UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file
number | 811-07452 |
AIM Variable Insurance Funds (Invesco Variable Insurance Funds) |
(Exact name of registrant as specified in charter) |
11 Greenway Plaza, Suite 1000 Houston, Texas 77046 |
(Address of principal executive offices) (Zip code) |
Sheri Morris 11 Greenway Plaza, Suite 1000 Houston, Texas 77046 |
(Name and address of agent for service) |
Registrant’s telephone number, including area code: | (713) 626-1919 |
Date of fiscal year end: | 12/31 | |||
Date of reporting period: | 6/30/16 |
Item 1. Report to Stockholders.
| ||||
Semiannual Report to Shareholders
| June 30, 2016 | |||
| ||||
Invesco V.I. American Franchise Fund | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIAMFR-SAR-1 | ||||
| ||||
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
| |||||
Series I Shares | -3.89% | ||||
Series II Shares | -4.03 | ||||
S&P 500 Index▼ (Broad Market Index) | 3.84 | ||||
Russell 1000 Growth Index▼ (Style-Specific Index) | 1.36 | ||||
Lipper VUF Large-Cap Growth Funds Index¢ (Peer Group Index) | -2.62 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The S&P 500® Index is an unmanaged index considered representative of the US stock market. The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. The Lipper VUF Large-Cap Growth Funds Index is an unmanaged index considered representative of large-cap growth variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (7/3/95) | 8.60 | % | ||||||||
10 Years | 7.24 | |||||||||
5 Years | 9.06 | |||||||||
1 Year | -1.50 | |||||||||
Series II Shares | ||||||||||
Inception (9/18/00) | 0.09 | % | ||||||||
10 Years | 6.97 | |||||||||
5 Years | 8.78 | |||||||||
1 Year | -1.76 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Capital Growth Portfolio, advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Capital Growth Fund (renamed Invesco V.I. American Franchise Fund on April 29, 2013). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. American Franchise Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund
expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.96% and 1.21%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. American Franchise Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available
at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. American Franchise Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.68% |
| |||||||
Aerospace & Defense–2.25% | ||||||||
Honeywell International Inc. | 23,377 | $ | 2,719,213 | |||||
Raytheon Co. | 76,742 | 10,433,075 | ||||||
13,152,288 | ||||||||
Air Freight & Logistics–0.48% | ||||||||
FedEx Corp. | 18,428 | 2,797,002 | ||||||
Airlines–0.72% | ||||||||
Southwest Airlines Co. | 107,873 | 4,229,700 | ||||||
Application Software–1.81% | ||||||||
salesforce.com, inc.(b) | 133,432 | 10,595,835 | ||||||
Biotechnology–8.59% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 15,762 | 1,840,371 | ||||||
Alkermes PLC(b) | 80,372 | 3,473,678 | ||||||
Amgen Inc. | 50,692 | 7,712,788 | ||||||
Biogen Inc.(b) | 19,803 | 4,788,761 | ||||||
Celgene Corp.(b) | 149,960 | 14,790,555 | ||||||
Gilead Sciences, Inc. | 181,934 | 15,176,934 | ||||||
Vertex Pharmaceuticals Inc.(b) | 28,657 | 2,465,075 | ||||||
50,248,162 | ||||||||
Cable & Satellite–4.01% | ||||||||
Charter Communications, Inc.–Class A(b) | 18,053 | 4,127,638 | ||||||
Comcast Corp.–Class A | 106,405 | 6,936,542 | ||||||
DISH Network Corp.–Class A(b) | 237,075 | 12,422,730 | ||||||
23,486,910 | ||||||||
Communications Equipment–0.36% | ||||||||
Palo Alto Networks, Inc.(b) | 17,033 | 2,088,927 | ||||||
Consumer Electronics–3.28% | ||||||||
Harman International Industries, Inc. | 59,574 | 4,278,605 | ||||||
Sony Corp. (Japan) | 508,800 | 14,892,038 | ||||||
19,170,643 | ||||||||
Consumer Finance–1.03% | ||||||||
Synchrony Financial(b) | 238,685 | 6,033,957 | ||||||
Data Processing & Outsourced Services–5.36% | ||||||||
First Data Corp.–Class A(b) | 721,362 | 7,985,477 | ||||||
MasterCard, Inc.–Class A | 105,379 | 9,279,675 | ||||||
Visa Inc.–Class A | 190,341 | 14,117,592 | ||||||
31,382,744 | ||||||||
Distillers & Vintners–0.75% | ||||||||
Constellation Brands, Inc.–Class A | 26,644 | 4,406,918 | ||||||
Drug Retail–0.52% | ||||||||
CVS Health Corp. | 31,511 | 3,016,863 | ||||||
Environmental & Facilities Services–1.17% | ||||||||
Republic Services, Inc. | 133,062 | 6,827,411 |
Shares | Value | |||||||
Health Care Equipment–1.14% | ||||||||
Medtronic PLC | 76,889 | $ | 6,671,659 | |||||
Home Entertainment Software–4.09% | ||||||||
Activision Blizzard, Inc. | 447,073 | 17,717,503 | ||||||
Electronic Arts Inc.(b) | 81,812 | 6,198,077 | ||||||
23,915,580 | ||||||||
Home Improvement Retail–3.52% | ||||||||
Lowe’s Cos., Inc. | 260,038 | 20,587,208 | ||||||
Hotels, Resorts & Cruise Lines–2.27% | ||||||||
Carnival Corp. | 197,381 | 8,724,240 | ||||||
Royal Caribbean Cruises Ltd. | 68,075 | 4,571,236 | ||||||
13,295,476 | ||||||||
Household Appliances–0.92% | ||||||||
Whirlpool Corp. | 32,152 | 5,357,809 | ||||||
Industrial Conglomerates–0.98% | ||||||||
Danaher Corp. | 29,949 | 3,024,849 | ||||||
Roper Technologies, Inc. | 15,992 | 2,727,596 | ||||||
5,752,445 | ||||||||
Industrial Gases–1.15% | ||||||||
Air Products and Chemicals, Inc. | 47,537 | 6,752,156 | ||||||
Internet Retail–8.41% | ||||||||
Amazon.com, Inc.(b) | 47,722 | 34,150,817 | ||||||
Netflix Inc.(b) | 46,841 | 4,285,015 | ||||||
Priceline Group Inc. (The)(b) | 8,661 | 10,812,479 | ||||||
49,248,311 | ||||||||
Internet Software & Services–12.16% | ||||||||
Alibaba Group Holding Ltd.–ADR (China)(b) | 47,198 | 3,753,657 | ||||||
Alphabet Inc.–Class A(b) | 50,417 | 35,469,872 | ||||||
Facebook Inc.–Class A(b) | 279,375 | 31,926,975 | ||||||
71,150,504 | ||||||||
Investment Banking & Brokerage–0.82% | ||||||||
Charles Schwab Corp. (The) | 189,574 | 4,798,118 | ||||||
IT Consulting & Other Services–0.41% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 41,569 | 2,379,410 | ||||||
Life Sciences Tools & Services–1.22% | ||||||||
Thermo Fisher Scientific, Inc. | 48,365 | 7,146,412 | ||||||
Managed Health Care–2.72% | ||||||||
UnitedHealth Group Inc. | 112,961 | 15,950,093 | ||||||
Movies & Entertainment–0.48% | ||||||||
Time Warner Inc. | 38,401 | 2,824,010 | ||||||
Oil & Gas Equipment & Services–1.67% | ||||||||
Halliburton Co. | 216,131 | 9,788,573 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Franchise Fund
Shares | Value | |||||||
Oil & Gas Exploration & Production–0.90% | ||||||||
Pioneer Natural Resources Co. | 34,883 | $ | 5,274,658 | |||||
Packaged Foods & Meats–1.70% | ||||||||
JM Smucker Co. (The) | 34,570 | 5,268,813 | ||||||
Tyson Foods, Inc.–Class A | 69,725 | 4,656,933 | ||||||
9,925,746 | ||||||||
Pharmaceuticals–5.49% | ||||||||
Allergan PLC(b) | 57,241 | 13,227,823 | ||||||
Bristol-Myers Squibb Co. | 133,694 | 9,833,194 | ||||||
Eli Lilly and Co. | 69,966 | 5,509,822 | ||||||
Zoetis Inc. | 75,430 | 3,579,908 | ||||||
32,150,747 | ||||||||
Semiconductors–3.55% | ||||||||
Broadcom Ltd. (Singapore) | 88,329 | 13,726,327 | ||||||
NXP Semiconductors N.V. (Netherlands)(b) | 90,184 | 7,065,014 | ||||||
20,791,341 | ||||||||
Soft Drinks–1.10% | ||||||||
Monster Beverage Corp.(b) | 39,918 | 6,415,222 | ||||||
Specialized Consumer Services–0.42% | ||||||||
Service Corp. International | 90,254 | 2,440,468 | ||||||
Specialized Finance–1.04% | ||||||||
S&P Global Inc. | 56,878 | 6,100,734 | ||||||
Specialized REIT’s–1.47% | ||||||||
American Tower Corp. | 75,511 | 8,578,805 |
Shares | Value | |||||||
Specialty Chemicals–0.90% | ||||||||
Sherwin-Williams Co. (The) | 18,022 | $ | 5,292,521 | |||||
Systems Software–2.49% | ||||||||
Microsoft Corp. | 216,743 | 11,090,739 | ||||||
ServiceNow, Inc. (b) | 52,786 | 3,504,991 | ||||||
14,595,730 | ||||||||
Technology Hardware, Storage & Peripherals–3.55% | ||||||||
Apple Inc. | 217,291 | 20,773,020 | ||||||
Tobacco–3.56% | ||||||||
Altria Group, Inc. | 103,652 | 7,147,842 | ||||||
Philip Morris International Inc. | 134,767 | 13,708,499 | ||||||
20,856,341 | ||||||||
Wireless Telecommunication Services–1.22% | ||||||||
Sprint Corp.(b) | 1,576,120 | 7,139,824 | ||||||
Total Common Stocks & Other Equity Interests |
| 583,390,281 | ||||||
Money Market Funds–0.46% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(c) | 1,360,539 | 1,360,539 | ||||||
Premier Portfolio–Institutional Class, 0.40%(c) | 1,360,540 | 1,360,540 | ||||||
Total Money Market Funds |
| 2,721,079 | ||||||
TOTAL INVESTMENTS–100.14% |
| 586,111,360 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.14)% |
| (838,751 | ) | |||||
NET ASSETS–100.00% |
| $ | 585,272,609 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $408,519,482) | $ | 583,390,281 | ||
Investments in affiliated money market funds, at value and cost | 2,721,079 | |||
Total investments, at value (Cost $411,240,561) | 586,111,360 | |||
Foreign currencies, at value (Cost $44,455) | 47,311 | |||
Receivable for: | ||||
Fund shares sold | 279,693 | |||
Dividends | 413,743 | |||
Investment for trustee deferred compensation and retirement plans | 343,364 | |||
Other assets | 387 | |||
Total assets | 587,195,858 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 329,171 | |||
Fund shares reacquired | 409,044 | |||
Accrued fees to affiliates | 782,460 | |||
Accrued trustees’ and officers’ fees and benefits | 855 | |||
Accrued other operating expenses | 23,848 | |||
Trustee deferred compensation and retirement plans | 377,871 | |||
Total liabilities | 1,923,249 | |||
Net assets applicable to shares outstanding | $ | 585,272,609 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 343,608,408 | ||
Undistributed net investment income (loss) | (151,865 | ) | ||
Undistributed net realized gain | 66,942,847 | |||
Net unrealized appreciation | 174,873,219 | |||
$ | 585,272,609 | |||
Net Assets: |
| |||
Series I | $ | 428,114,805 | ||
Series II | $ | 157,157,804 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 7,774,597 | |||
Series II | 2,931,953 | |||
Series I: | ||||
Net asset value per share | $ | 55.07 | ||
Series II: | ||||
Net asset value per share | $ | 53.60 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $4,115) | $ | 3,263,139 | ||
Dividends from affiliated money market funds (includes securities lending income of $1,966) | 20,404 | |||
Total investment income | 3,283,543 | |||
Expenses: | ||||
Advisory fees | 1,987,816 | |||
Administrative services fees | 752,512 | |||
Custodian fees | 15,214 | |||
Distribution fees — Series II | 196,918 | |||
Transfer agent fees | 49,363 | |||
Trustees’ and officers’ fees and benefits | 14,542 | |||
Reports to shareholders | 3,059 | |||
Professional services fees | 23,714 | |||
Other | 6,975 | |||
Total expenses | 3,050,113 | |||
Less: Fees waived | (7,716 | ) | ||
Net expenses | 3,042,397 | |||
Net investment income | 241,146 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(80,821)) | 17,316,608 | |||
Foreign currencies | (5,006 | ) | ||
17,311,602 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (44,642,485 | ) | ||
Foreign currencies | 3,114 | |||
(44,639,371 | ) | |||
Net realized and unrealized gain (loss) | (27,327,769 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (27,086,623 | ) |
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 | |||||||
Operations: |
| |||||||
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. American Franchise Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the
independent Trustees. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Fund Large-Cap Growth Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of its performance universe for the one and five year periods and the third quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one and five year periods and above the performance of the Index for the three year period. Invesco Advisers noted that the markets had been challenging for the Fund’s trend driven investment process. The Trustees also reviewed
Invesco V.I. American Franchise Fund
more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one such mutual fund. The Board also noted how the Fund’s rate compared to the effective sub-adviser fee rate of one mutual fund sub-advised by Invesco Advisers.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the
Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a similar scope of services.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund
pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
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
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | |||||
Series I Shares | 2.23% | ||||
Series II Shares | 2.12 | ||||
S&P 500 Index▼ (Broad Market Index) | 3.84 | ||||
Russell Midcap Value Index▼ (Style-Specific Index) | 8.87 | ||||
Lipper VUF Mid-Cap Value Funds Index¢ (Peer Group Index) | 6.30 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The S&P 500® Index is an unmanaged index considered representative of the US stock market. The Russell Midcap® Value Index is an unmanaged index considered representative of mid-cap value stocks. The Russell Midcap Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. The Lipper VUF Mid-Cap Value Funds Index is an unmanaged index considered representative of mid-cap value variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (1/2/97) | 9.45 | % | ||||||||
10 Years | 7.27 | |||||||||
5 Years | 8.59 | |||||||||
1 Year | -11.75 | |||||||||
Series II Shares | ||||||||||
Inception (5/5/03) | 10.06 | % | ||||||||
10 Years | 7.10 | |||||||||
5 Years | 8.36 | |||||||||
1 Year | -11.94 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Universal Institutional Funds Mid Cap Value Portfolio, advised by Morgan Stanley Investment Management Inc. were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Mid Cap Value Fund (renamed Invesco V.I. American Value Fund on April 29, 2013). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. American Value Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.10% and 1.35%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. American Value Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above,
for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. American Value Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.55% |
| |||||||
Aerospace & Defense–2.95% | ||||||||
Textron Inc. | 293,362 | $ | 10,725,315 | |||||
Alternative Carriers–2.81% | ||||||||
Level 3 Communications, Inc.(b) | 197,995 | 10,194,763 | ||||||
Apparel Retail–1.26% | ||||||||
Ascena Retail Group, Inc.(b) | 652,364 | 4,560,024 | ||||||
Application Software–2.22% | ||||||||
Citrix Systems, Inc.(b) | 100,450 | 8,045,041 | ||||||
Auto Parts & Equipment–5.11% | ||||||||
Dana Holding Corp. | 303,271 | 3,202,542 | ||||||
Johnson Controls, Inc. | 347,182 | 15,366,275 | ||||||
18,568,817 | ||||||||
Automotive Retail–2.66% | ||||||||
Advance Auto Parts, Inc. | 59,692 | 9,648,018 | ||||||
Broadcasting–2.67% | ||||||||
TEGNA Inc. | 417,763 | 9,679,569 | ||||||
Building Products–4.17% | ||||||||
Masco Corp. | 210,350 | 6,508,229 | ||||||
Owens Corning | 167,780 | 8,644,026 | ||||||
15,152,255 | ||||||||
Communications Equipment–2.76% | ||||||||
Ciena Corp.(b) | 534,756 | 10,026,675 | ||||||
Construction & Engineering–2.56% | ||||||||
Fluor Corp. | 188,795 | 9,303,818 | ||||||
Construction Materials–2.90% | ||||||||
Eagle Materials Inc. | 136,403 | 10,523,491 | ||||||
Diversified Banks–1.85% | ||||||||
Comerica Inc. | 163,225 | 6,713,444 | ||||||
Diversified Chemicals–2.80% | ||||||||
Eastman Chemical Co. | 149,776 | 10,169,790 | ||||||
Diversified REIT’s–3.63% | ||||||||
Forest City Realty Trust, Inc.–Class A | 591,181 | 13,189,248 | ||||||
Electric Utilities–2.66% | ||||||||
Edison International | 124,435 | 9,664,866 | ||||||
Electronic Equipment & Instruments–3.74% | ||||||||
Keysight Technologies, Inc.(b) | 302,989 | 8,813,950 | ||||||
Zebra Technologies Corp.–Class A(b) | 95,461 | 4,782,596 | ||||||
13,596,546 | ||||||||
Environmental & Facilities Services–2.18% | ||||||||
Clean Harbors, Inc.(b) | 152,257 | 7,934,112 |
Shares | Value | |||||||
Health Care Facilities–8.55% | ||||||||
Brookdale Senior Living Inc.(b) | 463,732 | $ | 7,160,022 | |||||
HealthSouth Corp. | 266,384 | 10,341,027 | ||||||
Universal Health Services, Inc.–Class B | 101,047 | 13,550,403 | ||||||
31,051,452 | ||||||||
Heavy Electrical Equipment–0.55% | ||||||||
Babcock & Wilcox Enterprises, Inc.(b) | 136,118 | 1,999,573 | ||||||
Industrial Machinery–2.78% | ||||||||
Ingersoll-Rand PLC | 158,308 | 10,081,053 | ||||||
Insurance Brokers–5.53% | ||||||||
Arthur J. Gallagher & Co. | 175,308 | 8,344,661 | ||||||
Willis Towers Watson PLC | 94,272 | 11,718,952 | ||||||
20,063,613 | ||||||||
Investment Banking & Brokerage–1.79% | ||||||||
Stifel Financial Corp.(b) | 206,329 | 6,489,047 | ||||||
IT Consulting & Other Services–2.15% | ||||||||
Teradata Corp.(b) | 311,684 | 7,813,918 | ||||||
Multi-Utilities–1.09% | ||||||||
CenterPoint Energy, Inc. | 164,363 | 3,944,712 | ||||||
Oil & Gas Equipment & Services–3.57% | ||||||||
Amec Foster Wheeler PLC (United Kingdom) | 585,579 | 3,832,882 | ||||||
Amec Foster Wheeler PLC–ADR (United Kingdom) | 41,919 | 273,731 | ||||||
Baker Hughes Inc. | 196,480 | 8,867,142 | ||||||
12,973,755 | ||||||||
Oil & Gas Exploration & Production–3.20% | ||||||||
Devon Energy Corp. | 320,766 | 11,627,767 | ||||||
Oil & Gas Storage & Transportation–1.03% | ||||||||
Williams Cos., Inc. (The) | 172,235 | 3,725,443 | ||||||
Packaged Foods & Meats–3.16% | ||||||||
ConAgra Foods, Inc. | 240,211 | 11,484,488 | ||||||
Property & Casualty Insurance–3.18% | ||||||||
FNF Group | 308,125 | 11,554,688 | ||||||
Regional Banks–6.66% | ||||||||
BB&T Corp. | 291,404 | 10,376,897 | ||||||
Wintrust Financial Corp. | 206,995 | 10,556,745 | ||||||
Zions Bancorp. | 128,788 | 3,236,442 | ||||||
24,170,084 | ||||||||
Retail REIT’s–1.26% | ||||||||
Kimco Realty Corp. | 145,361 | 4,561,428 | ||||||
Specialty Chemicals–2.04% | ||||||||
W.R. Grace & Co. | 101,071 | 7,399,408 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
Shares | Value | |||||||
Technology Hardware, Storage & Peripherals–1.66% | ||||||||
Diebold, Inc. | 242,882 | $ | 6,030,760 | |||||
Trucking–1.42% | ||||||||
Swift Transportation Co.(b) | 335,436 | 5,169,069 | ||||||
Total Common Stocks & Other Equity Interests |
| 357,836,050 | ||||||
Money Market Funds–2.28% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(c) | 4,140,915 | 4,140,915 | ||||||
Premier Portfolio–Institutional Class, 0.40%(c) | 4,140,915 | 4,140,915 | ||||||
Total Money Market Funds |
| 8,281,830 | ||||||
TOTAL INVESTMENTS–100.83% |
| 366,117,880 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.83)% |
| (3,022,070 | ) | |||||
NET ASSETS–100.00% |
| $ | 363,095,810 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $328,379,352) | $ | 357,836,050 | ||
Investments in affiliated money market funds, at value and cost | 8,281,830 | |||
Total investments, at value (Cost $336,661,182) | 366,117,880 | |||
Cash | 46,598 | |||
Foreign currencies, at value (Cost $340) | 339 | |||
Receivable for: | ||||
Investments sold | 1,949,902 | |||
Fund shares sold | 80,072 | |||
Dividends | 594,506 | |||
Investment for trustee deferred compensation and retirement plans | 47,992 | |||
Total assets | 368,837,289 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 3,056,998 | |||
Fund shares reacquired | 2,095,433 | |||
Accrued fees to affiliates | 510,507 | |||
Accrued trustees’ and officers’ fees and benefits | 562 | |||
Accrued other operating expenses | 22,295 | |||
Trustee deferred compensation and retirement plans | 55,684 | |||
Total liabilities | 5,741,479 | |||
Net assets applicable to shares outstanding | $ | 363,095,810 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 310,719,599 | ||
Undistributed net investment income | 1,444,864 | |||
Undistributed net realized gain | 21,485,303 | |||
Net unrealized appreciation | 29,446,044 | |||
$ | 363,095,810 | |||
Net Assets: |
| |||
Series I | $ | 120,878,030 | ||
Series II | $ | 242,217,780 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 7,534,567 | |||
Series II | 15,253,017 | |||
Series I: | ||||
Net asset value per share | $ | 16.04 | ||
Series II: | ||||
Net asset value per share | $ | 15.88 |
Investment income: |
| |||
Dividends | $ | 2,698,028 | ||
Dividends from affiliated money market funds | 24,695 | |||
Total investment income | 2,722,723 | |||
Expenses: | ||||
Advisory fees | 1,188,930 | |||
Administrative services fees | 408,848 | |||
Custodian fees | 9,785 | |||
Distribution fees — Series II | 264,161 | |||
Transfer agent fees | 23,553 | |||
Trustees’ and officers’ fees and benefits | 11,643 | |||
Reports to shareholders | 2,254 | |||
Professional services fees | 28,397 | |||
Other | (442 | ) | ||
Total expenses | 1,937,129 | |||
Less: Fees waived | (7,665 | ) | ||
Net expenses | 1,929,464 | |||
Net investment income | 793,259 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 2,552,010 | |||
Foreign currencies | (5,995 | ) | ||
Forward foreign currency contracts | 103,388 | |||
2,649,403 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 3,477,266 | |||
Foreign currencies | (7,647 | ) | ||
Forward foreign currency contracts | (46,438 | ) | ||
3,423,181 | ||||
Net realized and unrealized gain | 6,072,584 | |||
Net increase in net assets resulting from operations | $ | 6,865,843 |
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”).
