 18.52 | 13.32 | 37,685 | 0.41 | 0.41 | 1.62 | 3 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
12.89 | 0.24 | 3.84 | 4.08 | (0.31 | ) | — | (0.31 | ) | 16.66 | 31.91 | 36,853 | 0.41 | 0.41 | 1.63 | 4 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
11.36 | 0.25 | 1.54 | 1.79 | (0.26 | ) | — | (0.26 | ) | 12.89 | 15.77 | 32,634 | 0.33 | 0.39 | 1.97 | 4 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
11.42 | 0.21 | (0.04 | ) | 0.17 | (0.23 | ) | — | (0.23 | ) | 11.36 | 1.76 | 32,889 | 0.28 | 0.31 | 1.81 | 4 | |||||||||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
16.49 | 0.13 | 0.45 | 0.58 | — | — | — | 17.07 | 3.52 | 53,008 | 0.65 | (d) | 0.65 | (d) | 1.63 | (d) | 2 | |||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
18.43 | 0.25 | (0.24 | ) | 0.01 | (0.28 | ) | (1.67 | ) | (1.95 | ) | 16.49 | 0.72 | 58,268 | 0.66 | 0.66 | 1.41 | 7 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
16.58 | 0.24 | 1.90 | 2.14 | (0.29 | ) | — | (0.29 | ) | 18.43 | 13.02 | 63,667 | 0.66 | 0.66 | 1.37 | 3 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
12.83 | 0.20 | 3.82 | 4.02 | (0.27 | ) | — | (0.27 | ) | 16.58 | 31.55 | 67,793 | 0.66 | 0.66 | 1.38 | 4 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
11.30 | 0.22 | 1.54 | 1.76 | (0.23 | ) | — | (0.23 | ) | 12.83 | 15.52 | 64,657 | 0.58 | 0.64 | 1.72 | 4 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
11.35 | 0.18 | (0.03 | ) | 0.15 | (0.20 | ) | — | (0.20 | ) | 11.30 | 1.53 | 67,378 | 0.53 | 0.56 | 1.56 | 4 | |||||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $34,125 and $53,983 for Series I, Series II shares, respectively. |
Invesco V.I. S&P 500 Index Fund
NOTE 12—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. S&P 500 Index Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before |
Annualized Expense Ratio |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 1,036.20 | $ | 2.03 | $ | 1,022.87 | $ | 2.01 | 0.40 | % | ||||||||||||
| Series II | 1,000.00 | 1,035.20 | 3.29 | 1,021.63 | 3.27 | 0.65 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. S&P 500 Index Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. S&P 500 Index Fund
Invesco V.I. S&P 500 Index Fund
|
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|
|
Semiannual Report to Shareholders
|
June 30, 2016 | ||
|
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| Invesco V.I. Small Cap Equity Fund | ||||
| ||||
| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VISCE-SAR-1 | ||||
|
| ||||
| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Small Cap Equity Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Investment Abbreviations:
| REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | All or a portion of this security was out on loan at June 30, 2016. |
| (c) | Non-income producing security. |
| (d) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
| (e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Financials |
20.6 | % | ||
| Information Technology |
17.5 | |||
| Industrials |
15.4 | |||
| Consumer Discretionary |
14.7 | |||
| Health Care |
12.0 | |||
| Energy |
6.5 | |||
| Materials |
5.8 | |||
| Consumer Staples |
2.4 | |||
| Utilities |
1.4 | |||
| Telecommunication Services |
1.1 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
2.6 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income (loss) |
$ | 64,445 | $ | (307,179 | ) | |||
| Net realized gain |
4,930,135 | 22,151,222 | ||||||
| Change in net unrealized appreciation (depreciation) |
(1,437,594 | ) | (39,686,407 | ) | ||||
| Net increase (decrease) in net assets resulting from operations |
3,556,986 | (17,842,364 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (36,411,380 | ) | |||||
| Series ll |
— | (27,998,152 | ) | |||||
| Total distributions from net realized gains |
— | (64,409,532 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(12,030,834 | ) | 8,405,839 | |||||
| Series ll |
5,032,123 | 19,398,854 | ||||||
| Net increase (decrease) in net assets resulting from share transactions |
(6,998,711 | ) | 27,804,693 | |||||
| Net increase (decrease) in net assets |
(3,441,725 | ) | (54,447,203 | ) | ||||
| Net assets: |
||||||||
| Beginning of period |
295,021,307 | 349,468,510 | ||||||
| End of period (includes undistributed net investment income (loss) of $(5,593) and $(70,038), respectively) |
$ | 291,579,582 | $ | 295,021,307 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Small Cap Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. Small Cap Equity Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. Small Cap Equity Fund