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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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. American Value Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s
evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Funds Mid-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of its performance universe for the one and three year periods and the second quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one and three year periods and above the performance of the Index for the five year period. Invesco Advisers noted that concerns over the global economy drove investors to lower risk stocks versus the less defensive/more cyclically exposed stocks in
Invesco V.I. American Value Fund
which the Fund invested. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the effective advisory fee rate of one mutual fund advised by Invesco Advisers. The Board also noted how the Fund’s rate compared to the effective sub-adviser fee rate of five mutual funds sub-advised by Invesco Advisers. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts using an investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco
Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any
securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered that the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and was advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
Invesco V.I. American Value Fund
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Semiannual Report to Shareholders
| June 30, 2016 | |||
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Invesco V.I. Balanced-Risk Allocation Fund | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIIBRA-SAR-1 | ||||
| ||||
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | |||||
Series I Shares | 10.29% | ||||
Series II Shares | 10.12 | ||||
MSCI World Index▼ (Broad Market Index) | 0.66 | ||||
Custom Invesco V.I. Balanced-Risk Allocation Index¢ (Style-Specific Index) | 2.69 | ||||
Lipper VUF Absolute Return Funds Classification Average¿ (Peer Group) | 2.11 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Invesco, FactSet Research Systems Inc.; ¿Lipper Inc. | |||||
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries. The index is computed using the net return, which withholds applicable taxes for non-resident investors. The Custom Invesco V.I. Balanced-Risk Allocation Index, created by Invesco to serve as a benchmark for Invesco V.I. Balanced-Risk Allocation Fund, is comprised of the MSCI World Index (60%) and the Barclays U.S. Aggregate Index (40%). Prior to May 2, 2011, the index was comprised of the MSCI World Index (65%), the J.P. Morgan GBI Global Index (30%) and the Citigroup 3-Month Treasury Bill Index (5%). The Lipper VUF Absolute Return Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper Absolute Return Funds Classification. The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market. The J.P. Morgan GBI Global Index is a total return, market cap-weighted index that is rebalanced monthly and includes the following countries: Australia, Belgium, Canada, Denmark, Germany, Italy, Japan, Netherlands, Spain, Sweden, the UK and the US. The Citigroup 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last three-month Treasury bill issues. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
The returns shown above include the returns of Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund (the first predecessor fund) for the period June 1, 2010, to May 2, 2011, the date the first predecessor fund was reorganized into the Fund, and the returns of Van Kampen Life Investment Trust Global Tactical Asset Allocation Portfolio (the second predecessor fund) for the period prior to June 1, 2010, the date the second predecessor fund was reorganized into the first predecessor fund. The second predecessor fund was advised by Van Kampen Asset Management. Returns shown above for Series I and Series II shares are blended returns of the predecessor funds and Invesco V.I. Balanced-Risk Allocation Fund. Share class returns will differ from the predecessor funds because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.80% and 1.05%, respectively.1,2 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (1/23/09) | 9.55 | % | ||||||||
5 Years | 6.44 | |||||||||
1 Year | 5.17 | |||||||||
Series II Shares | ||||||||||
Inception (1/23/09) | 9.25 | % | ||||||||
5 Years | 6.16 | |||||||||
1 Year | 4.84 |
shares was 1.24% and 1.49%, respectively.1 The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Balanced-Risk Allocation Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2017. See current prospectus for more information. |
2 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2018. See current prospectus for more information. |
Invesco V.I. 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
Consolidated Statement of Assets
and Liabilities
June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $151,537,715) | $ | 162,493,016 | ||
Investments in affiliated money market funds, at value and cost | 857,167,284 | |||
Total investments, at value (Cost $1,008,704,999) | 1,019,660,300 | |||
Receivable for: | ||||
Deposits with brokers — futures | 15,537,300 | |||
Variation margin — futures | 6,803,045 | |||
Fund shares sold | 1,101,628 | |||
Dividends and interest | 269,798 | |||
Swaps receivables — OTC | 2,269,069 | |||
Premiums paid on swap agreements — OTC | 5 | |||
Investment for trustee deferred compensation and retirement plans | 87,375 | |||
Unrealized appreciation on swap agreements — OTC | 2,762,182 | |||
Other assets | 657 | |||
Total assets | 1,048,491,359 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 1,286,573 | |||
Swaps payable — OTC | 76,833 | |||
Accrued fees to affiliates | 1,520,367 | |||
Accrued trustees’ and officers’ fees and benefits | 976 | |||
Accrued other operating expenses | 49,525 | |||
Trustee deferred compensation and retirement plans | 101,068 | |||
Unrealized depreciation on swap agreements — OTC | 329,558 | |||
Total liabilities | 3,364,900 | |||
Net assets applicable to shares outstanding | $ | 1,045,126,459 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 947,370,361 | ||
Undistributed net investment income (loss) | (1,301,185 | ) | ||
Undistributed net realized gain | 60,824,891 | |||
Net unrealized appreciation | 38,232,392 | |||
$ | 1,045,126,459 | |||
Net Assets: |
| |||
Series I | $ | 30,968,167 | ||
Series II | $ | 1,014,158,292 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 2,753,954 | |||
Series II | 91,337,247 | |||
Series I: | ||||
Net asset value and offering price per share | $ | 11.24 | ||
Series II: | ||||
Net asset value per share | $ | 11.10 |
Consolidated Statement of
Operations
For the six months ended June 30, 2016
(Unaudited)
Investment income: |
| |||
Dividends from affiliated money market funds | $ | 1,338,750 | ||
Interest | 272,064 | |||
Total investment income | 1,610,814 | |||
Expenses: | ||||
Advisory fees | 4,486,590 | |||
Administrative services fees | 1,022,940 | |||
Custodian fees | 10,068 | |||
Distribution fees — Series II | 1,185,444 | |||
Transfer agent fees | 13,318 | |||
Trustees’ and officers’ fees and benefits | 15,895 | |||
Reports to shareholders | 2,738 | |||
Professional services fees | 35,865 | |||
Other | 11,138 | |||
Total expenses | 6,783,996 | |||
Less: Fees waived | (2,304,806 | ) | ||
Net expenses | 4,479,190 | |||
Net investment income (loss) | (2,868,376 | ) | ||
Realized and unrealized gain from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (2,775,532 | ) | ||
Foreign currencies | 629,714 | |||
Futures contracts | 37,869,764 | |||
Swap agreements | 25,375,000 | |||
61,098,946 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 12,840,761 | |||
Foreign currencies | 25 | |||
Futures contracts | 23,196,540 | |||
Swap agreements | 2,042,500 | |||
38,079,826 | ||||
Net realized and unrealized gain | 99,178,772 | |||
Net increase in net assets resulting from operations | $ | 96,310,396 |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Balanced-Risk Allocation Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the
independent Trustees. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office
support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe. The Board noted that performance of Series I shares of the Fund was in the third quintile of its performance universe for the one year period and that no comparative quintile information was available for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board also noted that there was no comparative Index. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual
Invesco V.I. Balanced-Risk Allocation Fund
management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the Fund’s contractual management fee rate for Series I shares of the Fund was above the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2017 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one mutual fund. The Board also noted how the Fund’s rate compared to the effective sub-adviser fee rate of three funds sub-advised by Invesco Advisers.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did
note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a similar scope of services.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board;
and that the services are required for the operation of the Fund.
Invesco V.I. Balanced-Risk Allocation Fund
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Semiannual Report to Shareholders
| June 30, 2016 | |||
| ||||
Invesco V.I. Comstock Fund | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VICOM-SAR-1 | ||||
| ||||
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
| |||||
Series I Shares | -0.11% | ||||
Series II Shares | -0.29 | ||||
S&P 500 Index▼ (Broad Market Index) | 3.84 | ||||
Russell 1000 Value Index▼ (Style-Specific Index) | 6.30 | ||||
Lipper VUF Large-Cap Value Funds Index¢ (Peer Group Index) | 4.26 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The S&P 500® Index is an unmanaged index considered representative of the US stock market. The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. The Lipper VUF Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (4/30/99) | 6.14 | % | ||||||||
10 Years | 5.58 | |||||||||
5 Years | 9.11 | |||||||||
1 Year | -6.96 | |||||||||
Series II Shares | ||||||||||
Inception (9/18/00) | 6.12 | % | ||||||||
10 Years | 5.32 | |||||||||
5 Years | 8.84 | |||||||||
1 Year | -7.19 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Comstock Portfolio, advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Comstock Fund (renamed Invesco V.I. Comstock Fund on April 29, 2013). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Comstock Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.78% and 1.03%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.83% and 1.08%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Comstock Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges,
expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2017. See current prospectus for more information. |
Invesco V.I. Comstock Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.82% |
| |||||||
Aerospace & Defense–1.22% | ||||||||
Textron Inc. | 580,149 | $ | 21,210,247 | |||||
Aluminum–0.92% | ||||||||
Alcoa Inc. | 1,719,834 | 15,942,861 | ||||||
Application Software–0.69% | ||||||||
Citrix Systems, Inc.(b) | 148,867 | 11,922,758 | ||||||
Asset Management & Custody Banks–2.48% | ||||||||
Bank of New York Mellon Corp. (The) | 491,654 | 19,100,758 | ||||||
State Street Corp. | 442,966 | 23,884,727 | ||||||
42,985,485 | ||||||||
Auto Parts & Equipment–1.92% | ||||||||
Johnson Controls, Inc. | 751,259 | 33,250,723 | ||||||
Automobile Manufacturers–1.69% | ||||||||
General Motors Co. | 1,037,286 | 29,355,194 | ||||||
Automotive Retail–0.33% | ||||||||
Advance Auto Parts, Inc. | 35,586 | 5,751,765 | ||||||
Biotechnology–1.86% | ||||||||
AbbVie Inc. | 203,068 | 12,571,940 | ||||||
Biogen Inc.(b) | 64,129 | 15,507,675 | ||||||
Gilead Sciences, Inc. | 49,766 | 4,151,479 | ||||||
32,231,094 | ||||||||
Broadcasting–0.51% | ||||||||
CBS Corp.–Class B | 162,586 | 8,851,182 | ||||||
Cable & Satellite–2.50% | ||||||||
Charter Communications, Inc.–Class A(b) | 48,443 | 11,076,008 | ||||||
Comcast Corp.–Class A | 495,402 | 32,295,256 | ||||||
43,371,264 | ||||||||
Communications Equipment–2.67% | ||||||||
Cisco Systems, Inc. | 1,615,880 | 46,359,597 | ||||||
Construction Machinery & Heavy Trucks–1.72% | ||||||||
Caterpillar Inc. | 394,261 | 29,888,926 | ||||||
Consumer Finance–1.26% | ||||||||
Ally Financial Inc.(b) | 1,284,016 | 21,918,153 | ||||||
Data Processing & Outsourced Services–0.70% | ||||||||
PayPal Holdings, Inc.(b) | 329,960 | 12,046,840 | ||||||
Department Stores–0.71% | ||||||||
Kohl’s Corp. | 326,415 | 12,377,657 | ||||||
Diversified Banks–13.38% | ||||||||
Bank of America Corp. | 3,613,165 | 47,946,700 | ||||||
Citigroup Inc. | 1,857,492 | 78,739,086 | ||||||
JPMorgan Chase & Co. | 1,060,930 | 65,926,190 |
Shares | Value | |||||||
Diversified Banks–(continued) | ||||||||
U.S. Bancorp | 175,536 | $ | 7,079,367 | |||||
Wells Fargo & Co. | 681,904 | 32,274,516 | ||||||
231,965,859 | ||||||||
Drug Retail–0.47% | ||||||||
CVS Health Corp. | 85,831 | 8,217,460 | ||||||
Electric Utilities–0.91% | ||||||||
FirstEnergy Corp. | 243,018 | 8,483,758 | ||||||
PG&E Corp. | 114,354 | 7,309,508 | ||||||
15,793,266 | ||||||||
Electrical Components & Equipment–1.13% | ||||||||
Emerson Electric Co. | 374,545 | 19,536,267 | ||||||
Fertilizers & Agricultural Chemicals–0.41% | ||||||||
CF Industries Holdings, Inc. | 296,783 | 7,152,470 | ||||||
General Merchandise Stores–1.09% | ||||||||
Target Corp. | 270,541 | 18,889,173 | ||||||
Health Care Equipment–0.89% | ||||||||
Medtronic PLC | 178,543 | 15,492,176 | ||||||
Health Care Services–0.81% | ||||||||
Express Scripts Holding Co.(b) | 184,990 | 14,022,242 | ||||||
Hotels, Resorts & Cruise Lines–2.49% | ||||||||
Carnival Corp. | 978,078 | 43,231,048 | ||||||
Hypermarkets & Super Centers–1.14% | ||||||||
Wal-Mart Stores, Inc. | 270,428 | 19,746,653 | ||||||
Industrial Conglomerates–1.52% | ||||||||
General Electric Co. | 837,978 | 26,379,547 | ||||||
Industrial Machinery–0.66% | ||||||||
Ingersoll-Rand PLC | 180,600 | 11,500,608 | ||||||
Integrated Oil & Gas–9.22% | ||||||||
BP PLC–ADR (United Kingdom) | 919,558 | 32,653,505 | ||||||
Chevron Corp. | 297,420 | 31,178,539 | ||||||
Occidental Petroleum Corp. | 232,890 | 17,597,168 | ||||||
Royal Dutch Shell PLC–Class A–ADR (United Kingdom) | 699,787 | 38,642,238 | ||||||
Suncor Energy, Inc. (Canada) | 1,435,535 | 39,807,385 | ||||||
159,878,835 | ||||||||
Integrated Telecommunication Services–0.88% | ||||||||
Frontier Communications Corp. | 3,097,252 | 15,300,425 | ||||||
Internet Software & Services–1.67% | ||||||||
eBay Inc.(b) | 1,009,310 | 23,627,947 | ||||||
Yahoo! Inc.(b) | 142,513 | 5,352,788 | ||||||
28,980,735 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Shares | Value | |||||||
Investment Banking & Brokerage–2.27% | ||||||||
Goldman Sachs Group, Inc. (The) | 108,444 | $ | 16,112,610 | |||||
Morgan Stanley | 892,702 | 23,192,398 | ||||||
39,305,008 | ||||||||
Leisure Products–0.34% | ||||||||
Mattel, Inc. | 187,546 | 5,868,314 | ||||||
Life & Health Insurance–2.95% | ||||||||
Aflac, Inc. | 360,181 | 25,990,661 | ||||||
MetLife, Inc. | 629,649 | 25,078,920 | ||||||
51,069,581 | ||||||||
Managed Health Care–1.06% | ||||||||
Anthem, Inc. | 139,306 | 18,296,450 | ||||||
Movies & Entertainment–2.96% | ||||||||
Time Warner Inc. | 113,002 | 8,310,167 | ||||||
Twenty-First Century Fox, Inc.–Class B | 728,366 | 19,847,974 | ||||||
Viacom Inc.–Class B | 556,920 | 23,095,472 | ||||||
51,253,613 | ||||||||
Multi-Line Insurance–1.08% | ||||||||
American International Group, Inc. | 352,503 | 18,643,884 | ||||||
Oil & Gas Drilling–0.02% | ||||||||
Noble Corp. PLC (United Kingdom) | 40,639 | 334,865 | ||||||
Oil & Gas Equipment & Services–2.29% | ||||||||
Halliburton Co. | 430,260 | 19,486,475 | ||||||
Weatherford International PLC(b) | 3,627,083 | 20,130,311 | ||||||
39,616,786 | ||||||||
Oil & Gas Exploration & Production–4.95% | ||||||||
Canadian Natural Resources Ltd. (Canada) | 499,516 | 15,410,168 | ||||||
Devon Energy Corp. | 707,754 | 25,656,083 | ||||||
Hess Corp. | 364,551 | 21,909,515 | ||||||
Marathon Oil Corp. | 521,260 | 7,824,113 | ||||||
PrairieSky Royalty Ltd. (Canada) | 9,990 | 189,584 | ||||||
QEP Resources Inc. | 844,532 | 14,889,099 | ||||||
85,878,562 | ||||||||
Packaged Foods & Meats–0.39% | ||||||||
Mondelez International, Inc.–Class A | 146,820 | 6,681,778 | ||||||
Paper Packaging–0.96% | ||||||||
International Paper Co. | 390,970 | 16,569,309 | ||||||
Personal Products–0.63% | ||||||||
Unilever N.V.–New York Shares (United Kingdom) | 232,042 | 10,892,051 |
Shares | Value | |||||||
Pharmaceuticals–6.41% | ||||||||
Merck & Co., Inc. | 472,997 | $ | 27,249,357 | |||||
Novartis AG (Switzerland) | 214,915 | 17,682,436 | ||||||
Pfizer Inc. | 1,086,357 | 38,250,630 | ||||||
Sanofi–ADR (France) | 669,761 | 28,029,498 | ||||||
111,211,921 | ||||||||
Property & Casualty Insurance–1.50% | ||||||||
Allstate Corp. (The) | 372,397 | 26,049,170 | ||||||
Regional Banks–3.67% | ||||||||
Citizens Financial Group Inc. | 620,429 | 12,396,172 | ||||||
Fifth Third Bancorp | 1,318,810 | 23,197,868 | ||||||
PNC Financial Services Group, Inc. (The) | 345,160 | 28,092,572 | ||||||
63,686,612 | ||||||||
Semiconductors–1.75% | ||||||||
Intel Corp. | 868,628 | 28,490,999 | ||||||
QUALCOMM, Inc. | 33,669 | 1,803,648 | ||||||
30,294,647 | ||||||||
Soft Drinks–0.50% | ||||||||
Coca-Cola Co. (The) | 189,192 | 8,576,073 | ||||||
Systems Software–2.74% | ||||||||
Microsoft Corp. | 526,300 | 26,930,771 | ||||||
Symantec Corp. | 1,005,468 | 20,652,313 | ||||||
47,583,084 | ||||||||
Technology Hardware, Storage & Peripherals–1.99% | ||||||||
HP Inc. | 750,676 | 9,420,984 | ||||||
NetApp, Inc. | 1,020,418 | 25,092,078 | ||||||
34,513,062 | ||||||||
Wireless Telecommunication Services–0.51% | ||||||||
Vodafone Group PLC (United Kingdom) | 2,907,136 | 8,850,545 | ||||||
Total Common Stocks & Other Equity Interests (Cost $1,657,217,410) |
| 1,678,725,825 | ||||||
Money Market Funds–3.47% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(c) | 30,069,602 | 30,069,602 | ||||||
Premier Portfolio–Institutional Class, 0.40%(c) | 30,069,603 | 30,069,603 | ||||||
Total Money Market Funds |
| 60,139,205 | ||||||
TOTAL INVESTMENTS–100.29% |
| 1,738,865,030 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.29)% |
| (5,049,318 | ) | |||||
NET ASSETS–100.00% |
| $ | 1,733,815,712 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $1,657,217,410) | $ | 1,678,725,825 | ||
Investments in affiliated money market funds, at value and cost | 60,139,205 | |||
Total investments, at value (Cost $1,717,356,615) | 1,738,865,030 | |||
Cash | 2,281,908 | |||
Foreign currencies, at value (Cost $1,115) | 1,120 | |||
Receivable for: | ||||
Investments sold | 8,560,580 | |||
Fund shares sold | 1,096,231 | |||
Dividends | 2,799,685 | |||
Fund expenses absorbed | 59,228 | |||
Investment for trustee deferred compensation and retirement plans | 176,661 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 4,897,426 | |||
Other assets | 657 | |||
Total assets | 1,758,738,526 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 12,664,296 | |||
Fund shares reacquired | 8,939,812 | |||
Accrued fees to affiliates | 2,967,037 | |||
Accrued trustees’ and officers’ fees and benefits | 1,344 | |||
Accrued other operating expenses | 47,091 | |||
Trustee deferred compensation and retirement plans | 205,630 | |||
Unrealized depreciation on forward foreign currency contracts outstanding | 97,604 | |||
Total liabilities | 24,922,814 | |||
Net assets applicable to shares outstanding | $ | 1,733,815,712 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 1,485,712,304 | ||
Undistributed net investment income | 45,658,318 | |||
Undistributed net realized gain | 176,182,581 | |||
Net unrealized appreciation | 26,262,509 | |||
$ | 1,733,815,712 | |||
Net Assets: |
| |||
Series I | $ | 237,950,735 | ||
Series II | $ | 1,495,864,977 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 13,561,876 | |||
Series II | 85,670,278 | |||
Series I: | ||||
Net asset value per share | $ | 17.55 | ||
Series II: | ||||
Net asset value per share | $ | 17.46 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $627,005) | $ | 29,486,058 | ||
Dividends from affiliated money market funds | 152,875 | |||
Total investment income | 29,638,933 | |||
Expenses: | ||||
Advisory fees | 5,035,859 | |||
Administrative services fees | 2,208,652 | |||
Custodian fees | 40,164 | |||
Distribution fees — Series II | 1,833,757 | |||
Transfer agent fees | 26,611 | |||
Trustees’ and officers’ fees and benefits | 21,419 | |||
Reports to shareholders | 2,050 | |||
Professional services fees | 27,249 | |||
Other | 17,500 | |||
Total expenses | 9,213,261 | |||
Less: Fees waived | (470,719 | ) | ||
Net expenses | 8,742,542 | |||
Net investment income | 20,896,391 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 37,945,851 | |||
Foreign currencies | 39,298 | |||
Forward foreign currency contracts | (3,674,510 | ) | ||
34,310,639 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (64,380,956 | ) | ||
Foreign currencies | (12,434 | ) | ||
Forward foreign currency contracts | 2,519,924 | |||
(61,873,466 | ) | |||
Net realized and unrealized gain (loss) | (27,562,827 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (6,666,436 | ) |
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:
CAD | – Canadian Dollar | |
CHF | – Swiss Franc |
EUR | – Euro | |
GBP | – British Pound Sterling |
USD | – U.S. Dollar | |
Invesco V.I. Comstock Fund
Offsetting Assets and Liabilities
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Comstock Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives a report an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior
Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Funds Large-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile for the one and three year periods and in the second quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one and three year periods and above the performance of the Index for the five year period. Invesco Advisers noted that concerns over the global economy drove investors to lower risk stocks versus the more cyclically exposed stocks in which the Fund invested. The
Invesco V.I. Comstock Fund
Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2017 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one such mutual fund and below the rate of an offshore fund advised by Invesco Advisers using a similar investment process. The Board also noted how the Fund’s rate compared to the effective sub-adviser fee rate of seven mutual funds sub-advised by Invesco Advisers.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under
the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a similar scope of services.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency
and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered that the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and was advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
Invesco V.I. Comstock Fund
Fund Performance
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
| |||||
Series I Shares | 4.46% | ||||
Series II Shares | 4.34 | ||||
S&P 500 Index▼ (Broad Market Index) | 3.84 | ||||
Russell 1000 Index▼ (Style-Specific Index) | 3.74 | ||||
Lipper VUF Large-Cap Core Funds Index¢ (Peer Group Index) | 3.02 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc.
| |||||
The S&P 500® Index is an unmanaged index considered representative of the US stock market. The Russell 1000® Index is an unmanaged index considered representative of large-cap stocks. The Russell 1000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. The Lipper VUF Large-Cap Core Funds Index is an unmanaged index considered representative of large-cap core variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (5/2/94) | 7.85 | % | ||||||||
10 Years | 6.43 | |||||||||
5 Years | 7.83 | |||||||||
1 Year | -1.78 | |||||||||
Series II Shares | ||||||||||
Inception (10/24/01) | 6.15 | % | ||||||||
10 Years | 6.16 | |||||||||
5 Years | 7.55 | |||||||||
1 Year | -2.02 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.90% and 1.15%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.91% and 1.16%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Core Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2018. See current prospectus for more information. |
Invesco V.I. Core Equity Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–90.53% |
| |||||||
Advertising–1.42% | ||||||||
Publicis Groupe S.A. (France) | 229,525 | $ | 15,547,081 | |||||
Aerospace & Defense–1.11% | ||||||||
United Technologies Corp. | 118,493 | 12,151,457 | ||||||
Air Freight & Logistics–1.35% | ||||||||
United Parcel Service, Inc.–Class B | 137,496 | 14,811,069 | ||||||
Apparel, Accessories & Luxury Goods–2.26% | ||||||||
LVMH Moet Hennessy Louis Vuitton S.E. (France) | 79,499 | 12,035,340 | ||||||
PVH Corp. | 135,102 | 12,730,661 | ||||||
24,766,001 | ||||||||
Asset Management & Custody Banks–1.60% | ||||||||
Northern Trust Corp. | 264,316 | 17,513,578 | ||||||
Auto Parts & Equipment–1.19% | ||||||||
Johnson Controls, Inc. | 293,862 | 13,006,332 | ||||||
Biotechnology–5.80% | ||||||||
AbbVie Inc. | 264,599 | 16,381,324 | ||||||
Biogen Inc.(b) | 59,320 | 14,344,762 | ||||||
Celgene Corp.(b) | 184,672 | 18,214,199 | ||||||
Shire PLC–ADR | 79,057 | 14,552,813 | ||||||
63,493,098 | ||||||||
Brewers–1.08% | ||||||||
Molson Coors Brewing Co.–Class B | 116,599 | 11,791,657 | ||||||
Cable & Satellite–2.42% | ||||||||
Comcast Corp.–Class A | 405,950 | 26,463,881 | ||||||
Communications Equipment–1.26% | ||||||||
F5 Networks, Inc.(b) | 121,056 | 13,781,015 | ||||||
Consumer Finance–2.91% | ||||||||
American Express Co. | 523,912 | 31,832,893 | ||||||
Department Stores–0.76% | ||||||||
Macy’s, Inc. | 246,934 | 8,299,452 | ||||||
Distillers & Vintners–1.32% | ||||||||
Diageo PLC (United Kingdom) | 517,521 | 14,481,955 | ||||||
Diversified Banks–3.03% | ||||||||
Svenska Handelsbanken AB–Class A (Sweden) | 1,231,607 | 14,897,512 | ||||||
U.S. Bancorp | 454,011 | 18,310,264 | ||||||
33,207,776 | ||||||||
Electric Utilities–1.37% | ||||||||
Duke Energy Corp. | 174,929 | 15,007,159 | ||||||
Electrical Components & Equipment–2.00% | ||||||||
Eaton Corp. PLC | 366,537 | 21,893,255 |
Shares | Value | |||||||
Electronic Manufacturing Services–1.80% | ||||||||
TE Connectivity Ltd. (Switzerland) | 345,720 | $ | 19,744,069 | |||||
Health Care Facilities–1.49% | ||||||||
HCA Holdings, Inc.(b) | 212,080 | 16,332,281 | ||||||
Health Care Services–1.22% | ||||||||
Express Scripts Holding Co.(b) | 176,025 | 13,342,695 | ||||||
Home Improvement Retail–1.24% | ||||||||
Home Depot, Inc. (The) | 106,236 | 13,565,275 | ||||||
Household Appliances–0.83% | ||||||||
Whirlpool Corp. | 54,617 | 9,101,377 | ||||||
Household Products–1.56% | ||||||||
Procter & Gamble Co. (The) | 201,606 | 17,069,980 | ||||||
Hypermarkets & Super Centers–1.65% | ||||||||
Wal-Mart Stores, Inc. | 246,821 | 18,022,869 | ||||||
Industrial Conglomerates–1.33% | ||||||||
General Electric Co. | 463,701 | 14,597,307 | ||||||
Industrial Machinery–2.41% | ||||||||
Illinois Tool Works Inc. | 138,118 | 14,386,371 | ||||||
Stanley Black & Decker Inc. | 107,387 | 11,943,582 | ||||||
26,329,953 | ||||||||
Insurance Brokers–2.42% | ||||||||
Marsh & McLennan Cos., Inc. | 387,395 | 26,521,062 | ||||||
Integrated Oil & Gas–1.31% | ||||||||
Exxon Mobil Corp. | 153,052 | 14,347,094 | ||||||
Internet Software & Services–0.93% | ||||||||
Alphabet Inc.–Class C(b) | 14,728 | 10,193,249 | ||||||
IT Consulting & Other Services–4.29% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 410,180 | 23,478,703 | ||||||
International Business Machines Corp. | 155,082 | 23,538,346 | ||||||
47,017,049 | ||||||||
Life & Health Insurance–2.14% | ||||||||
AIA Group Ltd. (Hong Kong) | 3,895,800 | 23,474,329 | ||||||
Life Sciences Tools & Services–2.59% | ||||||||
Thermo Fisher Scientific, Inc. | 191,591 | 28,309,486 | ||||||
Movies & Entertainment–1.36% | ||||||||
Twenty-First Century Fox, Inc.–Class A | 552,031 | 14,932,439 | ||||||
Multi-Sector Holdings–1.74% | ||||||||
Berkshire Hathaway Inc.–Class A(b) | 88 | 19,093,800 | ||||||
Multi-Utilities–1.97% | ||||||||
WEC Energy Group, Inc. | 330,921 | 21,609,141 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Shares | Value | |||||||
Oil & Gas Equipment & Services–1.32% | ||||||||
Halliburton Co. | 318,040 | $ | 14,404,032 | |||||
Oil & Gas Exploration & Production–2.52% | ||||||||
Cabot Oil & Gas Corp. | 471,216 | 12,129,100 | ||||||
Concho Resources Inc.(b) | 129,658 | 15,464,310 | ||||||
27,593,410 | ||||||||
Packaged Foods & Meats–1.31% | ||||||||
Danone (France) | 202,978 | 14,309,939 | ||||||
Pharmaceuticals–4.83% | ||||||||
Allergan PLC(b) | 52,327 | 12,092,247 | ||||||
Eli Lilly and Co. | 160,128 | 12,610,080 | ||||||
Merck & Co., Inc. | 299,622 | 17,261,223 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 216,577 | 10,878,663 | ||||||
52,842,213 | ||||||||
Property & Casualty Insurance–2.27% | ||||||||
Progressive Corp. (The) | 742,449 | 24,872,042 | ||||||
Regional Banks–1.24% | ||||||||
First Republic Bank | 193,472 | 13,541,105 | ||||||
Semiconductors–8.13% | ||||||||
Analog Devices, Inc. | 462,704 | 26,207,554 | ||||||
QUALCOMM, Inc. | 456,440 | 24,451,491 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | 7,578,823 | 38,324,010 | ||||||
88,983,055 |
Shares | Value | |||||||
Soft Drinks–1.33% | ||||||||
Coca-Cola Co. (The) | 320,042 | $ | 14,507,504 | |||||
Systems Software–3.03% | ||||||||
Microsoft Corp. | 405,360 | 20,742,271 | ||||||
Oracle Corp. | 303,203 | 12,410,099 | ||||||
33,152,370 | ||||||||
Wireless Telecommunication Services–1.39% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 491,761 | 15,190,497 | ||||||
Total Common Stocks & Other Equity Interests |
| 991,047,281 | ||||||
Money Market Funds–9.29% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(c) | 50,864,596 | 50,864,596 | ||||||
Premier Portfolio–Institutional Class, 0.40%(c) | 50,864,597 | 50,864,597 | ||||||
Total Money Market Funds |
| 101,729,193 | ||||||
TOTAL INVESTMENTS–99.82% |
| 1,092,776,474 | ||||||
OTHER ASSETS LESS LIABILITIES–0.18% |
| 1,929,859 | ||||||
NET ASSETS–100.00% | $ | 1,094,706,333 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $798,262,697) | $ | 991,047,281 | ||
Investments in affiliated money market funds, at value and cost | 101,729,193 | |||
Total investments, at value (Cost $899,991,890) | 1,092,776,474 | |||
Foreign currencies, at value (Cost $653,203) | 678,807 | |||
Receivable for: | ||||
Fund shares sold | 298,395 | |||
Dividends | 3,332,134 | |||
Investment for trustee deferred compensation and retirement plans | 401,913 | |||
Other assets | 781 | |||
Total assets | 1,097,488,504 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 198,503 | |||
Fund shares reacquired | 674,689 | |||
Accrued fees to affiliates | 1,378,673 | |||
Accrued trustees’ and officers’ fees and benefits | 924 | |||
Accrued other operating expenses | 69,763 | |||
Trustee deferred compensation and retirement plans | 459,619 | |||
Total liabilities | 2,782,171 | |||
Net assets applicable to shares outstanding | $ | 1,094,706,333 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 772,752,562 | ||
Undistributed net investment income | 16,326,000 | |||
Undistributed net realized gain | 112,829,086 | |||
Net unrealized appreciation | 192,798,685 | |||
$ | 1,094,706,333 | |||
Net Assets: |
| |||
Series I | $ | 916,097,779 | ||
Series II | $ | 178,608,554 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 25,912,493 | |||
Series II | 5,124,680 | |||
Series I: | ||||
Net asset value per share | $ | 35.35 | ||
Series II: | ||||
Net asset value per share | $ | 34.85 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $585,252) | $ | 13,025,095 | ||
Dividends from affiliated money market funds | 157,455 | |||
Total investment income | 13,182,550 | |||
Expenses: | ||||
Advisory fees | 3,268,231 | |||
Administrative services fees | 1,375,075 | |||
Custodian fees | 67,562 | |||
Distribution fees — Series II | 218,106 | |||
Transfer agent fees | 48,913 | |||
Trustees’ and officers’ fees and benefits | 19,165 | |||
Reports to shareholders | 1,483 | |||
Professional services fees | 27,883 | |||
Other | 14,148 | |||
Total expenses | 5,040,566 | |||
Less: Fees waived | (52,493 | ) | ||
Net expenses | 4,988,073 | |||
Net investment income | 8,194,477 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 35,036,985 | |||
Foreign currencies | (90,189 | ) | ||
34,946,796 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 3,754,806 | |||
Foreign currencies | 36,183 | |||
3,790,989 | ||||
Net realized and unrealized gain | 38,737,785 | |||
Net increase in net assets resulting from operations | $ | 46,932,262 |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Core Equity Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s
evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office
support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Funds Large-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of its performance universe for the one, three and five year periods(the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. Invesco Advisers noted that a co-chief investment officer had been added to the Fund’s portfolio management team. The Trustees also
Invesco V.I. Core Equity Fund
reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was the below the rate of one mutual fund advised by Invesco Advisers.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts
tended to be more comparable, reflecting a similar scope of services.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board;
and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered that the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and was advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
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
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
| |||||
Series I Shares | 6.26% | ||||
Series II Shares | 6.13 | ||||
Barclays U.S. Aggregate Index▼ (Broad Market/Style-Specific Index) | 5.31 | ||||
Lipper VUF Core Plus Bond Funds Index¢ (Peer Group Index) | 5.00 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market. The Lipper VUF Core Plus Bond Funds Index is an unmanaged index considered representative of core plus bond variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (5/5/93) | 4.46 | % | ||||||||
10 Years | 4.10 | |||||||||
5 Years | 5.56 | |||||||||
1 Year | 5.37 | |||||||||
Series II Shares | ||||||||||
Inception (3/14/02) | 4.03 | % | ||||||||
10 Years | 3.84 | |||||||||
5 Years | 5.28 | |||||||||
1 Year | 5.12 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.61% and 0.86%, respectively.1,2 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.69% and 1.94%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Core Plus Bond Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2017. See current prospectus for more information. |
2 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2018. See current prospectus for more information. |
Invesco V.I. Core Plus Bond Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Principal Amount | Value | |||||||
Bonds and Notes–71.94% |
| |||||||
Aerospace & Defense–0.09% | ||||||||
Moog Inc., Sr. Unsec. Gtd. Notes, 5.25%, 12/01/2022(b) | $ | 6,000 | $ | 6,105 | ||||
TransDigm Inc., | 7,000 | 7,035 | ||||||
Sr. Unsec. Gtd. Sub. Notes, 6.38%, 06/15/2026(b) | 2,000 | 2,005 | ||||||
15,145 | ||||||||
Agricultural & Farm Machinery–0.35% | ||||||||
John Deere Capital Corp., Sr. Unsec. Medium-Term Notes, 3.90%, 07/12/2021 | 45,000 | 49,670 | ||||||
Titan International Inc., Sr. Sec. Gtd. First Lien Global Notes, 6.88%, 10/01/2020 | 7,000 | 6,029 | ||||||
55,699 | ||||||||
Airlines–2.40% | ||||||||
Air Canada (Canada), Sr. Unsec. Gtd. Notes, 7.75%, 04/15/2021(b) | 10,000 | 10,425 | ||||||
American Airlines Pass Through Trust, Series 2015-2, Class B, Sec. Third Lien Pass Through Ctfs., 4.40%, 09/22/2023 | 35,000 | 35,372 | ||||||
Series 2016-1, Class AA, Sr. Sec. First Lien Pass Through Ctfs., 3.58%, 01/15/2028 | 32,000 | 33,660 | ||||||
Continental Airlines Pass Through Trust, Series 2009-1, Sr. Sec. First Lien Pass Through Ctfs., 9.00%, 07/08/2016 | 78,113 | 78,113 | ||||||
Delta Air Lines Pass Through Trust, Series 2010-2, Class A, Sr. Sec. First Lien Pass Through Ctfs., 4.95%, 05/23/2019 | 31,990 | 33,729 | ||||||
LATAM Airlines Group S.A. Pass Through Trust (Chile), Series 2015-1, Class A, Sec. Pass Through Ctfs., 4.20%, 11/15/2027(b) | 114,980 | 102,907 | ||||||
United Airlines Pass Through Trust, Series 2014-2, Class B, Sec. Second Lien Pass Through Ctfs., 4.63%, 09/03/2022 | 47,547 | 47,547 | ||||||
US Airways Pass Through Trust, Series 2012-1, Class B, Sec. Second Lien Pass Through Ctfs., 8.00%, 04/01/2021 | 795 | 876 | ||||||
WestJet Airlines Ltd. (Canada), Sr. Unsec. Gtd. Notes, 3.50%, 06/16/2021(b) | 42,000 | 42,327 | ||||||
384,956 | ||||||||
Alternative Carriers–0.03% | ||||||||
Level 3 Financing, Inc., Sr. Unsec. Gtd. Global Notes, 5.38%, 05/01/2025 | 5,000 | 5,000 | ||||||
Aluminum–0.03% | ||||||||
Kaiser Aluminum Corp., Sr. Unsec. Gtd. Notes, 5.88%, 05/15/2024(b) | 4,000 | 4,120 | ||||||
Apparel Retail–0.02% | ||||||||
Men’s Wearhouse, Inc. (The), Sr. Unsec. Gtd. Global Notes, 7.00%, 07/01/2022 | 4,000 | 3,370 |
Principal Amount | Value | |||||||
Apparel, Accessories & Luxury Goods–0.28% | ||||||||
Hanesbrands Inc., Sr. Unsec. Gtd. Notes, 4.63%, 05/15/2024(b) | $ | 9,000 | $ | 9,039 | ||||
4.88%, 05/15/2026(b) | 10,000 | 10,044 | ||||||
Under Armour, Inc., Sr. Unsec. Notes, 3.25%, 06/15/2026 | 25,000 | 25,276 | ||||||
44,359 | ||||||||
Asset Management & Custody Banks–1.81% | ||||||||
Blackstone Holdings Finance Co. LLC, Sr. Unsec. Gtd. Notes, 5.00%, 06/15/2044(b) | 90,000 | 98,057 | ||||||
Carlyle Holdings II Finance LLC, Sr. Sec. Gtd. Notes, 5.63%, 03/30/2043(b) | 75,000 | 83,020 | ||||||
CommScope Technologies Finance LLC, Sr. Unsec. Notes, 6.00%, 06/15/2025(b) | 2,000 | 2,070 | ||||||
First Data Corp., Sr. Unsec. Gtd. Notes, 7.00%, 12/01/2023(b) | 5,000 | 5,081 | ||||||
Legg Mason, Inc., Sr. Unsec. Global Notes, 4.75%, 03/15/2026 | 90,000 | 95,079 | ||||||
Prime Security Services Borrower, LLC/Prime Finance, Inc., Sec. Gtd. Second Lien Notes, | 6,000 | 6,390 | ||||||
289,697 | ||||||||
Auto Parts & Equipment–0.10% | ||||||||
CTP Transportation Products LLC/CTP Finance Inc., Sr. Sec. Notes, 8.25%, 12/15/2019(b) | 12,000 | 10,710 | ||||||
Dana Holding Corp., Sr. Unsec. Notes, 5.50%, 12/15/2024 | 5,000 | 4,725 | ||||||
15,435 | ||||||||
Automobile Manufacturers–1.38% | ||||||||
Daimler Finance North America LLC (Germany), Sr. Unsec. Gtd. Notes, 2.00%, 07/06/2021(b) | 150,000 | 150,143 | ||||||
General Motors Financial Co., Inc., | 31,000 | 31,232 | ||||||
Sr. Unsec. Gtd. Notes, | 39,000 | 39,472 | ||||||
220,847 | ||||||||
Automotive Retail–0.08% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/2020 | 12,000 | 13,343 | ||||||
Brewers–0.37% | ||||||||
Anheuser-Busch InBev Finance, Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, 3.65%, 02/01/2026 | 55,000 | 58,900 | ||||||
Broadcasting–0.11% | ||||||||
Clear Channel Worldwide Holdings Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 03/15/2020 | 4,000 | 3,820 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Broadcasting–(continued) | ||||||||