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. The Fund bears the risk of loss with respect to the investment of collateral. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. When loaning securities, the Fund retains certain benefits of owning the securities, including the economic equivalent of dividends or interest generated by the security. Lending securities entails a risk of loss to the Fund if, and to the extent that, the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower failed to return the securities. The securities loaned are subject to termination at the option of the borrower or the Fund. Upon termination, the borrower will return to the Fund the securities loaned and the Fund will return the collateral. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral and the securities may lose value during the delay which could result in potential losses to the Fund. Some of these losses may be indemnified by the lending agent. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, are included in Dividends from affiliated money market funds on the Statement of Operations. The aggregate value of securities out on loan, if any, is shown as a footnote on the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||||||
| First $250 million |
0 | .745% | ||||||
| Next $250 million |
0 | .73% | ||||||
| Next $500 million |
0 | .715% | ||||||
| Next $1.5 billion |
0 | .70% | ||||||
| Next $2.5 billion |
0 | .685% | ||||||
| Next $2.5 billion |
0 | .67% | ||||||
| Next $2.5 billion |
0 | .655% | ||||||
| Over $10 billion |
0 | .64% | ||||||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.74%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Invesco V.I. Small Cap Equity Fund
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $4,091.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $35,288 for accounting and fund administrative services and reimbursed $346,522 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2016, the Fund incurred $15 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
As of June 30, 2016, all of the securities in this Fund were valued based on Level 1 inputs (see the Schedule of Investments for security categories). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2016, the Fund engaged in securities purchases of $1,661,917.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
Invesco V.I. Small Cap Equity Fund
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $52,497,693 and $64,530,672, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 54,086,768 | ||
| Aggregate unrealized (depreciation) of investment securities |
(19,816,332 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 34,270,436 | ||
Cost of investments for tax purposes is $261,319,249.
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
726,965 | $ | 12,009,811 | 1,161,619 | $ | 25,722,497 | ||||||||||
| Series II |
961,828 | 15,876,034 | 1,002,522 | 22,174,509 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 2,050,190 | 36,411,380 | ||||||||||||
| Series II |
— | — | 1,638,277 | 27,998,152 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(1,386,458 | ) | (24,040,645 | ) | (2,406,303 | ) | (53,728,038 | ) | ||||||||
| Series II |
(652,933 | ) | (10,843,911 | ) | (1,391,179 | ) | (30,773,807 | ) | ||||||||
| Net increase (decrease) in share activity |
(350,598 | ) | $ | (6,998,711 | ) | 2,055,126 | $ | 27,804,693 | ||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 59% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Small Cap Equity Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income (loss)(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net assets with feewaivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income (loss) to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 17.64 | $ | 0.01 | $ | 0.18 | $ | 0.19 | $ | — | $ | — | $ | — | $ | 17.83 | 1.08 | % | $ | 156,448 | 1.06 | %(d) | 1.06 | %(d) | 0.16 | %(d) | 19 | % | ||||||||||||||||||||||||||||
| Year ended 12/31/15 |
23.64 | 0.00 | (1.27 | ) | (1.27 | ) | — | (4.73 | ) | (4.73 | ) | 17.64 | (5.52 | ) | 166,407 | 1.04 | 1.04 | 0.02 | 31 | |||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
25.44 | (0.04 | ) | 0.47 | 0.43 | — | (2.23 | ) | (2.23 | ) | 23.64 | 2.36 | 203,963 | 1.05 | 1.05 | (0.17 | ) | 45 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
18.69 | (0.04 | ) | 7.02 | 6.98 | (0.00 | ) | (0.23 | ) | (0.23 | ) | 25.44 | 37.47 | 262,261 | 1.05 | 1.05 | (0.17 | ) | 35 | |||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
16.41 | 0.01 | 2.27 | 2.28 | — | — | — | 18.69 | 13.89 | 205,566 | 1.06 | 1.06 | 0.05 | 36 | ||||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
16.53 | (0.05 | ) | (0.07 | ) | (0.12 | ) | — | — | — | 16.41 | (0.73 | ) | 217,287 | 1.06 | 1.06 | (0.27 | ) | 61 | |||||||||||||||||||||||||||||||||||||
| Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
16.96 | (0.01 | ) | 0.17 | 0.16 | — | — | — | 17.12 | 0.94 | 135,131 | 1.31 | (d) | 1.31 | (d) | (0.09 | )(d) | 19 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
22.97 | (0.05 | ) | (1.23 | ) | (1.28 | ) | — | (4.73 | ) | (4.73 | ) | 16.96 | (5.74 | ) | 128,614 | 1.29 | 1.29 | (0.23 | ) | 31 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