iHeartCommunications, Inc., Sr. Sec. Gtd. First Lien Global Notes, 9.00%, 12/15/2019 | $ | 2,000 | $ | 1,505 | ||||
Sinclair Television Group Inc., Sr. Unsec. Gtd. Notes, 5.63%, 08/01/2024(b) | 6,000 | 6,150 | ||||||
Sirius XM Radio Inc., Sr. Unsec. Notes, 5.38%, 07/15/2026(b) | 2,000 | 1,980 | ||||||
Tribune Media Co., Sr. Unsec. Gtd. Global Notes, 5.88%, 07/15/2022 | 5,000 | 5,000 | ||||||
18,455 | ||||||||
Building Products–0.17% | ||||||||
Allegion PLC, Sr. Unsec. Gtd. Notes, 5.88%, 09/15/2023 | 2,000 | 2,105 | ||||||
Gibraltar Industries Inc., Sr. Unsec. Gtd. Sub. Global Notes, 6.25%, 02/01/2021 | 11,000 | 11,165 | ||||||
Hardwoods Acquisition, Inc., Sr. Sec. Gtd. First Lien Notes, 7.50%, 08/01/2021 (Acquired 03/03/2015; Cost $1,920)(b) | 2,000 | 1,552 | ||||||
Standard Industries Inc., Sr. Unsec. Notes, 5.38%, 11/15/2024(b) | 13,000 | 13,260 | ||||||
28,082 | ||||||||
Cable & Satellite–2.03% | ||||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Sr. Unsec. Notes, 5.75%, 02/15/2026(b) | 10,000 | 10,350 | ||||||
Charter Communications Operating, LLC/Charter Communications Operating Capital Corp., Sr. Sec. First Lien Notes, 4.91%, 07/23/2025(b) | 89,000 | 97,130 | ||||||
6.83%, 10/23/2055(b) | 41,000 | 48,792 | ||||||
Cox Communications, Inc., Sr. Unsec. Notes, 9.38%, 01/15/2019(b) | 140,000 | 163,001 | ||||||
DISH DBS Corp., Sr. Unsec. Gtd. Global Notes, 5.88%, 11/15/2024 | 7,000 | 6,597 | ||||||
325,870 | ||||||||
Casinos & Gaming–0.14% | ||||||||
Boyd Gaming Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 05/15/2023 | 4,000 | 4,280 | ||||||
MGM Growth Properties Operating Partnership LP/ MGP Escrow Co-Issuer Inc., Sr. Unsec. Gtd. Notes, 5.63%, 05/01/2024(b) | 2,000 | 2,115 | ||||||
MGM Resorts International, Sr. Unsec. Gtd. Notes, | 3,000 | 3,180 | ||||||
7.75%, 03/15/2022 | 5,000 | 5,687 | ||||||
Mohegan Tribal Gaming Authority, Sr. Unsec. Gtd. Global Notes, 9.75%, 09/01/2021 | 2,000 | 2,140 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sr. Unsec. Gtd. Notes, 5.50%, 03/01/2025(b) | 5,000 | 4,863 | ||||||
22,265 | ||||||||
Catalog Retail–1.36% | ||||||||
QVC, Inc., Sr. Sec. Gtd. First Lien Global Notes, 4.45%, 02/15/2025 | 80,000 | 80,452 | ||||||
5.45%, 08/15/2034 | 150,000 | 138,500 | ||||||
218,952 |
Principal Amount | Value | |||||||
Commercial Printing–0.04% | ||||||||
Multi-Color Corp., Sr. Unsec. Gtd. Notes, 6.13%, 12/01/2022(b) | $ | 6,000 | $ | 6,165 | ||||
Communications Equipment–0.03% | ||||||||
Hughes Satellite Systems Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/2021 | 5,000 | 5,406 | ||||||
Construction & Engineering–0.44% | ||||||||
AECOM, Sr. Unsec. Gtd. Global Notes, 5.75%, 10/15/2022 | 3,000 | 3,071 | ||||||
Valmont Industries, Inc., Sr. Unsec. Gtd. Global Notes, 5.25%, 10/01/2054 | 75,000 | 67,858 | ||||||
70,929 | ||||||||
Construction Machinery & Heavy Trucks–0.06% | ||||||||
Meritor Inc., Sr. Unsec. Gtd. Notes, | 3,000 | 2,580 | ||||||
6.75%, 06/15/2021 | 5,000 | 4,725 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/2021 | 3,000 | 2,122 | ||||||
9,427 | ||||||||
Construction Materials–0.04% | ||||||||
Unifrax I LLC/Unifrax Holding Co., Sr. Unsec. Gtd. Notes, 7.50%, 02/15/2019 (Acquired 03/27/2013-07/28/2014; Cost $7,190)(b) | 7,000 | 6,125 | ||||||
Consumer Finance–0.67% | ||||||||
Ally Financial Inc., Sr. Unsec. Global Notes, | 5,000 | 4,944 | ||||||
5.13%, 09/30/2024 | 3,000 | 3,071 | ||||||
Synchrony Financial, Sr. Unsec. Global Notes, 4.50%, 07/23/2025 | 95,000 | 98,905 | ||||||
106,920 | ||||||||
Diversified Banks–5.53% | ||||||||
Bank of America Corp., | 85,000 | 90,950 | ||||||
Series DD, Jr. Unsec. Sub. Notes, | 30,000 | 31,875 | ||||||
BBVA Bancomer S.A. (Mexico), Unsec. Sub. Notes, 6.75%, 09/30/2022(b) | 150,000 | 167,658 | ||||||
Citigroup Inc., | 40,000 | 39,000 | ||||||
Series R, Jr. Unsec. Sub. Global Notes, 6.13%(c) | 65,000 | 65,975 | ||||||
Series T, Jr. Unsec. Sub. Global Notes, 6.25%(c) | 30,000 | 30,900 | ||||||
Corp. Andina de Fomento (Supranational), Sr. Unsec. Global Notes, 4.38%, 06/15/2022 | 50,000 | 55,619 | ||||||
Crédit Agricole S.A. (France), Unsec. Sub. Notes, 4.38%, 03/17/2025(b) | 200,000 | 202,228 | ||||||
HSBC Holdings PLC (United Kingdom), Sr. Unsec. Global Notes, 4.00%, 03/30/2022 | 45,000 | 48,303 | ||||||
JPMorgan Chase & Co., Series V, Jr. Unsec. Sub. Global Notes, 5.00%(c) | 40,000 | 38,450 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
Voya Financial, Inc., Jr. Unsec. Gtd. Sub. Global Notes, 5.65%, 05/15/2053 | $ | 55,000 | $ | 52,112 | ||||
Wells Fargo & Co., Series U, Jr. Unsec. Sub. Global Notes, 5.88%(c) | 60,000 | 63,900 | ||||||
886,970 | ||||||||
Diversified Chemicals–0.02% | ||||||||
Chemours Co. (The), Sr. Unsec. Gtd. Global Notes, 6.63%, 05/15/2023 | 3,000 | 2,565 | ||||||
Diversified Metals & Mining–0.83% | ||||||||
Freeport-McMoRan Inc., Sr. Unsec. Gtd. Global Notes, 3.55%, 03/01/2022 | 2,000 | 1,770 | ||||||
Lundin Mining Corp. (Canada), Sr. Sec. Gtd. First Lien Notes, | 35,000 | 36,225 | ||||||
Southern Copper Corp. (Peru), Sr. Unsec. Global Notes, 3.88%, 04/23/2025 | 23,000 | 22,669 | ||||||
Teck Resources Ltd. (Canada), Sr. Unsec. Gtd. Notes, | 77,000 | 67,664 | ||||||
8.00%, 06/01/2021(b) | 4,000 | 4,130 | ||||||
132,458 | ||||||||
Diversified REIT’s–1.26% | ||||||||
Trust F/1401 (Mexico), Sr. Unsec. Notes, 5.25%, 01/30/2026(b) | 200,000 | 202,842 | ||||||
Drug Retail–1.17% | ||||||||
CVS Pass Through Trust, Sr. Sec. First Lien Mortgage Pass Through Ctfs., 5.77%, 01/10/2033(b) | 149,646 | 167,062 | ||||||
Walgreens Boots Alliance Inc., Sr. Unsec. Global Notes, 4.65%, 06/01/2046 | 19,000 | 20,401 | ||||||
187,463 | ||||||||
Electric Utilities–0.97% | ||||||||
Electricite de France S.A. (France), Jr. Unsec. Sub. Notes, 5.63%(b)(c) | 100,000 | 94,125 | ||||||
Georgia Power Co., Sr. Unsec. Notes, 2.85%, 05/15/2022 | 58,000 | 60,917 | ||||||
155,042 | ||||||||
Electrical Components & Equipment–0.04% | ||||||||
Sensata Technologies B.V., Sr. Unsec. Gtd. Notes, 4.88%, 10/15/2023(b) | 7,000 | 7,018 | ||||||
Environmental & Facilities Services–0.05% | ||||||||
Advanced Disposal Services, Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 10/01/2020 | 8,000 | 8,140 | ||||||
Food Distributors–0.03% | ||||||||
US Foods, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 06/15/2024(b) | 4,000 | 4,120 | ||||||
Food Retail–0.39% | ||||||||
Cargill, Inc., Sr. Unsec. Notes, 3.25%, 11/15/2021(b) | 25,000 | 26,570 | ||||||
Kraft Heinz Foods Co. (The), Sr. Unsec. Gtd. Notes, 4.38%, 06/01/2046(b) | 34,000 | 35,881 | ||||||
62,451 |
Principal Amount | Value | |||||||
Forest Products–0.01% | ||||||||
Norbord Inc. (Canada), Sr. Sec. Gtd. First Lien Notes, 6.25%, 04/15/2023(b) | $ | 2,000 | $ | 2,055 | ||||
Gas Utilities–0.06% | ||||||||
AmeriGas Finance LLC/Corp., | 2,000 | 2,000 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.00%, 05/20/2022 | 4,000 | 4,250 | ||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Gtd. Notes, 6.75%, 06/15/2023(b) | 3,000 | 2,677 | ||||||
8,927 | ||||||||
Gold–0.39% | ||||||||
Kinross Gold Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 3.63%, 09/01/2016 | 63,000 | 63,040 | ||||||
Health Care Facilities–0.27% | ||||||||
Community Health Systems, Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 02/01/2022 | 4,917 | 4,327 | ||||||
HCA, Inc., | 19,000 | 21,095 | ||||||
Sr. Sec. Gtd. First Lien Notes, 5.25%, 04/15/2025 | 4,000 | 4,203 | ||||||
Sr. Unsec. Gtd. Notes, | 5,000 | 5,237 | ||||||
HealthSouth Corp., Sr. Unsec. Gtd. Global Notes, 5.75%, 09/15/2025 | 2,000 | 2,010 | ||||||
LifePoint Health, Inc., Sr. Unsec. Gtd. Notes, 5.38%, 05/01/2024(b) | 2,000 | 2,020 | ||||||
Tenet Healthcare Corp., Sr. Unsec. Global Notes, 8.13%, 04/01/2022 | 5,000 | 5,125 | ||||||
44,017 | ||||||||
Health Care REIT’s–0.75% | ||||||||
HCP, Inc., Sr. Unsec. Global Notes, 4.00%, 12/01/2022 | 71,000 | 74,065 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 6.75%, 12/15/2021 | 40,000 | 45,904 | ||||||
119,969 | ||||||||
Health Care Services–0.93% | ||||||||
DaVita HealthCare Partners Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 05/01/2025 | 4,000 | 4,005 | ||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Global Notes, | 42,000 | 42,137 | ||||||
3.40%, 03/01/2027 | 47,000 | 47,211 | ||||||
4.80%, 07/15/2046 | 25,000 | 25,064 | ||||||
MPH Acquisition Holdings LLC, Sr. Unsec. Notes, 7.13%, 06/01/2024(b) | 6,000 | 6,330 | ||||||
Orlando Lutheran Towers Inc., Unsec. Bonds, 8.00%, 07/01/2017 | 25,000 | 25,213 | ||||||
149,960 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Home Entertainment Software–0.26% | ||||||||
Electronic Arts Inc., Sr. Unsec. Global Notes, 3.70%, 03/01/2021 | $ | 40,000 | $ | 42,262 | ||||
Homebuilding–0.88% | ||||||||
K. Hovnanian Enterprises Inc., Sr. Sec. Gtd. First Lien Notes, | 6,000 | 5,160 | ||||||
MDC Holdings, Inc., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/2043 | 165,000 | 130,792 | ||||||
Meritage Homes Corp., Sr. Unsec. Gtd. Global Notes, | 3,000 | 3,026 | ||||||
7.15%, 04/15/2020 | 2,000 | 2,158 | ||||||
141,136 | ||||||||
Hotel and Resort REIT’s–0.82% | ||||||||
Hospitality Properties Trust, Sr. Unsec. Global Notes, 4.25%, 02/15/2021 | 90,000 | 94,341 | ||||||
Host Hotels & Resorts L.P., Series F, Sr. Unsec. Global Notes, 4.50%,��02/01/2026 | 35,000 | 37,036 | ||||||
131,377 | ||||||||
Hotels, Resorts & Cruise Lines–0.03% | ||||||||
Choice Hotels International, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 07/01/2022 | 4,000 | 4,309 | ||||||
Household Products–0.01% | ||||||||
Spectrum Brands, Inc., Sr. Unsec. Gtd. Global Notes, 5.75%, 07/15/2025 | 2,000 | 2,095 | ||||||
Housewares & Specialties–0.81% | ||||||||
Newell Brands Inc., Sr. Unsec. Global Notes, 3.85%, 04/01/2023 | 122,000 | 129,657 | ||||||
Independent Power Producers & Energy Traders–0.09% | ||||||||
AES Corp. (The), Sr. Unsec. Notes, 5.50%, 04/15/2025 | 6,000 | 6,045 | ||||||
Calpine Corp., | 2,000 | 2,090 | ||||||
Sr. Unsec. Global Notes, | 6,000 | 5,827 | ||||||
13,962 | ||||||||
Industrial REIT’s–1.26% | ||||||||
PLA Administradora Industrial, S. de R.L. de C.V. (Mexico), Sr. Unsec. Notes, 5.25%, 11/10/2022(b) | 200,000 | 201,500 | ||||||
Integrated Oil & Gas–1.53% | ||||||||
Petrobras Global Finance B.V. (Brazil), Sr. Unsec. Gtd. Global Notes, 8.75%, 05/23/2026 | 34,000 | 34,212 | ||||||
Petróleos Mexicanos (Mexico), Sr. Unsec. Gtd. Global Bonds, 6.63%, 06/15/2035 | 23,000 | 23,887 | ||||||
Shell International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Notes, 1.88%, 05/10/2021 | 87,000 | 87,391 | ||||||
2.88%, 05/10/2026 | 24,000 | 24,392 | ||||||
4.00%, 05/10/2046 | 73,000 | 74,945 | ||||||
244,827 |
Principal Amount | Value | |||||||
Integrated Telecommunication Services–1.29% | ||||||||
AT&T Inc., | $ | 44,000 | $ | 45,399 | ||||
Sr. Unsec. Notes, | 30,000 | 33,026 | ||||||
CenturyLink, Inc., Series Y, Sr. Unsec. Global Notes, 7.50%, 04/01/2024 | 3,000 | 3,030 | ||||||
Communications Sales & Leasing, Inc./CSL Capital LLC, Sr. Sec. Gtd. First Lien Notes, 6.00%, 04/15/2023(b) | 2,000 | 2,040 | ||||||
Frontier Communications Corp., Sr. Unsec. Global Notes, | 1,000 | 835 | ||||||
8.88%, 09/15/2020(b) | 2,000 | 2,145 | ||||||
11.00%, 09/15/2025 | 2,000 | 2,085 | ||||||
SBA Communications Corp., Sr. Unsec. Global Notes, 4.88%, 07/15/2022 | 5,000 | 4,987 | ||||||
T-Mobile USA, Inc., | 2,000 | 2,123 | ||||||
Sr. Unsec. Gtd. Global Notes, | 20,000 | 21,000 | ||||||
Verizon Communications Inc., Sr. Unsec. Global Notes, | 58,000 | 61,906 | ||||||
5.15%, 09/15/2023 | 25,000 | 29,192 | ||||||
207,768 | ||||||||
Internet Retail–0.42% | ||||||||
Expedia, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 02/15/2026(b) | 65,000 | 67,668 | ||||||
Internet Software & Services–0.03% | ||||||||
Match Group, Inc., Sr. Unsec. Notes, 6.38%, 06/01/2024(b) | 4,000 | 4,150 | ||||||
Investment Banking & Brokerage–1.41% | ||||||||
Cantor Fitzgerald, L.P., Unsec. Notes, 6.50%, 06/17/2022(b) | 34,000 | 35,825 | ||||||
Charles Schwab Corp. (The), Series A, Jr. Unsec. Sub. Notes, 7.00%(c) | 45,000 | 51,637 | ||||||
Goldman Sachs Group, Inc. (The), Series L, Jr. Unsec. Sub. Notes, 5.70% (c) | 55,000 | 54,725 | ||||||
Stifel Financial Corp., Sr. Unsec. Notes, 3.50%, 12/01/2020 | 83,000 | 84,471 | ||||||
226,658 | ||||||||
Leisure Products–0.03% | ||||||||
Vista Outdoor Inc., Sr. Unsec. Gtd. Notes, 5.88%, 10/01/2023(b) | 5,000 | 5,238 | ||||||
Life & Health Insurance–2.82% | ||||||||
MetLife, Inc., Series C, Jr. Unsec. Sub. Global Notes, 5.25%(c) | 65,000 | 65,000 | ||||||
Nationwide Financial Services, Inc., Sr. Unsec. Notes, 5.38%, 03/25/2021(b) | 165,000 | 185,432 | ||||||
Prudential Financial, Inc., Jr. Unsec. Sub. Global Notes, 8.88%, 06/15/2068 | 130,000 | 143,650 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Life & Health Insurance–(continued) | ||||||||
TIAA Asset Management Finance Co. LLC, Sr. Unsec. Notes, 4.13%, 11/01/2024(b) | $ | 55,000 | $ | 57,907 | ||||
451,989 | ||||||||
Life Sciences Tools & Services–0.01% | ||||||||
Quintiles Transnational Corp., Sr. Unsec. Gtd. Notes, 4.88%, 05/15/2023(b) | 2,000 | 2,040 | ||||||
Managed Health Care–2.02% | ||||||||
Aetna, Inc., Sr. Unsec. Global Notes, | 126,000 | 129,573 | ||||||
4.25%, 06/15/2036 | 57,000 | 59,122 | ||||||
4.38%, 06/15/2046 | 43,000 | 44,893 | ||||||
Centene Corp., Sr. Unsec. Notes, 4.75%, 05/15/2022 | 2,000 | 2,055 | ||||||
Cigna Corp., Sr. Unsec. Notes, | 45,000 | 49,354 | ||||||
UnitedHealth Group Inc., Sr. Unsec. Global Notes, 3.75%, 07/15/2025 | 35,000 | 38,486 | ||||||
323,483 | ||||||||
Marine–0.02% | ||||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. First Lien Mortgage Notes, 8.13%, 11/15/2021 (Acquired 08/21/2014; Cost $4,140)(b) | 4,000 | 3,150 | ||||||
Metal & Glass Containers–0.04% | ||||||||
Berry Plastics Corp., | 2,000 | 2,077 | ||||||
Sr. Sec. Gtd. Second Lien Notes, | 2,000 | 2,053 | ||||||
Reynolds Group Issuer Inc./LLC (New Zealand), Sr. Unsec. Gtd. Notes, 7.00%, 07/15/2024(b) | 2,000 | 2,068 | ||||||
6,198 | ||||||||
Movies & Entertainment–0.43% | ||||||||
Mediacom Broadband LLC/Corp., Sr. Unsec. Global Notes, 5.50%, 04/15/2021 | 2,000 | 2,050 | ||||||
Pinnacle Entertainment, Inc., Sr. Unsec. Bonds, 5.63%, 05/01/2024(b) | 6,000 | 6,015 | ||||||
Time Warner Cable, Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 07/01/2018 | 55,000 | 60,358 | ||||||
68,423 | ||||||||
Multi-Line Insurance–2.56% | ||||||||
American Financial Group, Inc., Sr. Unsec. Notes, 9.88%, 06/15/2019 | 180,000 | 217,537 | ||||||
American International Group, Inc., Sr. Unsec. Global Notes, 3.90%, 04/01/2026 | 85,000 | 87,923 | ||||||
Nationwide Mutual Insurance Co., Unsec. Sub. Notes, 4.95%, 04/22/2044(b) | 100,000 | 105,006 | ||||||
410,466 |
Principal Amount | Value | |||||||
Multi-Sector Holdings–0.46% | ||||||||
BNSF Railway Co. Pass Through Trust, | $ | 71,217 | $ | 73,864 | ||||
Office REIT’s–0.55% | ||||||||
Alexandria Real Estate Equities, Inc., Sr. Unsec. Gtd. Global Notes, 3.95%, 01/15/2027 | 40,000 | 41,536 | ||||||
Piedmont Operating Partnership L.P., Sr. Unsec. Gtd. Global Notes, 4.45%, 03/15/2024 | 45,000 | 46,659 | ||||||
88,195 | ||||||||
Office Services & Supplies–0.68% | ||||||||
Pitney Bowes Inc., Sr. Unsec. Global Notes, 4.63%, 03/15/2024 | 35,000 | 36,956 | ||||||
Steelcase, Inc., Sr. Unsec. Global Bonds, 6.38%, 02/15/2021 | 63,000 | 71,918 | ||||||
108,874 | ||||||||
Oil & Gas Drilling–0.01% | ||||||||
Precision Drilling Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 5.25%, 11/15/2024 | 2,000 | 1,650 | ||||||
Oil & Gas Equipment & Services–0.26% | ||||||||
Petrofac Ltd. (United Kingdom), Sr. Unsec. Gtd. Notes, 3.40%, 10/10/2018(b) | 41,000 | 39,765 | ||||||
SESI, L.L.C., Sr. Unsec. Gtd. Global Notes, 7.13%, 12/15/2021 | 2,000 | 1,935 | ||||||
41,700 | ||||||||
Oil & Gas Exploration & Production–2.88% | ||||||||
Anadarko Petroleum Corp., Sr. Unsec. Notes, 4.85%, 03/15/2021 | 130,000 | 138,120 | ||||||
5.55%, 03/15/2026 | 66,000 | 73,197 | ||||||
6.38%, 09/15/2017 | 20,000 | 21,150 | ||||||
6.60%, 03/15/2046 | 76,000 | 92,029 | ||||||
Antero Resources Corp., Sr. Unsec. Gtd. Global Notes, 5.38%, 11/01/2021 | 4,000 | 3,930 | ||||||
California Resources Corp., Sec. Gtd. Second Lien Notes, | 2,000 | 1,435 | ||||||
Concho Resources Inc., Sr. Unsec. Gtd. Global Notes, 5.50%, 10/01/2022 | 4,000 | 4,050 | ||||||
Hess Corp., Sr. Unsec. Global Notes, 1.30%, 06/15/2017 | 48,000 | 47,909 | ||||||
Oasis Petroleum Inc., | 2,000 | 1,820 | ||||||
Sr. Unsec. Gtd. Notes, | 2,000 | 1,835 | ||||||
Parsley Energy LLC/Parsley Finance Corp., Sr. Unsec. Notes, 7.50%, 02/15/2022(b) | 8,000 | 8,400 | ||||||
PDC Energy, Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 10/15/2022 | 2,000 | 2,090 | ||||||
Pioneer Natural Resources Co., Sr. Unsec. Notes, | 21,000 | 21,022 | ||||||
6.65%, 03/15/2017 | 30,000 | 31,178 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Rice Energy Inc., Sr. Unsec. Gtd. Global Notes, 6.25%, 05/01/2022 | $ | 2,000 | $ | 1,995 | ||||
RSP Permian, Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/01/2022 | 5,000 | 5,175 | ||||||
SM Energy Co., Sr. Unsec. Global Notes, 6.13%, 11/15/2022 | 2,000 | 1,847 | ||||||
Whiting Petroleum Corp., Sr. Unsec. Gtd. Global Notes, 6.25%, 04/01/2023 | 2,000 | 1,805 | ||||||
WPX Energy Inc., Sr. Unsec. Global Notes, | 4,000 | 3,740 | ||||||
462,727 | ||||||||
Oil & Gas Storage & Transportation–4.28% | ||||||||
Enbridge Inc. (Canada), Sr. Unsec. Notes, 5.60%, 04/01/2017 | 72,000 | 74,098 | ||||||
Energy Transfer Partners, L.P., | 26,000 | 27,036 | ||||||
Sr. Unsec. Notes, | 75,000 | 77,723 | ||||||
5.15%, 03/15/2045 | 51,000 | 47,632 | ||||||
Enterprise Products Operating LLC, | 20,000 | 20,643 | ||||||
3.75%, 02/15/2025 | 74,000 | 78,064 | ||||||
EQT Midstream Partners L.P., Sr. Unsec. Gtd. Notes, 4.00%, 08/01/2024 | 65,000 | 62,777 | ||||||
Kinder Morgan Energy Partners, L.P., Sr. Unsec. Gtd. Notes, 5.40%, 09/01/2044 | 74,000 | 73,490 | ||||||
Plains All American Pipeline L.P./ PAA Finance Corp., Sr. Unsec. Global Notes, 3.65%, 06/01/2022 | 56,000 | 55,221 | ||||||
Southern Natural Gas Co., L.L.C., Sr. Unsec. Gtd. Notes, | 18,000 | 18,466 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., | 4,000 | 4,090 | ||||||
Tesoro Logistics L.P./Tesoro Logistics Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.13%, 10/15/2021 | 5,000 | 5,225 | ||||||
Western Gas Partners, LP, Sr. Unsec. Notes, 4.65%, 07/01/2026 | 31,000 | 31,007 | ||||||
Williams Partners L.P., | 84,000 | 79,537 | ||||||
Sr. Unsec. Notes, | 32,000 | 31,740 | ||||||
686,749 | ||||||||
Other Diversified Financial Services–0.69% | ||||||||
Football Trust V, Sec. Pass Through Ctfs., 5.35%, 10/05/2020(b) | 100,000 | 111,126 | ||||||
Packaged Foods & Meats–0.03% | ||||||||
Smithfield Foods Inc., Sr. Unsec. Notes, 6.63%, 08/15/2022 | 4,000 | 4,190 |
Principal Amount | Value | |||||||
Paper Packaging–1.24% | ||||||||
Graphic Packaging International Inc., Sr. Unsec. Gtd. Notes, 4.88%, 11/15/2022 | $ | 2,000 | $ | 2,090 | ||||
Klabin Finance S.A. (Brazil), Sr. Unsec. Gtd. Notes, 5.25%, 07/16/2024(b) | 200,000 | 197,500 | ||||||
199,590 | ||||||||
Paper Products–0.07% | ||||||||
Clearwater Paper Corp., Sr. Unsec. Gtd. Global Notes, 4.50%, 02/01/2023 | 12,000 | 11,700 | ||||||
Pharmaceuticals–1.74% | ||||||||
Bristol-Myers Squibb Co., Sr. Unsec. Deb., 6.88%, 08/01/2097 | 74,000 | 113,820 | ||||||
Mylan N.V., Sr. Unsec. Gtd. Notes, | 76,000 | 76,559 | ||||||
5.25%, 06/15/2046(b) | 35,000 | 36,496 | ||||||
Valeant Pharmaceuticals International, Inc., Sr. Unsec. Gtd. Notes, 5.63%, 12/01/2021(b) | 9,000 | 7,470 | ||||||
Zoetis, Inc., Sr. Unsec. Global Notes, 4.50%, 11/13/2025 | 40,000 | 44,071 | ||||||
278,416 | ||||||||
Property & Casualty Insurance–1.08% | ||||||||
Allstate Corp. (The), Unsec. Sub. Global Deb., 5.75%, 08/15/2053 | 75,000 | 77,063 | ||||||
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/07/2087(b) | 45,000 | 49,275 | ||||||
W.R. Berkley Corp., Sr. Unsec. Notes, 7.38%, 09/15/2019 | 40,000 | 46,588 | ||||||
172,926 | ||||||||
Regional Banks–0.94% | ||||||||
CIT Group Inc., Sr. Unsec. Global Notes, | 8,000 | 8,180 | ||||||
5.00%, 08/01/2023 | 2,000 | 2,035 | ||||||
Fifth Third Bancorp, | 55,000 | 58,924 | ||||||
Series J, Jr. Unsec. Sub. Notes, | 45,000 | 39,712 | ||||||
First Niagara Financial Group Inc., Unsec. Sub. Notes, 7.25%, 12/15/2021 | 35,000 | 41,497 | ||||||
150,348 | ||||||||
Reinsurance–0.41% | ||||||||
Reinsurance Group of America, Inc., Sr. Unsec. Medium-Term Notes, 4.70%, 09/15/2023 | 60,000 | 65,277 | ||||||
Renewable Electricity–0.24% | ||||||||
Oglethorpe Power Corp., Sr. Sec. First Mortgage Bonds, 4.55%, 06/01/2044 | 36,000 | 39,070 | ||||||
Residential REIT’s–0.76% | ||||||||
Essex Portfolio L.P., Sr. Unsec. Gtd. Global Notes, 3.63%, 08/15/2022 | 115,000 | 121,566 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Restaurants–0.64% | ||||||||
1011778 BC ULC/ New Red Finance, Inc. (Canada), Sec. Gtd. Second Lien Notes, | $ | 98,000 | $ | 102,042 | ||||
Retail REIT’s–0.35% | ||||||||
Brixmor Operating Partnership LP, Sr. Unsec. Notes, 4.13%, 06/15/2026 | 55,000 | 56,560 | ||||||
Semiconductors–1.33% | ||||||||
Micron Technology, Inc., Sr. Unsec. Notes, | 2,000 | 1,720 | ||||||
5.25%, 01/15/2024(b) | 2,000 | 1,710 | ||||||
NXP B.V./NXP Funding LLC (Netherlands), Sr. Unsec. Gtd. Notes, | 200,000 | 209,250 | ||||||
212,680 | ||||||||
Soft Drinks–0.38% | ||||||||
PepsiCo Inc., Sr. Unsec. Global Notes, | 57,000 | 60,810 | ||||||
Sovereign Debt–2.47% | ||||||||
Argentine Republic Government International Bond (Argentina), Sr. Unsec. Notes, | 150,000 | 156,750 | ||||||
6.88%, 04/22/2021(b) | 150,000 | 160,350 | ||||||
Mexico Government International Bond (Mexico), Sr. Unsec. Global Notes, | 14,000 | 15,107 | ||||||
Peruvian Government International Bond (Peru), Sr. Unsec. Global Bonds, | 8,000 | 8,775 | ||||||
Poland Government International Bond (Poland), Sr. Unsec. Global Notes, | 34,000 | 34,723 | ||||||
Uruguay Government International Bond (Uruguay), Sr. Unsec. Global Notes, | 20,000 | 21,200 | ||||||
396,905 | ||||||||
Specialized Finance–3.61% | ||||||||
Air Lease Corp., Sr. Unsec. Global Notes, | 60,000 | 61,537 | ||||||
3.88%, 04/01/2021 | 85,000 | 87,922 | ||||||
Aircastle Ltd., Sr. Unsec. Notes, | 2,000 | 2,045 | ||||||
5.50%, 02/15/2022 | 7,000 | 7,350 | ||||||
International Lease Finance Corp., Sr. Unsec. Global Notes, | 10,000 | 10,797 | ||||||
Moody’s Corp., | 110,000 | 124,855 | ||||||
Sr. Unsec. Global Notes, | 45,000 | 46,537 | ||||||
4.88%, 02/15/2024 | 158,000 | 180,090 | ||||||
5.25%, 07/15/2044 | 35,000 | 42,780 | ||||||
Nasdaq, Inc., Sr. Unsec. Notes, | 15,000 | 15,274 | ||||||
579,187 |
Principal Amount | Value | |||||||
Specialized REIT’s–3.16% | ||||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. First Lien Notes, 4.88%, 08/15/2020(b) | $ | 120,000 | $ | 131,401 | ||||
CyrusOne L.P./CyrusOne Finance Corp., Sr. Unsec. Gtd. Global Notes, | 6,000 | 6,270 | ||||||
EPR Properties, | 43,000 | 42,722 | ||||||
7.75%, 07/15/2020 | 253,000 | 295,029 | ||||||
Sr. Unsec. Gtd. Notes, | 20,000 | 21,780 | ||||||
Equinix Inc., Sr. Unsec. Notes, | 4,000 | 4,120 | ||||||
GLP Capital LP/GLP Financing II Inc., Sr. Unsec. Gtd. Notes, 5.38%, 04/15/2026 | 5,000 | 5,200 | ||||||
506,522 | ||||||||
Specialty Chemicals–0.05% | ||||||||
Ashland Inc., Sr. Unsec. Gtd. Global Notes, | 2,000 | 2,015 | ||||||
Kraton Polymers LLC/Kraton Polymers Capital Corp., Sr. Unsec. Gtd. Notes, | 2,000 | 2,150 | ||||||
PQ Corp., Sr. Sec. Gtd. First Lien Notes, | 4,000 | 4,180 | ||||||
8,345 | ||||||||
Steel–0.06% | ||||||||
ArcelorMittal (Luxembourg), | 2,000 | 1,998 | ||||||
Sr. Unsec. Global Notes, | 3,000 | 3,172 | ||||||
FMG Resources (August 2006) Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, | 2,000 | 1,880 | ||||||
United States Steel Corp., Sr. Sec. First Lien Notes, 8.38%, 07/01/2021(b) | 2,000 | 2,115 | ||||||
9,165 | ||||||||
Systems Software–0.19% | ||||||||
Oracle Corp., Sr. Unsec. Global Notes, 4.00%, 07/15/2046 | 30,000 | 30,215 | ||||||
Technology Distributors–0.23% | ||||||||
Avnet, Inc., Sr. Unsec. Global Notes, 4.63%, 04/15/2026 | 35,000 | 36,436 | ||||||
Technology Hardware, Storage & Peripherals–1.37% | ||||||||
Diamond 1 Finance Corp./Diamond 2 Finance Corp., | 112,000 | 116,405 | ||||||
8.35%, 07/15/2046(b) | 34,000 | 36,655 | ||||||
Sr. Unsec. Gtd. Notes, | 2,000 | 2,100 | ||||||
Sr. Unsec. Notes, 5.88%, 06/15/2021(b) | 2,000 | 2,055 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
Technology Hardware, Storage & Peripherals–(continued) | ||||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. | $ | 45,000 | $ | 35,691 | ||||
5.75%, 12/01/2034 | 38,000 | 26,885 | ||||||
219,791 | ||||||||
Trading Companies & Distributors–0.03% | ||||||||
United Rentals North America Inc., Sr. Unsec. Gtd. Notes, 6.13%, 06/15/2023 | 5,000 | 5,225 | ||||||
Trucking–0.17% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance Inc., | 2,000 | 1,985 | ||||||
Sr. Unsec. Gtd. Notes, | 2,000 | 1,990 | ||||||
OPE KAG Finance Sub Inc., Sr. Unsec. Notes, 7.88%, 07/31/2023(b) | 5,000 | 4,963 | ||||||
Ryder System, Inc., Sr. Unsec. Medium-Term Notes, 3.45%, 11/15/2021 | 17,000 | 17,788 | ||||||
26,726 | ||||||||
Wireless Telecommunication Services–0.08% | ||||||||
Sprint Communications Inc., Sr. Unsec. Gtd. Notes, 7.00%, 03/01/2020(b) | 8,000 | 8,420 | ||||||
Sprint Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 09/15/2021 | 5,000 | 4,287 | ||||||
12,707 | ||||||||
Total Bonds and Notes |
| 11,536,144 | ||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–12.67% |
| |||||||
Collateralized Mortgage Obligations–0.49% | ||||||||
Ginnie Mae REMICs, IO, | 311,104 | 27,611 | ||||||
1.69%, 12/20/2064(d) | 535,864 | 50,907 | ||||||
78,518 | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–1.07% | ||||||||
Pass Through Ctfs., | 2,375 | 2,728 | ||||||
6.00%, 05/01/2017 to 06/01/2017 | 548 | 556 | ||||||
5.50%, 09/01/2017 | 1,269 | 1,290 | ||||||
Pass Through Ctfs., TBA, | 158,000 | 166,579 | ||||||
171,153 | ||||||||
Federal National Mortgage Association (FNMA)–5.67% | ||||||||
Pass Through Ctfs., | 1,211 | 1,429 | ||||||
7.00%, 05/01/2017 to 09/01/2032 | 8,941 | 9,619 | ||||||
5.00%, 11/01/2018 | 3,621 | 3,721 | ||||||
7.50%, 04/01/2029 | 3,490 | 3,971 |
Principal Amount | Value | |||||||
Federal National Mortgage Association (FNMA)–(continued) | ||||||||
Pass Through Ctfs., TBA, | $ | 221,000 | $ | 228,661 | ||||
3.00%, 07/01/2031 to 07/01/2046(e) | 565,000 | 588,387 | ||||||
3.50%, 07/01/2031(e) | 70,000 | 74,179 | ||||||
909,967 | ||||||||
Government National Mortgage Association (GNMA)–5.44% | ||||||||
Pass Through Ctfs., | 2,931 | 3,205 | ||||||
8.50%, 11/15/2024 | 1,146 | 1,151 | ||||||
7.00%, 07/15/2031 to 08/15/2031 | 1,307 | 1,562 | ||||||
6.50%, 11/15/2031 to 03/15/2032 | 2,723 | 3,107 | ||||||
6.00%, 11/15/2032 | 1,281 | 1,503 | ||||||
Pass Through Ctfs., TBA, | 220,000 | 230,042 | ||||||
3.50%, 07/01/2046(e) | 382,000 | 405,472 | ||||||
4.00%, 07/01/2046(e) | 212,000 | 226,625 | ||||||
872,667 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities |
| 2,032,305 | ||||||
Asset-Backed Securities–10.73% |
| |||||||
Adjustable Rate Mortgage Trust, Series 2004-2, Class 6A1, Variable Rate Pass Through Ctfs., 2.91%, 02/25/2035(d) | 21,127 | 20,936 | ||||||
Banc of America Commercial Mortgage Trust, Series 2015-UBS7, Class AS, Pass Through Ctfs., 3.99%, 09/15/2048 | 70,000 | 76,480 | ||||||
Barclays Bank Commercial Mortgage Securities Trust, Series 2015-RRI, Class D, Floating Rate Pass Through Ctfs., | 230,000 | 220,257 | ||||||
Bear Stearns Adjustable Rate Mortgage Trust, Series 2005-2, Class A1, Floating Rate Pass Through Ctfs., | 108,379 | 108,902 | ||||||
Chase Mortgage Trust, Series 2016-1, Class M3, Pass Through Ctfs., 3.75%, 04/25/2045(b) | 94,675 | 93,897 | ||||||
Commercial Mortgage Trust, Series 2015-CR23, Class CMB, Variable Rate Pass Through Ctfs., 3.68%, 05/10/2048(b)(d) | 150,000 | 150,525 | ||||||
Series 2015-CR25, Class B, Variable Rate Pass Through Ctfs., 4.55%, 08/10/2048(d) | 72,000 | 79,746 | ||||||
Credit Suisse Mortgage Trust, Series 2009-2R, Class 1A11, Floating Rate Pass Through Ctfs., 2.97%, 09/26/2034(b)(d) | 4,357 | 4,361 | ||||||
GMACM Mortgage Loan Trust, Series 2006-AR1, Class 1A1, Floating Rate Pass Through Ctfs., 3.33%, 04/19/2036(d) | 124,615 | 107,090 | ||||||
JP Morgan Chase Commercial Mortgage Securities Trust, Series 2013-LC11, Class C, Pass Through Ctfs., 3.96%, 04/15/2046 | 50,000 | 50,451 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Plus Bond Fund
Principal Amount | Value | |||||||
MAPS CLO Fund II Ltd. (Cayman Islands), Series 2007-2A, Class A2, Floating Rate Pass Through Ctfs., | $ | 250,000 | $ | 239,016 | ||||
Merrill Lynch Mortgage Investors Trust, Series 2005-3, Class 3A, Floating Rate Pass Through Ctfs., 2.67%, 11/25/2035(d) | 32,755 | 31,720 | ||||||
Morgan Stanley Capital I Trust, Series 2006-HQ10, Class AJ, Pass Through Ctfs., 5.39%, 11/12/2041 | 40,000 | 39,679 | ||||||
Structured Adjustable Rate Mortgage Loan Trust, | 37,834 | 37,358 | ||||||
Series 2004-16, Class 2A, | 49,720 | 49,718 | ||||||
Series 2004-16, Class 5A3, Variable Rate Pass Through Ctfs., 2.78%, 11/25/2034(d) | 15,118 | 15,067 | ||||||
Thornburg Mortgage Securities Trust, | 106,530 | 106,797 | ||||||
Series 2005-2, Class A1, | 51,970 | 50,359 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2006-C27, Class AJ, Pass Through Ctfs., 5.83%, 07/15/2045 | 90,000 | 89,751 | ||||||
Wells Fargo Mortgage Backed Securities Trust, Series 2004-Z, Class 2A1, Floating Rate Pass Through Ctfs., 2.85%, 12/25/2034(d) | 60,754 | 60,514 | ||||||
WFRBS Commercial Mortgage Trust, | 80,000 | 88,808 | ||||||
Total Asset-Backed Securities | 1,721,432 | |||||||
U.S. Treasury Securities–9.21% |
| |||||||
U.S. Treasury Bills–0.31% | ||||||||
0.45%, 11/17/2016(f)(g) | 50,000 | 49,952 | ||||||
U.S. Treasury Notes–5.25% | ||||||||
1.13%, 02/28/2021 | 2,600 | 2,618 | ||||||
1.13%, 06/30/2021 | 156,700 | 157,548 | ||||||
1.38%, 06/30/2023 | 240,800 | 242,136 | ||||||
1.63%, 05/15/2026 | 433,300 | 438,869 | ||||||
841,171 |
Principal Amount | Value | |||||||
U.S. Treasury Bonds–3.65% | ||||||||
3.00%, 11/15/2045 | $ | 700 | $ | 806 | ||||
2.50%, 02/15/2046 | 560,600 | 584,294 | ||||||
585,100 | ||||||||
Total U.S. Treasury Securities | 1,476,223 | |||||||
Shares | ||||||||
Preferred Stocks–1.27% |
| |||||||
Investment Banking & Brokerage–0.90% | ||||||||
Morgan Stanley, Series F, 6.88% Pfd. | 5,000 | 143,700 | ||||||
Reinsurance–0.37% | ||||||||
Reinsurance Group of America, Inc., | 2,000 | 59,520 | ||||||
Total Preferred Stocks | 203,220 | |||||||
Principal Amount | ||||||||
Municipal Obligations–0.69% |
| |||||||
Florida Development Finance Corp. (Palm Bay Academy Inc.); Series 2006 B, Taxable RB, 7.50%, 05/15/2017(h) | $ | 65,000 | 44,200 | |||||
Georgia (State of) Municipal Electric Authority (Plant Vogtle Units 3 & 4 Project J); | 50,000 | 66,016 | ||||||
Total Municipal Obligations | 110,216 | |||||||
Shares | ||||||||
Common Stocks & Other Equity Interests–0.00% |
| |||||||
Broadcasting–0.00% | ||||||||
Adelphia Recovery Trust–Series ACC-1(i) | 87,412 | 184 | ||||||
Diversified Support Services–0.00% | ||||||||
ACC Claims Holdings, LLC (j) | 73,980 | 462 | ||||||
Total Common Stocks & Other Equity Interests |
| 646 | ||||||
Money Market Funds–5.10% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(k) | 409,257 | 409,257 | ||||||
Premier Portfolio–Institutional Class, 0.40%(k) | 409,257 | 409,257 | ||||||
Total Money Market Funds (Cost $818,514) | 818,514 | |||||||
TOTAL INVESTMENTS–111.61% | 17,898,700 | |||||||
OTHER ASSETS LESS LIABILITIES–(11.61)% |
| (1,861,830 | ) | |||||
NET ASSETS–100.00% |
| $ | 16,036,870 |
Investment Abbreviations:
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Gtd. | – Guaranteed | |
IO | – Interest Only | |
Jr. | – Junior |
Pfd. | – Preferred | |
RB | – Revenue Bonds | |
REIT | – Real Estate Investment Trust | |
REMICS | – Real Estate Mortgage Investment Conduits | |
Sec. | – Secured |
Sr. | – Senior | |
Sub. | – Subordinated | |
TBA | – To Be Announced | |