24.85 | (0.10 | ) | 0.45 | 0.35 | — | (2.23 | ) | (2.23 | ) | 22.97 | 2.08 | 145,505 | 1.30 | 1.30 | (0.42 | ) | 45 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
18.31 | (0.09 | ) | 6.86 | 6.77 | — | (0.23 | ) | (0.23 | ) | 24.85 | 37.08 | 134,526 | 1.30 | 1.30 | (0.42 | ) | 35 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
16.11 | (0.03 | ) | 2.23 | 2.20 | — | — | — | 18.31 | 13.66 | 83,096 | 1.31 | 1.31 | (0.20 | ) | 36 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
16.27 | (0.09 | ) | (0.07 | ) | (0.16 | ) | — | — | — | 16.11 | (0.98 | ) | 54,691 | 1.31 | 1.31 | (0.52 | ) | 61 | |||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $158,213 and $128,583 for Series I and Series II shares, respectively. |
NOTE 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Small Cap Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2 |
|||||||||||||||||||||
|
Series I |
$ | 1,000.00 | $ | 1,010.80 | $ | 5.30 | $ | 1,019.59 | $ | 5.32 | 1.06 | % | ||||||||||||
|
Series II |
1,000.00 | 1,009.40 | 6.54 | 1,018.35 | 6.57 | 1.31 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Small Cap Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Small Cap Equity Fund
Invesco V.I. Small Cap Equity Fund
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Semiannual Report to Shareholders
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June 30, 2016 | ||
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| Invesco V.I. Technology Fund | ||||
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| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. I-VITEC-SAR-1 | ||||
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| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Technology Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Investment Abbreviations:
| ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Information Technology |
53.2 | % | ||
| Health Care |
23.2 | |||
| Consumer Discretionary |
16.4 | |||
| Industrials |
4.1 | |||
| Telecommunication Services |
2.0 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
1.1 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income (loss) |
$ | (162,757 | ) | $ | (602,316 | ) | ||
| Net realized gain (loss) |
(709,501 | ) | 4,389,402 | |||||
| Change in net unrealized appreciation (depreciation) |
(9,520,679 | ) | 3,449,118 | |||||
| Net increase (decrease) in net assets resulting from operations |
(10,392,937 | ) | 7,236,204 | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (10,432,483 | ) | |||||
| Series ll |
— | (803,764 | ) | |||||
| Total distributions from net realized gains |
— | (11,236,247 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(8,969,410 | ) | 6,278,886 | |||||
| Series ll |
(264,788 | ) | 3,689,985 | |||||
| Net increase (decrease) in net assets resulting from share transactions |
(9,234,198 | ) | 9,968,871 | |||||
| Net increase (decrease) in net assets |
(19,627,135 | ) | 5,968,828 | |||||
| Net assets: |
||||||||
| Beginning of period |
115,300,036 | 109,331,208 | ||||||
| End of period (includes undistributed net investment income (loss) of $(230,154) and $(67,397), respectively) |
$ | 95,672,901 | $ | 115,300,036 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Technology Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. Technology Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. Technology Fund
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. The Fund bears the risk of loss with respect to the investment of collateral. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. When loaning securities, the Fund retains certain benefits of owning the securities, including the economic equivalent of dividends or interest generated by the security. Lending securities entails a risk of loss to the Fund if, and to the extent that, the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower failed to return the securities. The securities loaned are subject to termination at the option of the borrower or the Fund. Upon termination, the borrower will return to the Fund the securities loaned and the Fund will return the collateral. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral and the securities may lose value during the delay which could result in potential losses to the Fund. Some of these losses may be indemnified by the lending agent. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, are included in Dividends from affiliated money market funds on the Statement of Operations. The aggregate value of securities out on loan, if any, is shown as a footnote on the Statement of Assets and Liabilities. |
| J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| K. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
| L. | Other Risks — The Fund’s investments are concentrated in a comparatively narrow segment of the economy, which may make the Fund more volatile. |
Many products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the issuers in this sector.