Unsec. | – Unsecured |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $16,575,994) | $ | 17,080,186 | ||
Investments in affiliated money market funds, at value and cost | 818,514 | |||
Total investments, at value (Cost $17,394,508) | 17,898,700 | |||
Receivable for: | ||||
Investments sold | 1,691,902 | |||
Variation margin — futures | 8,917 | |||
Fund shares sold | 946 | |||
Dividends and interest | 172,101 | |||
Premiums paid on swap agreements — OTC | 3,973 | |||
Investment for trustee deferred compensation and retirement plans | 57,856 | |||
Other assets | 5,529 | |||
Total assets | 19,839,924 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 3,685,988 | |||
Fund shares reacquired | 5,448 | |||
Swaps payable — OTC | 76 | |||
Accrued fees to affiliates | 11,741 | |||
Accrued trustees’ and officers’ fees and benefits | 601 | |||
Accrued other operating expenses | 33,760 | |||
Trustee deferred compensation and retirement plans | 59,971 | |||
Unrealized depreciation on swap agreements — OTC | 5,469 | |||
Total liabilities | 3,803,054 | |||
Net assets applicable to shares outstanding | $ | 16,036,870 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 22,569,940 | ||
Undistributed net investment income | 860,492 | |||
Undistributed net realized gain (loss) | (7,827,687 | ) | ||
Net unrealized appreciation | 434,125 | |||
$ | 16,036,870 | |||
Net Assets: |
| |||
Series I | $ | 15,881,775 | ||
Series II | $ | 155,095 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 2,461,167 | |||
Series II | 24,180 | |||
Series I: | ||||
Net asset value per share | $ | 6.45 | ||
Series II: | ||||
Net asset value per share | $ | 6.41 |
Investment income: |
| |||
Interest | $ | 323,887 | ||
Dividends | 5,847 | |||
Dividends from affiliated money market funds | 1,684 | |||
Total investment income | 331,418 | |||
Expenses: | ||||
Advisory fees | 34,859 | |||
Administrative services fees | 40,407 | |||
Custodian fees | 8,125 | |||
Distribution fees — Series II | 193 | |||
Transfer agent fees | 4,336 | |||
Trustees’ and officers’ fees and benefits | 9,728 | |||
Reports to shareholders | 2,995 | |||
Professional services fees | 23,922 | |||
Other | 10,501 | |||
Total expenses | 135,066 | |||
Less: Fees waived and expenses reimbursed | (88,362 | ) | ||
Net expenses | 46,704 | |||
Net investment income | 284,714 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 240,336 | |||
Futures contracts | (146,801 | ) | ||
Swap agreements | (3,255 | ) | ||
90,280 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 639,340 | |||
Futures contracts | (65,477 | ) | ||
Swap agreements | 2,837 | |||
576,700 | ||||
Net realized and unrealized gain | 666,980 | |||
Net increase in net assets resulting from operations | $ | 951,694 |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Core Plus Bond Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s
evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Annuity Underlying Funds Core Plus Bond Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of its performance universe for the one year period and in the first quintile of its performance universe for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the Index for the three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. Core Plus Bond Fund
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2017 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one mutual fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco
Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a similar scope of services.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds. The Board noted that although Invesco Advisers received a minimal amount of revenues from advising the Fund, Invesco Advisers and its subsidiaries did not make a profit from managing the Fund. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide
these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. Invesco Advisers noted that the Fund does not execute brokerage transactions through “soft dollar” arrangements to any significant degree.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
Invesco V.I. Core Plus Bond Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2016 | |||
| ||||
Invesco V.I. Diversified Dividend Fund | ||||
| ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIDDI-SAR-1 | ||||
| ||||
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
| |||||
Series I Shares | 9.03% | ||||
Series II Shares | 8.89 | ||||
S&P 500 Index▼ (Broad Market Index) | 3.84 | ||||
Russell 1000 Value Index▼ (Style-Specific Index) | 6.30 | ||||
Lipper VUF Large-Cap Value Funds Index¢ (Peer Group Index) | 4.26 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc.
| |||||
The S&P 500® Index is an unmanaged index considered representative of the US stock market. The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. The Lipper VUF Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (3/1/90) | 8.18 | % | ||||||||
10 Years | 7.11 | |||||||||
5 Years | 12.93 | |||||||||
1 Year | 8.98 | |||||||||
Series II Shares | ||||||||||
Inception (6/5/00) | 5.42 | % | ||||||||
10 Years | 6.84 | |||||||||
5 Years | 12.64 | |||||||||
1 Year | 8.66 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund, Morgan Stanley Variable Investment Dividend Growth Portfolio, advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Dividend Growth Fund (renamed Invesco V.I. Diversified Dividend Fund on April 30, 2012). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Diversified Dividend Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.71% and 0.96%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.72% and 0.97%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Diversified Dividend Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the
variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2018. See current prospectus for more information. |
Invesco V.I. Diversified Dividend Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–86.32% |
| |||||||
Aerospace & Defense–2.27% | ||||||||
General Dynamics Corp. | 47,444 | $ | 6,606,103 | |||||
Raytheon Co. | 48,411 | 6,581,475 | ||||||
13,187,578 | ||||||||
Air Freight & Logistics–0.52% | ||||||||
United Parcel Service, Inc.–Class B | 27,845 | 2,999,463 | ||||||
Apparel Retail–0.59% | ||||||||
TJX Cos., Inc. (The) | 44,160 | 3,410,477 | ||||||
Apparel, Accessories & Luxury Goods–1.24% | ||||||||
Coach, Inc. | 99,405 | 4,049,760 | ||||||
Columbia Sportswear Co. | 55,248 | 3,178,970 | ||||||
7,228,730 | ||||||||
Asset Management & Custody Banks–1.23% | ||||||||
Federated Investors, Inc.–Class B | 156,474 | 4,503,322 | ||||||
Legg Mason, Inc. | 89,714 | 2,645,666 | ||||||
7,148,988 | ||||||||
Brewers–1.94% | ||||||||
Heineken N.V. (Netherlands) | 122,096 | 11,279,995 | ||||||
Construction Machinery & Heavy Trucks–0.79% | ||||||||
Joy Global Inc. | 216,507 | 4,576,958 | ||||||
Consumer Finance–1.72% | ||||||||
American Express Co. | 164,889 | 10,018,656 | ||||||
Data Processing & Outsourced Services–0.78% | ||||||||
Automatic Data Processing, Inc. | 49,317 | 4,530,753 | ||||||
Department Stores–0.42% | ||||||||
Marks & Spencer Group PLC (United Kingdom) | 568,647 | 2,417,964 | ||||||
Drug Retail–1.49% | ||||||||
Walgreens Boots Alliance, Inc. | 104,205 | 8,677,150 | ||||||
Electric Utilities–8.99% | ||||||||
American Electric Power Co., Inc. | 108,460 | 7,601,961 | ||||||
Duke Energy Corp. | 116,809 | 10,021,044 | ||||||
Entergy Corp. | 77,183 | 6,278,837 | ||||||
Exelon Corp. | 407,263 | 14,808,083 | ||||||
PPL Corp. | 360,058 | 13,592,190 | ||||||
52,302,115 | ||||||||
Electrical Components & Equipment–2.37% | ||||||||
ABB Ltd. (Switzerland) | 332,749 | 6,555,003 | ||||||
Emerson Electric Co. | 139,106 | 7,255,769 | ||||||
13,810,772 | ||||||||
Food Distributors–1.55% | ||||||||
Sysco Corp. | 178,030 | 9,033,242 | ||||||
Gas Utilities–0.77% | ||||||||
AGL Resources Inc. | 68,165 | 4,496,845 |
Shares | Value | |||||||
General Merchandise Stores–1.10% | ||||||||
Target Corp. | 91,648 | $ | 6,398,863 | |||||
Health Care Equipment–0.98% | ||||||||
Stryker Corp. | 47,376 | 5,677,066 | ||||||
Homebuilding–0.00% | ||||||||
TopBuild Corp.(b) | 1 | 28 | ||||||
Hotels, Resorts & Cruise Lines–0.64% | ||||||||
Accor S.A. (France) | 96,375 | 3,735,717 | ||||||
Household Products–3.31% | ||||||||
Kimberly-Clark Corp. | 54,803 | 7,534,316 | ||||||
Procter & Gamble Co. (The) | 138,476 | 11,724,763 | ||||||
19,259,079 | ||||||||
Housewares & Specialties–1.09% | ||||||||
Newell Brands, Inc. | 131,171 | 6,370,975 | ||||||
Industrial Machinery–2.05% | ||||||||
Flowserve Corp. | 192,423 | 8,691,747 | ||||||
Pentair PLC (United Kingdom) | 55,119 | 3,212,886 | ||||||
11,904,633 | ||||||||
Integrated Oil & Gas–5.08% | ||||||||
Royal Dutch Shell PLC–Class B (United Kingdom) | 209,744 | 5,768,239 | ||||||
Suncor Energy, Inc. (Canada) | 491,296 | 13,627,993 | ||||||
TOTAL S.A. (France) | 210,803 | 10,146,429 | ||||||
29,542,661 | ||||||||
Integrated Telecommunication Services–4.61% | ||||||||
AT&T Inc. | 416,656 | 18,003,706 | ||||||
BT Group PLC (United Kingdom) | 313,536 | 1,731,428 | ||||||
Deutsche Telekom AG (Germany) | 417,068 | 7,094,938 | ||||||
26,830,072 | ||||||||
Investment Banking & Brokerage–0.67% | ||||||||
Charles Schwab Corp. (The) | 153,691 | 3,889,919 | ||||||
Life & Health Insurance–0.36% | ||||||||
Lincoln National Corp. | 53,883 | 2,089,044 | ||||||
Motorcycle Manufacturers–1.26% | ||||||||
Harley-Davidson, Inc. | 161,982 | 7,337,785 | ||||||
Movies & Entertainment–0.70% | ||||||||
Time Warner Inc. | 55,352 | 4,070,586 | ||||||
Multi-Line Insurance–2.40% | ||||||||
Hartford Financial Services Group, Inc. (The) | 314,563 | 13,960,306 | ||||||
Multi-Utilities–3.80% | ||||||||
Consolidated Edison, Inc. | 101,088 | 8,131,519 | ||||||
Dominion Resources, Inc. | 122,852 | 9,573,856 | ||||||
Sempra Energy | 38,720 | 4,414,854 | ||||||
22,120,229 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
Shares | Value | |||||||
Oil & Gas Drilling–0.50% | ||||||||
Nabors Industries Ltd. | 290,170 | $ | 2,916,208 | |||||
Oil & Gas Equipment & Services–0.43% | ||||||||
Baker Hughes Inc. | 55,015 | 2,482,827 | ||||||
Packaged Foods & Meats–10.03% | ||||||||
Campbell Soup Co. | 221,538 | 14,738,923 | ||||||
General Mills, Inc. | 291,073 | 20,759,327 | ||||||
Kraft Heinz Co. (The) | 134,511 | 11,901,533 | ||||||
Mead Johnson Nutrition Co. | 40,711 | 3,694,523 | ||||||
Mondelez International, Inc.–Class A | 159,379 | 7,253,338 | ||||||
58,347,644 | ||||||||
Paper Packaging–2.71% | ||||||||
Avery Dennison Corp. | 39,271 | 2,935,507 | ||||||
International Paper Co. | 211,294 | 8,954,640 | ||||||
Sonoco Products Co. | 78,610 | 3,903,773 | ||||||
15,793,920 | ||||||||
Personal Products–0.56% | ||||||||
L’Oreal S.A. (France) | 17,124 | 3,274,992 | ||||||
Pharmaceuticals–3.06% | ||||||||
Bristol-Myers Squibb Co. | 56,484 | 4,154,398 | ||||||
Eli Lilly and Co. | 99,392 | 7,827,120 | ||||||
Johnson & Johnson | 48,122 | 5,837,199 | ||||||
17,818,717 | ||||||||
Property & Casualty Insurance–0.72% | ||||||||
Travelers Cos., Inc. (The) | 34,998 | 4,166,162 | ||||||
Regional Banks–5.33% | ||||||||
Cullen/Frost Bankers, Inc. | 67,804 | 4,321,149 | ||||||
Fifth Third Bancorp | 259,506 | 4,564,710 | ||||||
KeyCorp | 549,382 | 6,070,671 |
Shares | Value | |||||||
Regional Banks–(continued) | ||||||||
M&T Bank Corp. | 70,382 | $ | 8,321,264 | |||||
Zions Bancorp. | 308,397 | 7,750,017 | ||||||
31,027,811 | ||||||||
Restaurants–0.95% | ||||||||
Darden Restaurants, Inc. | 87,342 | 5,532,242 | ||||||
Semiconductors–0.83% | ||||||||
Linear Technology Corp. | 104,011 | 4,839,632 | ||||||
Soft Drinks–2.95% | ||||||||
Coca-Cola Co. (The) | 378,475 | 17,156,272 | ||||||
Specialized REIT’s–0.96% | ||||||||
Weyerhaeuser Co. | 188,465 | 5,610,603 | ||||||
Tobacco–2.57% | ||||||||
Altria Group, Inc. | 90,788 | 6,260,741 | ||||||
Philip Morris International Inc. | 85,202 | 8,666,747 | ||||||
14,927,488 | ||||||||
Total Common Stocks & Other Equity Interests |
| 502,201,167 | ||||||
Money Market Funds–14.79% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(c) | 43,041,635 | 43,041,635 | ||||||
Premier Portfolio–Institutional Class, 0.40%(c) | 43,041,635 | 43,041,635 | ||||||
Total Money Market Funds |
| 86,083,270 | ||||||
TOTAL INVESTMENTS–101.11% |
| 588,284,437 | ||||||
OTHER ASSETS LESS LIABILITIES–(1.11)% |
| (6,484,657 | ) | |||||
NET ASSETS–100.00% |
| $ | 581,799,780 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $382,886,957) | $ | 502,201,167 | ||
Investments in affiliated money market funds, at value and cost | 86,083,270 | |||
Total investments, at value (Cost $468,970,227) | 588,284,437 | |||
Foreign currencies, at value (Cost $542,733) | 537,884 | |||
Receivable for: | ||||
Investments sold | 256,994 | |||
Fund shares sold | 557,645 | |||
Dividends | 1,179,465 | |||
Investment for trustee deferred compensation and retirement plans | 75,530 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 320,828 | |||
Other assets | 2,860 | |||
Total assets | 591,215,643 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 8,042,127 | |||
Fund shares reacquired | 676,641 | |||
Accrued fees to affiliates | 524,166 | |||
Accrued trustees’ and officers’ fees and benefits | 777 | |||
Accrued other operating expenses | 57,631 | |||
Trustee deferred compensation and retirement plans | 114,521 | |||
Total liabilities | 9,415,863 | |||
Net assets applicable to shares outstanding | $ | 581,799,780 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 442,461,222 | ||
Undistributed net investment income | 12,532,502 | |||
Undistributed net realized gain | 7,185,947 | |||
Net unrealized appreciation | 119,620,109 | |||
$ | 581,799,780 | |||
Net Assets: |
| |||
Series I | $ | 400,666,023 | ||
Series II | $ | 181,133,757 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 15,793,848 | |||
Series II | 7,181,998 | |||
Series I: | ||||
Net asset value per share | $ | 25.37 | ||
Series II: | ||||
Net asset value per share | $ | 25.22 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $109,795) | $ | 7,109,941 | ||
Dividends from affiliated money market funds | 118,424 | |||
Total investment income | 7,228,365 | |||
Expenses: | ||||
Advisory fees | 1,213,733 | |||
Administrative services fees | 473,179 | |||
Custodian fees | 28,705 | |||
Distribution fees — Series II | 184,724 | |||
Transfer agent fees | 19,020 | |||
Trustees’ and officers’ fees and benefits | 17,200 | |||
Reports to shareholders | 3,670 | |||
Professional services fees | 31,568 | |||
Other | 4,892 | |||
Total expenses | 1,976,691 | |||
Less: Fees waived | (40,047 | ) | ||
Net expenses | 1,936,644 | |||
Net investment income | 5,291,721 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 15,245,543 | |||
Foreign currencies | (32,599 | ) | ||
Forward foreign currency contracts | (914,780 | ) | ||
14,298,164 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 24,805,396 | |||
Foreign currencies | (9,159 | ) | ||
Forward foreign currency contracts | 490,040 | |||
25,286,277 | ||||
Net realized and unrealized gain | 39,584,441 | |||
Net increase in net assets resulting from operations | $ | 44,876,162 |
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:
CAD | – Canadian Dollar | |
EUR | – Euro | |
USD | – U.S. Dollar |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on 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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Diversified Dividend Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the
independent Trustees. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office
support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Funds Large-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of its performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. Diversified Dividend Fund
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one mutual fund and below the rate of an offshore fund advised by Invesco Advisers using a similar investment process.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a similar scope of services.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements.
The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered that the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and was advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
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
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | |||||
Series I Shares | 5.44% | ||||
Series II Shares | 5.31 | ||||
S&P 500 Index▼ (Broad Market Index) | 3.84 | ||||
S&P 500 Equal Weight Index▼ (Style-Specific Index) | 5.79 | ||||
Lipper VUF Multi-Cap Core Funds Index¢ (Peer Group Index) | 2.29 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The S&P 500® Index is an unmanaged index considered representative of the US stock market. The S&P 500® Equal Weight Index is the equally weighted version of the S&P 500 Index. The Lipper VUF Multi-Cap Core Funds Index is an unmanaged index considered representative of multi-cap core variable insurance underlying funds tracked by Lipper. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (11/9/94) | 10.46 | % | ||||||||
10 Years | 8.22 | |||||||||
5 Years | 11.35 | |||||||||
1 Year | 2.16 | |||||||||
Series II Shares | ||||||||||
Inception (7/24/00) | 8.12 | % | ||||||||
10 Years | 7.95 | |||||||||
5 Years | 11.06 | |||||||||
1 Year | 1.92 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund, Morgan Stanley V.I. Select Dimensions Equally-Weighted S&P 500 Fund, advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund (renamed Invesco V.I. Equally-Weighted S&P 500 Fund on April 30, 2012). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Equally-Weighted S&P 500 Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.55% and 80%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Equally-Weighted S&P 500 Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. Equally-Weighted S&P 500 Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.27% |
| |||||||
Advertising–0.38% | ||||||||
Interpublic Group of Cos., Inc. (The) | 12,320 | $ | 284,592 | |||||
Omnicom Group Inc. | 3,550 | 289,290 | ||||||
573,882 | ||||||||
Aerospace & Defense–2.17% | ||||||||
Boeing Co. (The) | 2,256 | 292,987 | ||||||
General Dynamics Corp. | 2,090 | 291,011 | ||||||
Honeywell International Inc. | 2,535 | 294,871 | ||||||
L-3 Communications Holdings, Inc. | 2,023 | 296,754 | ||||||
Lockheed Martin Corp. | 1,229 | 305,001 | ||||||
Northrop Grumman Corp. | 1,361 | 302,523 | ||||||
Raytheon Co. | 2,164 | 294,196 | ||||||
Rockwell Collins, Inc. | 3,323 | 282,920 | ||||||
Textron Inc. | 7,637 | 279,209 | ||||||
TransDigm Group, Inc.(b) | 1,133 | 298,761 | ||||||
United Technologies Corp. | 2,900 | 297,395 | ||||||
3,235,628 | ||||||||
Agricultural & Farm Machinery–0.19% | ||||||||
Deere & Co. | 3,453 | 279,831 | ||||||
Agricultural Products–0.20% | ||||||||
Archer-Daniels-Midland Co. | 6,876 | 294,912 | ||||||
Air Freight & Logistics–0.79% | ||||||||
C.H. Robinson Worldwide, Inc. | 4,054 | 301,010 | ||||||
Expeditors International of Washington, Inc. | 6,007 | 294,583 | ||||||
FedEx Corp. | 1,839 | 279,123 | ||||||
United Parcel Service, Inc.–Class B | 2,830 | 304,848 | ||||||
1,179,564 | ||||||||
Airlines–0.87% | ||||||||
Alaska Air Group, Inc. | 4,422 | 257,759 | ||||||
American Airlines Group Inc. | 8,929 | 252,780 | ||||||
Delta Air Lines, Inc. | 7,038 | 256,394 | ||||||
Southwest Airlines Co. | 6,782 | 265,922 | ||||||
United Continental Holdings Inc.(b) | 6,421 | 263,518 | ||||||
1,296,373 | ||||||||
Alternative Carriers–0.19% | ||||||||
Level 3 Communications, Inc.(b) | 5,661 | 291,485 | ||||||
Aluminum–0.19% | ||||||||
Alcoa Inc. | 31,184 | 289,076 | ||||||
Apparel Retail–1.23% | ||||||||
Foot Locker, Inc. | 5,313 | 291,471 | ||||||
Gap, Inc. (The) | 15,641 | 331,902 | ||||||
L Brands, Inc. | 4,326 | 290,404 | ||||||
Ross Stores, Inc. | 5,517 | 312,759 |
Shares | Value | |||||||
Apparel Retail–(continued) | ||||||||
TJX Cos., Inc. (The) | 3,844 | $ | 296,872 | |||||
Urban Outfitters, Inc.(b) | 11,243 | 309,183 | ||||||
1,832,591 | ||||||||
Apparel, Accessories & Luxury Goods–1.37% | ||||||||
Coach, Inc. | 7,818 | 318,505 | ||||||
Hanesbrands, Inc. | 11,017 | 276,857 | ||||||
Michael Kors Holdings Ltd.(b) | 5,937 | 293,763 | ||||||
PVH Corp. | 3,061 | 288,438 | ||||||
Ralph Lauren Corp. | 3,088 | 276,747 | ||||||
Under Armour, Inc.–Class A(b) | 3,990 | 160,119 | ||||||
Under Armour, Inc.–Class C(b) | 4,018 | 146,268 | ||||||
VF Corp. | 4,723 | 290,417 | ||||||
2,051,114 | ||||||||
Application Software–0.97% | ||||||||
Adobe Systems Inc.(b) | 3,047 | 291,872 | ||||||
Autodesk, Inc.(b) | 5,267 | 285,155 | ||||||
Citrix Systems, Inc.(b) | 3,439 | 275,430 | ||||||
Intuit Inc. | 2,779 | 310,164 | ||||||
salesforce.com, inc.(b) | 3,615 | 287,067 | ||||||
1,449,688 | ||||||||
Asset Management & Custody Banks–1.85% | ||||||||
Affiliated Managers Group, Inc.(b) | 1,852 | 260,706 | ||||||
Ameriprise Financial, Inc. | 2,972 | 267,034 | ||||||
Bank of New York Mellon Corp. (The) | 7,175 | 278,749 | ||||||
BlackRock, Inc. | 852 | 291,836 | ||||||
Franklin Resources, Inc. | 8,757 | 292,221 | ||||||
Invesco Ltd.(c) | 10,412 | 265,922 | ||||||
Legg Mason, Inc. | 9,204 | 271,426 | ||||||
Northern Trust Corp. | 4,169 | 276,238 | ||||||
State Street Corp. | 5,000 | 269,600 | ||||||
T. Rowe Price Group Inc. | 4,063 | 296,477 | ||||||
2,770,209 | ||||||||
Auto Parts & Equipment–0.55% | ||||||||
BorgWarner, Inc. | 8,791 | 259,511 | ||||||
Delphi Automotive PLC (United Kingdom) | 4,395 | 275,127 | ||||||
Johnson Controls, Inc. | 6,655 | 294,550 | ||||||
829,188 | ||||||||
Automobile Manufacturers–0.38% | ||||||||
Ford Motor Co. | 22,591 | 283,969 | ||||||
General Motors Co. | 10,183 | 288,179 | ||||||
572,148 | ||||||||
Automotive Retail–1.02% | ||||||||
Advance Auto Parts, Inc. | 1,933 | 312,431 | ||||||
AutoNation, Inc.(b) | 6,212 | 291,840 | ||||||
AutoZone, Inc.(b) | 392 | 311,185 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Automotive Retail–(continued) | ||||||||
CarMax, Inc.(b) | 6,008 | $ | 294,572 | |||||
O’Reilly Automotive, Inc.(b) | 1,133 | 307,156 | ||||||
1,517,184 | ||||||||
Biotechnology–1.52% | ||||||||
AbbVie Inc. | 4,851 | 300,325 | ||||||
Alexion Pharmaceuticals, Inc.(b) | 2,181 | 254,653 | ||||||
Amgen Inc. | 1,911 | 290,759 | ||||||
Biogen Inc.(b) | 1,202 | 290,668 | ||||||
Celgene Corp.(b) | 2,874 | 283,463 | ||||||
Gilead Sciences, Inc. | 3,503 | 292,220 | ||||||
Regeneron Pharmaceuticals, Inc.(b) | 795 | 277,638 | ||||||
Vertex Pharmaceuticals Inc.(b) | 3,233 | 278,103 | ||||||
2,267,829 | ||||||||
Brewers–0.19% | ||||||||
Molson Coors Brewing Co.–Class B | 2,853 | 288,524 | ||||||
Broadcasting–0.80% | ||||||||
CBS Corp.–Class B | 5,611 | 305,463 | ||||||
Discovery Communications, Inc.–Class A(b) | 4,470 | 112,778 | ||||||
Discovery Communications, Inc.–Class C(b) | 7,087 | 169,025 | ||||||
Scripps Networks Interactive Inc.–Class A | 4,626 | 288,061 | ||||||
TEGNA Inc. | 13,506 | 312,934 | ||||||
1,188,261 | ||||||||
Building Products–0.60% | ||||||||
Allegion PLC | 4,357 | 302,506 | ||||||
Fortune Brands Home & Security Inc. | 5,234 | 303,415 | ||||||
Masco Corp. | 9,472 | 293,064 | ||||||
898,985 | ||||||||
Cable & Satellite–0.21% | ||||||||
Comcast Corp.–Class A | 4,712 | 307,175 | ||||||
Casinos & Gaming–0.18% | ||||||||
Wynn Resorts Ltd. | 2,945 | 266,935 | ||||||
Commodity Chemicals–0.18% | ||||||||
LyondellBasell Industries N.V.–Class A | 3,676 | 273,568 | ||||||
Communications Equipment–0.98% | ||||||||
Cisco Systems, Inc. | 10,193 | 292,437 | ||||||
F5 Networks, Inc.(b) | 2,477 | 281,982 | ||||||
Harris Corp. | 3,652 | 304,723 | ||||||
Juniper Networks, Inc. | 12,894 | 289,986 | ||||||
Motorola Solutions, Inc. | 4,388 | 289,476 | ||||||
1,458,604 | ||||||||
Computer & Electronics Retail–0.21% | ||||||||
Best Buy Co., Inc. | 10,051 | 307,561 | ||||||
Construction & Engineering–0.57% | ||||||||
Fluor Corp. | 5,678 | 279,812 | ||||||
Jacobs Engineering Group, Inc.(b) | 5,739 | 285,860 | ||||||
Quanta Services, Inc.(b) | 12,609 | 291,520 | ||||||
857,192 |
Shares | Value | |||||||
Construction Machinery & Heavy Trucks–0.58% | ||||||||
Caterpillar Inc. | 3,892 | $ | 295,053 | |||||
Cummins Inc. | 2,550 | 286,722 | ||||||
PACCAR Inc. | 5,391 | 279,631 | ||||||
861,406 | ||||||||
Construction Materials–0.41% | ||||||||
Martin Marietta Materials, Inc. | 1,594 | 306,048 | ||||||
Vulcan Materials Co. | 2,561 | 308,242 | ||||||
614,290 | ||||||||
Consumer Electronics–0.38% | ||||||||
Garmin Ltd. | 6,960 | 295,243 | ||||||
Harman International Industries, Inc. | 3,857 | 277,010 | ||||||
572,253 | ||||||||
Consumer Finance–0.90% | ||||||||
American Express Co. | 4,554 | 276,701 | ||||||
Capital One Financial Corp. | 4,225 | 268,330 | ||||||
Discover Financial Services | 5,256 | 281,669 | ||||||
Navient Corp. | 22,852 | 273,081 | ||||||
Synchrony Financial(b) | 9,607 | 242,865 | ||||||
1,342,646 | ||||||||
Data Processing & Outsourced Services–2.34% | ||||||||
Alliance Data Systems Corp.(b) | 1,372 | 268,802 | ||||||
Automatic Data Processing, Inc. | 3,397 | 312,082 | ||||||
Fidelity National Information Services, Inc. | 3,980 | 293,246 | ||||||
Fiserv, Inc.(b) | 2,781 | 302,378 | ||||||
Global Payments Inc. | 3,959 | 282,593 | ||||||
MasterCard, Inc.–Class A | 3,107 | 273,602 | ||||||
Paychex, Inc. | 5,423 | 322,669 | ||||||
PayPal Holdings, Inc.(b) | 8,048 | 293,833 | ||||||
Total System Services, Inc. | 5,634 | 299,222 | ||||||
Visa Inc.–Class A | 3,690 | 273,687 | ||||||
Western Union Co. (The) | 15,286 | 293,186 | ||||||
Xerox Corp. | 29,801 | 282,812 | ||||||
3,498,112 | ||||||||
Department Stores–0.60% | ||||||||
Kohl’s Corp. | 8,041 | 304,915 | ||||||
Macy’s, Inc. | 8,902 | 299,196 | ||||||
Nordstrom, Inc. | 7,611 | 289,598 | ||||||
893,709 | ||||||||
Distillers & Vintners–0.41% | ||||||||
Brown-Forman Corp.–Class B | 3,012 | 300,477 | ||||||
Constellation Brands, Inc.–Class A | 1,928 | 318,891 | ||||||
619,368 | ||||||||
Distributors–0.40% | ||||||||
Genuine Parts Co. | 3,065 | 310,331 | ||||||
LKQ Corp.(b) | 9,181 | 291,038 | ||||||
601,369 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Diversified Banks–1.14% | ||||||||
Bank of America Corp. | 21,397 | $ | 283,938 | |||||
Citigroup Inc. | 6,740 | 285,709 | ||||||
Comerica Inc. | 6,702 | 275,653 | ||||||
JPMorgan Chase & Co. | 4,635 | 288,019 | ||||||
U.S. Bancorp | 7,052 | 284,407 | ||||||
Wells Fargo & Co. | 6,121 | 289,707 | ||||||
1,707,433 | ||||||||
Diversified Chemicals–0.56% | ||||||||
Dow Chemical Co. (The) | 5,543 | 275,543 | ||||||
E. I. du Pont de Nemours and Co. | 4,380 | 283,824 | ||||||
Eastman Chemical Co. | 4,059 | 275,606 | ||||||
834,973 | ||||||||
Diversified Metals & Mining–0.21% | ||||||||
Freeport-McMoRan Inc. | 28,565 | 318,214 | ||||||
Diversified Support Services–0.21% | ||||||||
Cintas Corp. | 3,130 | 307,147 | ||||||
Drug Retail–0.40% | ||||||||
CVS Health Corp. | 3,060 | 292,964 | ||||||
Walgreens Boots Alliance, Inc. | 3,587 | 298,690 | ||||||
591,654 | ||||||||
Electric Utilities–2.87% | ||||||||
Alliant Energy Corp. | 7,365 | 292,390 | ||||||
American Electric Power Co., Inc. | 4,426 | 310,218 | ||||||
Duke Energy Corp. | 3,641 | 312,361 | ||||||
Edison International | 4,001 | 310,758 | ||||||
Entergy Corp. | 3,762 | 306,039 | ||||||
Eversource Energy | 5,220 | 312,678 | ||||||
Exelon Corp. | 8,552 | 310,951 | ||||||
FirstEnergy Corp. | 8,781 | 306,545 | ||||||
NextEra Energy, Inc. | 2,389 | 311,526 | ||||||
PG&E Corp. | 4,695 | 300,104 | ||||||
Pinnacle West Capital Corp. | 3,856 | 312,567 | ||||||
PPL Corp. | 7,526 | 284,107 | ||||||
Southern Co. (The) | 5,789 | 310,464 | ||||||
Xcel Energy, Inc. | 6,921 | 309,922 | ||||||
4,290,630 | ||||||||
Electrical Components & Equipment–0.97% | ||||||||
Acuity Brands, Inc. | 1,175 | 291,353 | ||||||
AMETEK, Inc. | 6,124 | 283,112 | ||||||
Eaton Corp. PLC | 4,802 | 286,823 | ||||||
Emerson Electric Co. | 5,611 | 292,670 | ||||||
Rockwell Automation, Inc. | 2,535 | 291,069 | ||||||
1,445,027 | ||||||||
Electronic Components–0.39% | ||||||||
Amphenol Corp.–Class A | 4,976 | 285,274 | ||||||
Corning Inc. | 14,421 | 295,342 | ||||||
580,616 |
Shares | Value | |||||||
Electronic Equipment & Instruments–0.20% | ||||||||
FLIR Systems, Inc. | 9,555 | $ | 295,727 | |||||
Electronic Manufacturing Services–0.18% | ||||||||
TE Connectivity Ltd. (Switzerland) | 4,821 | 275,327 | ||||||
Environmental & Facilities Services–0.62% | ||||||||
Republic Services, Inc. | 5,969 | 306,269 | ||||||
Stericycle, Inc.(b) | 2,956 | 307,779 | ||||||
Waste Management, Inc. | 4,725 | 313,126 | ||||||
927,174 | ||||||||
Fertilizers & Agricultural Chemicals–0.73% | ||||||||
CF Industries Holdings, Inc. | 10,123 | 243,964 | ||||||
FMC Corp. | 5,958 | 275,915 | ||||||
Monsanto Co. | 2,709 | 280,138 | ||||||
Mosaic Co. (The) | 10,972 | 287,247 | ||||||
1,087,264 | ||||||||
Food Distributors–0.21% | ||||||||
Sysco Corp. | 6,066 | 307,789 | ||||||
Food Retail–0.38% | ||||||||
Kroger Co. (The) | 8,039 | 295,755 | ||||||
Whole Foods Market, Inc. | 8,625 | 276,172 | ||||||
571,927 | ||||||||
Footwear–0.20% | ||||||||
NIKE, Inc.–Class B | 5,369 | 296,369 | ||||||
Gas Utilities–0.20% | ||||||||
AGL Resources Inc. | 4,488 | 296,073 | ||||||
General Merchandise Stores–0.61% | ||||||||
Dollar General Corp. | 3,235 | 304,090 | ||||||
Dollar Tree, Inc.(b) | 3,239 | 305,243 | ||||||
Target Corp. | 4,359 | 304,346 | ||||||
913,679 | ||||||||
Gold–0.22% | ||||||||
Newmont Mining Corp. | 8,268 | 323,444 | ||||||
Health Care Distributors–0.99% | ||||||||
AmerisourceBergen Corp. | 3,870 | 306,968 | ||||||
Cardinal Health, Inc. | 3,768 | 293,942 | ||||||
Henry Schein, Inc.(b) | 1,658 | 293,134 | ||||||
McKesson Corp. | 1,595 | 297,707 | ||||||
Patterson Cos. Inc. | 5,966 | 285,712 | ||||||
1,477,463 | ||||||||
Health Care Equipment–2.61% | ||||||||
Abbott Laboratories | 7,706 | 302,923 | ||||||
Baxter International Inc. | 6,651 | 300,758 | ||||||
Becton, Dickinson and Co. | 1,747 | 296,274 | ||||||
Boston Scientific Corp.(b) | 12,855 | 300,421 | ||||||
C.R. Bard, Inc. | 1,312 | 308,530 | ||||||
Edwards Lifesciences Corp.(b) | 2,914 | 290,613 | ||||||
Hologic, Inc.(b) | 8,668 | 299,913 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Health Care Equipment–(continued) | ||||||||
Intuitive Surgical, Inc.(b) | 461 | $ | 304,910 | |||||
Medtronic PLC | 3,452 | 299,530 | ||||||
St. Jude Medical, Inc. | 3,826 | 298,428 | ||||||
Stryker Corp. | 2,582 | 309,401 | ||||||
Varian Medical Systems, Inc.(b) | 3,468 | 285,174 | ||||||
Zimmer Biomet Holdings, Inc. | 2,481 | 298,663 | ||||||
3,895,538 | ||||||||
Health Care Facilities–0.39% | ||||||||
HCA Holdings, Inc.(b) | 3,719 | 286,400 | ||||||
Universal Health Services, Inc.–Class B | 2,188 | 293,411 | ||||||
579,811 | ||||||||
Health Care REIT’s–0.62% | ||||||||
HCP, Inc. | 8,595 | 304,091 | ||||||
Ventas, Inc. | 4,315 | 314,218 | ||||||
Welltower Inc. | 4,102 | 312,450 | ||||||
930,759 | ||||||||
Health Care Services–0.80% | ||||||||
DaVita HealthCare Partners Inc.(b) | 3,889 | 300,697 | ||||||
Express Scripts Holding Co.(b) | 3,898 | 295,468 | ||||||
Laboratory Corp. of America Holdings(b) | 2,270 | 295,713 | ||||||
Quest Diagnostics Inc. | 3,821 | 311,068 | ||||||
1,202,946 | ||||||||
Health Care Supplies–0.19% | ||||||||
DENTSPLY SIRONA Inc. | 4,652 | 288,610 | ||||||
Health Care Technology–0.21% | ||||||||
Cerner Corp.(b) | 5,321 | 311,811 | ||||||
Home Entertainment Software–0.41% | ||||||||
Activision Blizzard, Inc. | 7,835 | 310,501 | ||||||
Electronic Arts Inc.(b) | 3,931 | 297,813 | ||||||
608,314 | ||||||||
Home Furnishings–0.39% | ||||||||
Leggett & Platt, Inc. | 5,899 | 301,498 | ||||||
Mohawk Industries, Inc.(b) | 1,515 | 287,486 | ||||||
588,984 | ||||||||
Home Improvement Retail–0.40% | ||||||||
Home Depot, Inc. (The) | 2,296 | 293,176 | ||||||
Lowe’s Cos., Inc. | 3,779 | 299,184 | ||||||
592,360 | ||||||||
Homebuilding–0.60% | ||||||||
D.R. Horton, Inc. | 9,503 | 299,154 | ||||||
Lennar Corp.–Class A | 6,306 | 290,707 | ||||||