Invesco V.I. Technology Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||
| First $250 million |
0.75% | |||
| Next $250 million |
0.74% | |||
| Next $500 million |
0.73% | |||
| Next $1.5 billion |
0.72% | |||
| Next $2.5 billion |
0.71% | |||
| Next $2.5 billion |
0.70% | |||
| Next $2.5 billion |
0.69% | |||
| Over $10 billion |
0.68% | |||
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.75%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $1,865.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $120,519 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2016, the Fund incurred $126 brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Invesco V.I. Technology Fund
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 93,115,096 | $ | 3,261,747 | $ | — | $ | 96,376,843 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $19,304,634 and $28,335,495, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 29,700,515 | ||
| Aggregate unrealized (depreciation) of investment securities |
(4,023,596 | ) | ||
| Net unrealized appreciation of investment securities |
$ | 25,676,919 | ||
Cost of investments for tax purposes is $70,699,924.
Invesco V.I. Technology Fund
NOTE 8—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
307,598 | $ | 5,228,440 | 937,510 | $ | 18,643,275 | ||||||||||
| Series II |
15,929 | 255,222 | 169,083 | 3,299,652 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 596,483 | 10,432,483 | ||||||||||||
| Series II |
— | — | 47,730 | 803,764 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(836,218 | ) | (14,197,850 | ) | (1,131,990 | ) | (22,796,872 | ) | ||||||||
| Series II |
(32,162 | ) | (520,010 | ) | (22,460 | ) | (413,431 | ) | ||||||||
| Net increase (decrease) in share activity |
(544,853 | ) | $ | (9,234,198 | ) | 596,356 | $ | 9,968,871 | ||||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 63% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income (loss)(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income (loss) to average net assets |
Portfolio turnover(c) |
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| Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 18.83 | $ | (0.03 | ) | $ | (1.65 | ) | $ | (1.68 | ) | $ | — | $ | — | $ | — | $ | 17.15 | (8.92 | )% | $ | 88,624 | 1.13 | %(d) | 1.13 | %(d) | (0.32 | )%(d) | 20 | % | |||||||||||||||||||||||||
| Year ended 12/31/15 |
19.75 | (0.11 | ) | 1.29 | 1.18 | — | (2.10 | ) | (2.10 | ) | 18.83 | 6.82 | 107,257 | 1.15 | 1.15 | (0.53 | ) | 61 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
19.42 | (0.13 | ) | 2.20 | 2.07 | — | (1.74 | ) | (1.74 | ) | 19.75 | 11.05 | 104,556 | 1.16 | 1.16 | (0.65 | ) | 77 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
16.87 | (0.07 | ) | 4.19 | 4.12 | — | (1.57 | ) | (1.57 | ) | 19.42 | 25.14 | 103,151 | 1.17 | 1.17 | (0.40 | ) | 45 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
15.16 | (0.07 | ) | 1.78 | 1.71 | — | — | — | 16.87 | 11.28 | 95,371 | 1.16 | 1.16 | (0.42 | ) | 42 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
16.00 | (0.10 | ) | (0.71 | ) | (0.81 | ) | (0.03 | ) | — | (0.03 | ) | 15.16 | (5.05 | ) | 100,579 | 1.12 | 1.12 | (0.62 | ) | 41 | |||||||||||||||||||||||||||||||||||
| Series II |
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| Six months ended 06/30/16 |
18.12 | (0.05 | ) | (1.59 | ) | (1.64 | ) | — | — | — | 16.48 | (9.05 | ) | 7,049 | 1.38 | (d) | 1.38 | (d) | (0.57 | )(d) | 20 | |||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
19.13 | (0.15 | ) | 1.24 | 1.09 | — | (2.10 | ) | (2.10 | ) | 18.12 | 6.56 | 8,043 | 1.40 | 1.40 | (0.78 | ) | 61 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
18.90 | (0.17 | ) | 2.14 | 1.97 | — | (1.74 | ) | (1.74 | ) | 19.13 | 10.82 | 4,775 | 1.41 | 1.41 | (0.90 | ) | 77 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
16.50 | (0.12 | ) | 4.09 | 3.97 | — | (1.57 | ) | (1.57 | ) | 18.90 | 24.79 | 3,200 | 1.42 | 1.42 | (0.65 | ) | 45 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
14.86 | (0.11 | ) | 1.75 | 1.64 | — | — | — | 16.50 | 11.04 | 2,118 | 1.41 | 1.41 | (0.67 | ) | 42 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
15.71 | (0.14 | ) | (0.70 | ) | (0.84 | ) | (0.01 | ) | — | (0.01 | ) | 14.86 | (5.32 | ) | 1,613 | 1.37 | 1.37 | (0.87 | ) | 41 | |||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $91,359 and $7,116 for Series I and Series II shares, respectively. |
Note 10—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Technology Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio2 |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2,3 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2,4 |
|||||||||||||||||||||
| Series I | $ | 1,000.00 | $ | 910.80 | $ | 5.37 | $ | 1,019.24 | $ | 5.67 | 1.13 | % | ||||||||||||
| Series II | 1,000.00 | 909.50 | 6.55 | 1,018.00 | 6.92 | 1.38 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2016, Invesco has agreed to limit administrative services fees reimbursed by the Fund. The annualized ratios restated as if this administrative services fee limitation had been in effect throughout the entire most recent fiscal half year are 1.03% and 1.28%, for Series I and Series II shares, respectively. |
| 3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.89 and $6.08 for Series I and Series II shares, respectively. |
| 4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.17 and $6.42 for Series I and Series II shares, respectively. |
Invesco V.I. Technology Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Technology Fund
Invesco V.I. Technology Fund
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Semiannual Report to Shareholders
|
June 30, 2016 | ||
|
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| Invesco V.I. Value Opportunities Fund | ||||
| ||||
| The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
| This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIVOPP-SAR-1 | ||||
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| NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||
Fund Performance
| Invesco V.I. Value Opportunities Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Value Opportunities Fund
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. The rate shown is the 7-day SEC standardized yield as of June 30, 2016. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2016
| Financials |
43.4 | % | ||
| Information Technology |
17.2 | |||
| Consumer Discretionary |
10.3 | |||
| Health Care |
7.0 | |||
| Industrials |
6.6 | |||
| Energy |
5.6 | |||
| Materials |
2.5 | |||
| Consumer Staples |
0.8 | |||
| Money Market Funds Plus Other Assets Less Liabilities |
6.6 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Value Opportunities Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Value Opportunities Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2016 and the year ended December 31, 2015
(Unaudited)
| June 30, 2016 |
December 31, 2015 |
|||||||
| Operations: |
|
|||||||
| Net investment income |
$ | 199,565 | $ | 683,206 | ||||
| Net realized gain (loss) |
(3,503,165 | ) | 40,172,220 | |||||
| Change in net unrealized appreciation (depreciation) |
(3,450,566 | ) | (57,752,481 | ) | ||||
| Net increase (decrease) in net assets resulting from operations |
(6,754,166 | ) | (16,897,055 | ) | ||||
| Distributions to shareholders from net investment income: |
||||||||
| Series I |
— | (2,559,400 | ) | |||||
| Series ll |
— | (1,443,446 | ) | |||||
| Total distributions from net investment income |
— | (4,002,846 | ) | |||||
| Distributions to shareholders from net realized gains: |
||||||||
| Series l |
— | (7,184,178 | ) | |||||
| Series ll |
— | (4,742,937 | ) | |||||
| Total distributions from net realized gains |
— | (11,927,115 | ) | |||||
| Share transactions–net: |
||||||||
| Series l |
(5,808,069 | ) | (7,096,221 | ) | ||||
| Series ll |
(3,825,024 | ) | (12,382,949 | ) | ||||
| Net increase (decrease) in net assets resulting from share transactions |
(9,633,093 | ) | (19,479,170 | ) | ||||
| Net increase (decrease) in net assets |
(16,387,259 | ) | (52,306,186 | ) | ||||
| Net assets: |
||||||||
| Beginning of period |
138,776,178 | 191,082,364 | ||||||
| End of period (includes undistributed net investment income of $430,519 and $230,954, respectively) |
$ | 122,388,919 | $ | 138,776,178 | ||||
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Value Opportunities Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and asked prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and asked prices. For purposes of determining net asset value (“NAV”) per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end-of-day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Value Opportunities Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
| D. | Distributions — Distributions from net investment income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain
Invesco V.I. Value Opportunities Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
| J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis, or through forward foreign currency contracts, to manage or minimize currency or exchange rate risk. |
The Fund may also enter into forward foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) to purchase or sell a specific currency for an agreed-upon price at a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the Counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities.
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Daily Net Assets | Rate | |||||||
| First $250 million |
0 | .695% | ||||||
| Next $250 million |
0 | .67% | ||||||
| Next $500 million |
0 | .645% | ||||||
| Next $1.5 billion |
0 | .62% | ||||||
| Next $2.5 billion |
0 | .595% | ||||||
| Next $2.5 billion |
0 | .57% | ||||||
| Next $2.5 billion |
0 | .545% | ||||||
| Over $10 billion |
0 | .52% | ||||||
Invesco V.I. Value Opportunities Fund
For the six months ended June 30, 2016, the effective advisory fees incurred by the Fund was 0.695%.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco 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 Affiliated Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2017, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets (the “expense limits”). In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. During its term, the fee waiver agreement cannot be terminated or amended to increase expense limits without approval of the Board of Trustees. The Adviser did not waive fees and/or reimburse expenses during the period under these expense limits.
Further, the Adviser has contractually agreed, through at least June 30, 2018, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2016, the Adviser waived advisory fees of $2,545.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2016, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $157,515 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2016, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2016, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2016, the Fund incurred $575 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2016. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities |
$ | 119,136,993 | $ | 1,937,774 | $ | — | $ | 121,074,767 | ||||||||
Invesco V.I. Value Opportunities Fund
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2016, the Fund engaged in securities purchases of $160,745.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2015.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2016 was $21,580,083 and $36,766,431, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities |
$ | 11,889,649 | ||
| Aggregate unrealized (depreciation) of investment securities |
(17,941,654 | ) | ||
| Net unrealized appreciation (depreciation) of investment securities |
$ | (6,052,005 | ) | |
Cost of investments for tax purposes is $127,126,772.
Invesco V.I. Value Opportunities Fund
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Six months ended June 30, 2016(a) |
Year ended December 31, 2015 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: |
||||||||||||||||
| Series I |
215,377 | $ | 1,637,095 | 222,458 | $ | 2,046,113 | ||||||||||
| Series II |
105,468 | 760,380 | 283,180 | 2,554,872 | ||||||||||||
| Issued as reinvestment of dividends: |
||||||||||||||||
| Series I |
— | — | 1,263,759 | 9,743,578 | ||||||||||||
| Series II |
— | — | 804,471 | 6,186,383 | ||||||||||||
| Reacquired: |
||||||||||||||||
| Series I |
(987,051 | ) | (7,445,164 | ) | (2,030,461 | ) | (18,885,912 | ) | ||||||||
| Series II |
(605,005 | ) | (4,585,404 | ) | (2,241,197 | ) | (21,124,204 | ) | ||||||||
| Net increase (decrease) in share activity |
(1,271,211 | ) | $ | (9,633,093 | ) | (1,697,790 | ) | $ | (19,479,170 | ) | ||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 62% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Net asset value, beginning of period |
Net investment income(a) |
Net gains (losses) on securities (both realized and unrealized) |
Total from investment operations |
Dividends from net investment income |
Distributions from net realized gains |
Total distributions |
Net asset value, end of period |
Total return(b) |
Net assets, end of period (000’s omitted) |
Ratio
of expenses to average net assets with fee waivers and/or expenses absorbed |
Ratio of expenses to average net assets without fee waivers and/or expenses absorbed |
Ratio of net investment income to average net assets |
Portfolio turnover(c) |
|||||||||||||||||||||||||||||||||||||||||||
| Series I |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
$ | 7.82 | $ | 0.02 | $ | (0.41 | ) | $ | (0.39 | ) | $ | — | $ | — | $ | — | $ | 7.43 | (4.99 | )% | $ | 73,988 | 1.07 | %(d) | 1.07 | %(d) | 0.41 | %(d) | 17 | % | ||||||||||||||||||||||||||
| Year ended 12/31/15 |
9.84 | 0.05 | (1.09 | ) | (1.04 | ) | (0.26 | ) | (0.72 | ) | (0.98 | ) | 7.82 | (10.40 | ) | 83,889 | 1.04 | 1.04 | 0.51 | 82 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
9.36 | 0.18 | (e) | 0.44 | 0.62 | (0.14 | ) | — | (0.14 | ) | 9.84 | 6.62 | 110,865 | 1.03 | 1.04 | 1.87 | (e) | 15 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
7.10 | 0.10 | 2.28 | 2.38 | (0.12 | ) | — | (0.12 | ) | 9.36 | 33.75 | 130,146 | 1.01 | 1.02 | 1.24 | 17 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
6.12 | 0.09 | 0.99 | 1.08 | (0.10 | ) | — | (0.10 | ) | 7.10 | 17.70 | 130,383 | 1.01 | 1.02 | 1.37 | 9 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
6.38 | 0.08 | (0.28 | ) | (0.20 | ) | (0.06 | ) | — | (0.06 | ) | 6.12 | (3.05 | ) | 135,644 | 1.00 | 1.00 | 1.28 | 15 | |||||||||||||||||||||||||||||||||||||
| Series II |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended 06/30/16 |
7.79 | 0.01 | (0.40 | ) | (0.39 | ) | — | — | — | 7.40 | (5.01 | ) | 48,401 | 1.32 | (d) | 1.32 | (d) | 0.16 | (d) | 17 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/15 |
9.79 | 0.02 | (1.08 | ) | (1.06 | ) | (0.22 | ) | (0.72 | ) | (0.94 | ) | 7.79 | (10.65 | ) | 54,887 | 1.29 | 1.29 | 0.26 | 82 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/14 |
9.31 | 0.15 | (e) | 0.44 | 0.59 | (0.11 | ) | — | (0.11 | ) | 9.79 | 6.39 | 80,217 | 1.28 | 1.29 | 1.62 | (e) | 15 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/13 |
7.07 | 0.08 | 2.26 | 2.34 | (0.10 | ) | — | (0.10 | ) | 9.31 | 33.27 | 103,800 | 1.26 | 1.27 | 0.99 | 17 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/12 |
6.08 | 0.07 | 1.00 | 1.07 | (0.08 | ) | — | (0.08 | ) | 7.07 | 17.66 | 98,014 | 1.26 | 1.27 | 1.12 | 9 | ||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/11 |
6.34 | 0.06 | (0.28 | ) | (0.22 | ) | (0.04 | ) | — | (0.04 | ) | 6.08 | (3.39 | ) | 103,538 | 1.25 | 1.25 | 1.03 | 15 | |||||||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $77,565 and $50,940 for Series I and Series II shares, respectively. |
| (e) | Net investment income per share and the ratio of net investment income to average net assets includes significant dividends received during the year ended December 31, 2014. Net investment income per share and the ratio of net investment income to average net assets excluding the significant dividends are $0.12 and 1.23% and $0.09 and 0.98% for Series I and Series II, respectively. |
Note 11—Subsequent Event
Effective July 1, 2016, Invesco agreed to reduce any reimbursement made by the Fund to Invesco for administration services fees paid by Invesco to those insurance companies that have agreed to provide services to the participants of separate accounts to an amount not to exceed 0.15% of average daily net assets.
Invesco V.I. Value Opportunities Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
| Class | Beginning Account Value (01/01/16) |
ACTUAL | HYPOTHETICAL (5% annual return before expenses) |
Annualized Expense Ratio |
||||||||||||||||||||
| Ending Account Value (06/30/16)1 |
Expenses Paid During Period2 |
Ending Account Value (06/30/16) |
Expenses Paid During Period2 |
|||||||||||||||||||||
|
Series I |
$ | 1,000.00 | $ | 950.10 | $ | 5.19 | $ | 1,019.54 | $ | 5.37 | 1.07 | % | ||||||||||||
|
Series II |
1,000.00 | 949.90 | 6.40 | 1,018.30 | 6.62 | 1.32 | ||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2016 through June 30, 2016, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Value Opportunities Fund
Approval of Investment Advisory and Sub-Advisory Contracts
Invesco V.I. Value Opportunities Fund
Invesco V.I. Value Opportunities Fund
| ITEM 2. | CODE OF ETHICS. |
There were no amendments to the Code of Ethics (the “Code”) that applies to the Registrant’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”) during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable.
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
PricewaterhouseCoopers LLP informed the Trust that it has identified an issue related to its independence under Rule 2-01(c)(1)(ii)(A) of Regulation S-X (referred to as the Loan Rule). The Loan Rule prohibits accounting firms, such as PricewaterhouseCoopers LLP, from being deemed independent if they have certain financial relationships with their audit clients or certain affiliates of those clients. The Trust is required under various securities laws to have its financial statements audited by an independent accounting firm.
The Loan Rule specifically provides that an accounting firm would not be independent if it receives a loan from a lender that is a record or beneficial owner of more than ten percent of an audit client’s equity securities. For purposes of the Loan Rule, audit clients include the Funds as well as all registered investment companies advised by the Adviser and its affiliates, including other subsidiaries of the Adviser’s parent company, Invesco Ltd. (collectively, the Invesco Fund Complex). PricewaterhouseCoopers LLP informed the Trust it has relationships with lenders who hold, as record owner, more than ten percent of the shares of certain funds within the Invesco Fund Complex. These relationships call into question PricewaterhouseCoopers LLP’s independence under the Loan Rule with respect to those funds, as well as all other funds in the Invesco Fund Complex.
On June 20, 2016, the SEC Staff issued a “no-action” letter to another mutual fund complex (see Fidelity Management & Research Company et al., No-Action Letter) related to the audit independence issue described above. In that letter, the SEC confirmed that it would not recommend enforcement action against a fund that relied on audit services performed by an audit firm that was not in compliance with the Loan Rule in certain specified circumstances. PricewaterhouseCoopers LLP confirmed that the circumstances which called into question its independence under the Loan Rule with respect to the audits of the Funds are substantially similar to circumstances described in the no action letter. PricewaterhouseCoopers LLP also concluded that its objectivity and impartiality was not impaired with respect to the planning for and execution of the Funds’ audits and that they have complied with PCAOB Rule 3526(b)(1) and (2), which are conditions to the Funds relying on the no action letter. Therefore, the Adviser, the Funds and PricewaterhouseCoopers LLP have concluded that PricewaterhouseCoopers LLP can continue as the Funds’ independent registered public accounting firm. The Invesco Fund Complex intends to rely upon the no-action letter
If in the future the independence of PricewaterhouseCoopers LLP is called into question under the Loan Rule by circumstances that are not addressed in the SEC’s no-action letter, the Fund will need to take other action in order for the Fund’s filings with the SEC containing financial statements to be deemed compliant with applicable securities laws. Such additional actions could result in additional costs, impair the ability of the Funds to issue new shares or have other material adverse effects on the Funds. In addition, the SEC has indicated that the no-action relief will expire 18 months from its issuance after which the Invesco Funds will no longer be able rely on the letter unless it’s term is extended or made permanent by the SEC Staff.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
| ITEM 6. | SCHEDULE OF INVESTMENTS. |
Investments in securities of unaffiliated issuers is included as part of the reports to stockholders filed under Item 1 of this Form.
| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
None.
| ITEM 11. | CONTROLS AND PROCEDURES. |
| (a) | As of August 12, 2016 an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), to assess the effectiveness of the Registrant’s disclosure controls and procedures, as that term is defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”), as amended. Based on that evaluation, the Registrant’s officers, including the PEO and PFO, concluded that, as of August 12, 2016, the Registrant’s disclosure controls and procedures were reasonably designed to ensure: (1) that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission; and (2) that |
| material information relating to the Registrant is made known to the PEO and PFO as appropriate to allow timely decisions regarding required disclosure. |
| (b) | There have been no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by the report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
| ITEM 12. | EXHIBITS. |
| 12(a) (1) | Not applicable. |
| 12(a) (2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. |
| 12(a) (3) | Not applicable. |
| 12(b) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
| By: | /s/ Sheri Morris | |
| Sheri Morris | ||
| Principal Executive Officer | ||
| Date: | August 26, 2016 | |
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| By: | /s/ Sheri Morris | |
| Sheri Morris | ||
| Principal Executive Officer | ||
| Date: | August 26, 2016 | |
| By: | /s/ Kelli Gallegos | |
| Kelli Gallegos | ||
| Principal Financial Officer | ||
| Date: | August 26, 2016 | |
EXHIBIT INDEX
| 12(a) (1) | Not applicable. | |
| 12(a) (2) | Certifications of principal executive officer and Principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. | |
| 12(a) (3) | Not applicable. | |
| 12(b) | Certifications of principal executive officer and Principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. | |