PulteGroup Inc. | 15,397 | 300,088 | ||||||
889,949 | ||||||||
Homefurnishing Retail–0.20% | ||||||||
Bed Bath & Beyond Inc. | 6,797 | 293,766 |
Shares | Value | |||||||
Hotel and Resort REIT’s–0.21% | ||||||||
Host Hotels & Resorts Inc. | 19,216 | $ | 311,491 | |||||
Hotels, Resorts & Cruise Lines–0.97% | ||||||||
Carnival Corp. | 6,275 | 277,355 | ||||||
Marriott International Inc.–Class A | 4,450 | 295,747 | ||||||
Royal Caribbean Cruises Ltd. | 4,002 | 268,734 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 4,005 | 296,170 | ||||||
Wyndham Worldwide Corp. | 4,373 | 311,489 | ||||||
1,449,495 | ||||||||
Household Appliances–0.19% | ||||||||
Whirlpool Corp. | 1,666 | 277,622 | ||||||
Household Products–1.02% | ||||||||
Church & Dwight Co., Inc. | 2,962 | 304,760 | ||||||
Clorox Co. (The) | 2,245 | 310,686 | ||||||
Colgate-Palmolive Co. | 4,103 | 300,340 | ||||||
Kimberly-Clark Corp. | 2,258 | 310,430 | ||||||
Procter & Gamble Co. (The) | 3,556 | 301,086 | ||||||
1,527,302 | ||||||||
Housewares & Specialties–0.20% | ||||||||
Newell Brands, Inc. | 6,171 | 299,725 | ||||||
Human Resource & Employment Services–0.19% | ||||||||
Robert Half International, Inc. | 7,401 | 282,422 | ||||||
Hypermarkets & Super Centers–0.40% | ||||||||
Costco Wholesale Corp. | 1,910 | 299,947 | ||||||
Wal-Mart Stores, Inc. | 4,159 | 303,690 | ||||||
603,637 | ||||||||
Independent Power Producers & Energy Traders–0.42% | ||||||||
AES Corp. (The) | 26,423 | 329,759 | ||||||
NRG Energy, Inc. | 19,861 | 297,716 | ||||||
627,475 | ||||||||
Industrial Conglomerates–0.81% | ||||||||
3M Co. | 1,755 | 307,336 | ||||||
Danaher Corp. | 2,979 | 300,879 | ||||||
General Electric Co. | 9,851 | 310,109 | ||||||
Roper Technologies, Inc. | 1,718 | 293,022 | ||||||
1,211,346 | ||||||||
Industrial Gases–0.39% | ||||||||
Air Products and Chemicals, Inc. | 2,021 | 287,063 | ||||||
Praxair, Inc. | 2,601 | 292,326 | ||||||
579,389 | ||||||||
Industrial Machinery–1.73% | ||||||||
Dover Corp. | 4,187 | 290,243 | ||||||
Flowserve Corp. | 5,821 | 262,935 | ||||||
Illinois Tool Works Inc. | 2,737 | 285,086 | ||||||
Ingersoll-Rand PLC | 4,588 | 292,164 | ||||||
Parker-Hannifin Corp. | 2,625 | 283,631 | ||||||
Pentair PLC (United Kingdom) | 4,983 | 290,459 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Industrial Machinery–(continued) | ||||||||
Snap-on Inc. | 1,897 | $ | 299,384 | |||||
Stanley Black & Decker Inc. | 2,619 | 291,285 | ||||||
Xylem, Inc. | 6,444 | 287,725 | ||||||
2,582,912 | ||||||||
Industrial REIT’s–0.19% | ||||||||
Prologis, Inc. | 5,927 | 290,660 | ||||||
Insurance Brokers–0.79% | ||||||||
Aon PLC | 2,705 | 295,467 | ||||||
Arthur J. Gallagher & Co. | 6,160 | 293,216 | ||||||
Marsh & McLennan Cos., Inc. | 4,460 | 305,332 | ||||||
Willis Towers Watson PLC | 2,329 | 289,518 | ||||||
1,183,533 | ||||||||
Integrated Oil & Gas–0.61% | ||||||||
Chevron Corp. | 2,901 | 304,112 | ||||||
Exxon Mobil Corp. | 3,288 | 308,217 | ||||||
Occidental Petroleum Corp. | 3,922 | 296,346 | ||||||
908,675 | ||||||||
Integrated Telecommunication Services–0.83% | ||||||||
AT&T Inc. | 7,337 | 317,032 | ||||||
CenturyLink Inc. | 10,976 | 318,414 | ||||||
Frontier Communications Corp. | 57,914 | 286,095 | ||||||
Verizon Communications Inc. | 5,618 | 313,709 | ||||||
1,235,250 | ||||||||
Internet Retail–0.96% | ||||||||
Amazon.com, Inc.(b)(d) | 412 | 294,835 | ||||||
Expedia, Inc. | 2,770 | 294,451 | ||||||
Netflix Inc.(b) | 3,155 | 288,619 | ||||||
Priceline Group Inc. (The)(b) | 224 | 279,644 | ||||||
TripAdvisor Inc.(b) | 4,402 | 283,049 | ||||||
1,440,598 | ||||||||
Internet Software & Services–1.19% | ||||||||
Akamai Technologies, Inc.(b) | 5,611 | 313,823 | ||||||
Alphabet Inc.–Class A(b) | 202 | 142,113 | ||||||
Alphabet Inc.–Class C(b) | 205 | 141,880 | ||||||
eBay Inc.(b) | 12,294 | 287,803 | ||||||
Facebook Inc.–Class A(b) | 2,536 | 289,814 | ||||||
VeriSign, Inc.(b) | 3,494 | 302,091 | ||||||
Yahoo! Inc.(b) | 8,035 | 301,795 | ||||||
1,779,319 | ||||||||
Investment Banking & Brokerage–0.75% | ||||||||
Charles Schwab Corp. (The) | 10,401 | 263,249 | ||||||
E*TRADE Financial Corp.(b) | 11,466 | 269,336 | ||||||
Goldman Sachs Group, Inc. (The) | 1,973 | 293,149 | ||||||
Morgan Stanley | 11,587 | 301,030 | ||||||
1,126,764 | ||||||||
IT Consulting & Other Services–0.94% | ||||||||
Accenture PLC–Class A | 2,501 | 283,338 |
Shares | Value | |||||||
IT Consulting & Other Services–(continued) | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 4,909 | $ | 280,991 | |||||
CSRA Inc. | 12,198 | 285,799 | ||||||
International Business Machines Corp. | 1,941 | 294,605 | ||||||
Teradata Corp.(b) | 10,625 | 266,369 | ||||||
1,411,102 | ||||||||
Leisure Products–0.39% | ||||||||
Hasbro, Inc. | 3,443 | 289,178 | ||||||
Mattel, Inc. | 9,521 | 297,912 | ||||||
587,090 | ||||||||
Life & Health Insurance–1.34% | ||||||||
Aflac, Inc. | 4,291 | 309,638 | ||||||
Lincoln National Corp. | 6,875 | 266,544 | ||||||
MetLife, Inc. | 6,867 | 273,513 | ||||||
Principal Financial Group, Inc. | 6,965 | 286,331 | ||||||
Prudential Financial, Inc. | 4,024 | 287,072 | ||||||
Torchmark Corp. | 4,917 | 303,969 | ||||||
Unum Group | 8,518 | 270,787 | ||||||
1,997,854 | ||||||||
Life Sciences Tools & Services–0.98% | ||||||||
Agilent Technologies, Inc. | 6,523 | 289,360 | ||||||
Illumina, Inc.(b) | 2,089 | 293,254 | ||||||
PerkinElmer, Inc. | 5,511 | 288,887 | ||||||
Thermo Fisher Scientific, Inc. | 1,949 | 287,984 | ||||||
Waters Corp.(b) | 2,143 | 301,413 | ||||||
1,460,898 | ||||||||
Managed Health Care–1.20% | ||||||||
Aetna Inc. | 2,454 | 299,707 | ||||||
Anthem, Inc. | 2,249 | 295,383 | ||||||
Centene Corp.(b) | 4,357 | 310,959 | ||||||
Cigna Corp. | 2,309 | 295,529 | ||||||
Humana Inc. | 1,584 | 284,930 | ||||||
UnitedHealth Group Inc. | 2,124 | 299,909 | ||||||
1,786,417 | ||||||||
Metal & Glass Containers–0.38% | ||||||||
Ball Corp. | 4,016 | 290,317 | ||||||
Owens-Illinois, Inc.(b) | 15,231 | 274,310 | ||||||
564,627 | ||||||||
Motorcycle Manufacturers–0.20% | ||||||||
Harley-Davidson, Inc. | 6,654 | 301,426 | ||||||
Movies & Entertainment–0.78% | ||||||||
Time Warner Inc. | 4,019 | 295,557 | ||||||
Twenty-First Century Fox, Inc.–Class A | 7,379 | 199,602 | ||||||
Twenty-First Century Fox, Inc.–Class B | 2,842 | 77,444 | ||||||
Viacom Inc.–Class B | 7,042 | 292,032 | ||||||
Walt Disney Co. (The) | 3,039 | 297,275 | ||||||
1,161,910 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Multi-Line Insurance–0.80% | ||||||||
American International Group, Inc. | 5,381 | $ | 284,601 | |||||
Assurant, Inc. | 3,490 | 301,222 | ||||||
Hartford Financial Services Group, Inc. (The) | 6,760 | 300,009 | ||||||
Loews Corp. | 7,436 | 305,545 | ||||||
1,191,377 | ||||||||
Multi-Sector Holdings–0.40% | ||||||||
Berkshire Hathaway Inc.–Class B(b) | 2,087 | 302,177 | ||||||
Leucadia National Corp. | 17,086 | 296,100 | ||||||
598,277 | ||||||||
Multi-Utilities–2.49% | ||||||||
Ameren Corp. | 5,806 | 311,085 | ||||||
CenterPoint Energy, Inc. | 12,788 | 306,912 | ||||||
CMS Energy Corp. | 6,832 | 313,315 | ||||||
Consolidated Edison, Inc. | 3,836 | 308,568 | ||||||
Dominion Resources, Inc. | 4,034 | 314,370 | ||||||
DTE Energy Co. | 3,150 | 312,228 | ||||||
NiSource Inc. | 11,885 | 315,190 | ||||||
Public Service Enterprise Group Inc. | 6,670 | 310,889 | ||||||
SCANA Corp. | 4,134 | 312,778 | ||||||
Sempra Energy | 2,707 | 308,652 | ||||||
TECO Energy, Inc. | 10,698 | 295,693 | ||||||
WEC Energy Group, Inc. | 4,732 | 309,000 | ||||||
3,718,680 | ||||||||
Office REIT’s–0.62% | ||||||||
Boston Properties, Inc. | 2,307 | 304,293 | ||||||
SL Green Realty Corp. | 2,959 | 315,045 | ||||||
Vornado Realty Trust | 3,081 | 308,470 | ||||||
927,808 | ||||||||
Office Services & Supplies–0.19% | ||||||||
Pitney Bowes Inc. | 15,936 | 283,661 | ||||||
Oil & Gas Drilling–0.62% | ||||||||
Diamond Offshore Drilling, Inc. | 12,168 | 296,047 | ||||||
Helmerich & Payne, Inc. | 4,568 | 306,650 | ||||||
Transocean Ltd. | 27,529 | 327,320 | ||||||
930,017 | ||||||||
Oil & Gas Equipment & Services–0.98% | ||||||||
Baker Hughes Inc. | 6,441 | 290,682 | ||||||
FMC Technologies, Inc.(b) | 10,772 | 287,289 | ||||||
Halliburton Co. | 6,667 | 301,949 | ||||||
National Oilwell Varco Inc. | 8,448 | 284,275 | ||||||
Schlumberger Ltd. | 3,768 | 297,974 | ||||||
1,462,169 | ||||||||
Oil & Gas Exploration & Production–3.64% | ||||||||
Anadarko Petroleum Corp. | 5,583 | 297,295 | ||||||
Apache Corp. | 5,529 | 307,799 | ||||||
Cabot Oil & Gas Corp. | 11,813 | 304,067 | ||||||
Chesapeake Energy Corp.(b) | 66,954 | 286,563 |
Shares | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Cimarex Energy Co. | 2,580 | $ | 307,846 | |||||
Concho Resources Inc.(b) | 2,470 | 294,597 | ||||||
ConocoPhillips | 6,648 | 289,853 | ||||||
Devon Energy Corp. | 8,426 | 305,442 | ||||||
EOG Resources, Inc. | 3,627 | 302,564 | ||||||
EQT Corp. | 3,919 | 303,448 | ||||||
Hess Corp. | 5,128 | 308,193 | ||||||
Marathon Oil Corp. | 22,051 | 330,986 | ||||||
Murphy Oil Corp. | 10,068 | 319,659 | ||||||
Newfield Exploration Co.(b) | 7,423 | 327,948 | ||||||
Noble Energy, Inc. | 8,103 | 290,655 | ||||||
Pioneer Natural Resources Co. | 1,854 | 280,343 | ||||||
Range Resources Corp. | 6,848 | 295,423 | ||||||
Southwestern Energy Co.(b) | 22,504 | 283,100 | ||||||
5,435,781 | ||||||||
Oil & Gas Refining & Marketing–0.78% | ||||||||
Marathon Petroleum Corp. | 8,130 | 308,615 | ||||||
Phillips 66 | 3,695 | 293,161 | ||||||
Tesoro Corp. | 3,832 | 287,094 | ||||||
Valero Energy Corp. | 5,538 | 282,438 | ||||||
1,171,308 | ||||||||
Oil & Gas Storage & Transportation–1.03% | ||||||||
Columbia Pipeline Group, Inc. | 11,591 | 295,454 | ||||||
Kinder Morgan Inc. | 16,900 | 316,368 | ||||||
ONEOK, Inc. | 6,548 | 310,703 | ||||||
Spectra Energy Corp. | 8,860 | 324,542 | ||||||
Williams Cos., Inc. (The) | 13,426 | 290,404 | ||||||
1,537,471 | ||||||||
Packaged Foods & Meats–2.54% | ||||||||
Campbell Soup Co. | 4,719 | 313,955 | ||||||
ConAgra Foods, Inc. | 6,302 | 301,298 | ||||||
General Mills, Inc. | 4,524 | 322,652 | ||||||
Hershey Co. (The) | 3,069 | 348,301 | ||||||
Hormel Foods Corp. | 8,513 | 311,576 | ||||||
JM Smucker Co. (The) | 2,051 | 312,593 | ||||||
Kellogg Co. | 3,788 | 309,290 | ||||||
Kraft Heinz Co. (The) | 3,466 | 306,672 | ||||||
McCormick & Co., Inc. | 2,964 | 316,170 | ||||||
Mead Johnson Nutrition Co. | 3,531 | 320,438 | ||||||
Mondelez International, Inc.–Class A | 6,572 | 299,092 | ||||||
Tyson Foods, Inc.–Class A | 4,885 | 326,269 | ||||||
3,788,306 | ||||||||
Paper Packaging–0.77% | ||||||||
Avery Dennison Corp. | 3,837 | 286,816 | ||||||
International Paper Co. | 6,852 | 290,388 | ||||||
Sealed Air Corp. | 6,144 | 282,440 | ||||||
WestRock Co. | 7,588 | 294,945 | ||||||
1,154,589 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Personal Products–0.20% | ||||||||
Estee Lauder Cos. Inc. (The)–Class A | 3,231 | $ | 294,086 | |||||
Pharmaceuticals–2.17% | ||||||||
Allergan PLC(b) | 1,228 | 283,778 | ||||||
Bristol-Myers Squibb Co. | 4,073 | 299,569 | ||||||
Eli Lilly and Co. | 4,001 | 315,079 | ||||||
Endo International PLC(b) | 17,956 | 279,934 | ||||||
Johnson & Johnson | 2,528 | 306,646 | ||||||
Mallinckrodt PLC(b) | 4,951 | 300,922 | ||||||
Merck & Co., Inc. | 5,208 | 300,033 | ||||||
Mylan N.V.(b) | 6,645 | 287,330 | ||||||
Perrigo Co. PLC | 3,003 | 272,282 | ||||||
Pfizer Inc. | 8,385 | 295,236 | ||||||
Zoetis Inc. | 6,244 | 296,340 | ||||||
3,237,149 | ||||||||
Property & Casualty Insurance–1.23% | ||||||||
Allstate Corp. (The)(d) | 4,386 | 306,801 | ||||||
Chubb Ltd. | 2,351 | 307,299 | ||||||
Cincinnati Financial Corp. | 4,199 | 314,463 | ||||||
Progressive Corp. (The) | 9,060 | 303,510 | ||||||
Travelers Cos., Inc. (The) | 2,599 | 309,385 | ||||||
XL Group PLC | 8,781 | 292,495 | ||||||
1,833,953 | ||||||||
Publishing–0.19% | ||||||||
News Corp.–Class A | 19,903 | 225,899 | ||||||
News Corp.–Class B | 5,646 | 65,889 | ||||||
291,788 | ||||||||
Railroads–0.79% | ||||||||
CSX Corp. | 11,049 | 288,158 | ||||||
Kansas City Southern | 3,343 | 301,171 | ||||||
Norfolk Southern Corp. | 3,518 | 299,487 | ||||||
Union Pacific Corp. | 3,332 | 290,717 | ||||||
1,179,533 | ||||||||
Real Estate Services–0.18% | ||||||||
CBRE Group, Inc.–Class A(b) | 9,930 | 262,946 | ||||||
Regional Banks–2.03% | ||||||||
BB&T Corp. | 8,238 | 293,355 | ||||||
Citizens Financial Group Inc. | 13,175 | 263,237 | ||||||
Fifth Third Bancorp | 15,970 | 280,912 | ||||||
Huntington Bancshares Inc. | 29,742 | 265,894 | ||||||
KeyCorp | 24,158 | 266,946 | ||||||
M&T Bank Corp. | 2,516 | 297,467 | ||||||
People’s United Financial Inc. | 18,849 | 276,326 | ||||||
PNC Financial Services Group, Inc. (The) | 3,400 | 276,726 | ||||||
Regions Financial Corp. | 31,086 | 264,542 | ||||||
SunTrust Banks, Inc. | 6,965 | 286,122 | ||||||
Zions Bancorp. | 10,572 | 265,674 | ||||||
3,037,201 |
Shares | Value | |||||||
Research & Consulting Services–0.79% | ||||||||
Dun & Bradstreet Corp. (The) | 2,352 | $ | 286,568 | |||||
Equifax Inc. | 2,387 | 306,491 | ||||||
Nielsen Holdings PLC | 5,438 | 282,613 | ||||||
Verisk Analytics, Inc.–Class A(b) | 3,756 | 304,536 | ||||||
1,180,208 | ||||||||
Residential REIT’s–1.07% | ||||||||
Apartment Investment & Management Co.–Class A | 7,247 | 320,028 | ||||||
AvalonBay Communities, Inc. | 1,739 | 313,698 | ||||||
Equity Residential | 4,593 | 316,366 | ||||||
Essex Property Trust, Inc. | 1,413 | 322,291 | ||||||
UDR, Inc. | 8,770 | 323,788 | ||||||
1,596,171 | ||||||||
Restaurants–0.98% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 730 | 294,015 | ||||||
Darden Restaurants, Inc. | 4,364 | 276,416 | ||||||
McDonald’s Corp. | 2,417 | 290,862 | ||||||
Starbucks Corp. | 5,393 | 308,048 | ||||||
Yum! Brands, Inc. | 3,586 | 297,351 | ||||||
1,466,692 | ||||||||
Retail REIT’s–1.28% | ||||||||
Federal Realty Investment Trust | 1,884 | 311,896 | ||||||
General Growth Properties, Inc. | 10,776 | 321,340 | ||||||
Kimco Realty Corp. | 10,110 | 317,252 | ||||||
Macerich Co. (The) | 3,761 | 321,152 | ||||||
Realty Income Corp. | 4,602 | 319,195 | ||||||
Simon Property Group, Inc. | 1,477 | 320,361 | ||||||
1,911,196 | ||||||||
Security & Alarm Services–0.19% | ||||||||
Tyco International PLC | 6,804 | 289,850 | ||||||
Semiconductor Equipment–0.60% | ||||||||
Applied Materials, Inc. | 12,294 | 294,687 | ||||||
KLA-Tencor Corp. | 4,072 | 298,274 | ||||||
Lam Research Corp. | 3,591 | 301,860 | ||||||
894,821 | ||||||||
Semiconductors–2.59% | ||||||||
Analog Devices, Inc. | 5,195 | 294,245 | ||||||
Broadcom Ltd. (Singapore) | 1,839 | 285,781 | ||||||
First Solar, Inc.(b) | 6,100 | 295,728 | ||||||
Intel Corp. | 9,236 | 302,941 | ||||||
Linear Technology Corp. | 6,238 | 290,254 | ||||||
Microchip Technology Inc. | 5,663 | 287,454 | ||||||
Micron Technology, Inc.(b) | 24,377 | 335,427 | ||||||
NVIDIA Corp. | 6,404 | 301,052 | ||||||
Qorvo, Inc.(b) | 5,476 | 302,604 | ||||||
QUALCOMM, Inc. | 5,497 | 294,474 | ||||||
Skyworks Solutions, Inc. | 4,514 | 285,646 | ||||||
Texas Instruments Inc. | 4,779 | 299,404 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Semiconductors–(continued) | ||||||||
Xilinx, Inc. | 6,332 | $ | 292,095 | |||||
3,867,105 | ||||||||
Soft Drinks–0.81% | ||||||||
Coca-Cola Co. (The) | 6,434 | 291,653 | ||||||
Dr Pepper Snapple Group, Inc. | 3,208 | 309,989 | ||||||
Monster Beverage Corp.(b) | 1,926 | 309,528 | ||||||
PepsiCo, Inc. | 2,863 | 303,306 | ||||||
1,214,476 | ||||||||
Specialized Consumer Services–0.19% | ||||||||
H&R Block, Inc. | 12,213 | 280,899 | ||||||
Specialized Finance–0.98% | ||||||||
CME Group Inc.–Class A | 3,106 | 302,525 | ||||||
Intercontinental Exchange, Inc. | 1,132 | 289,747 | ||||||
Moody’s Corp. | 2,975 | 278,787 | ||||||
Nasdaq, Inc. | 4,512 | 291,791 | ||||||
S&P Global Inc. | 2,751 | 295,072 | ||||||
1,457,922 | ||||||||
Specialized REIT’s–1.66% | ||||||||
American Tower Corp. | 2,719 | 308,906 | ||||||
Crown Castle International Corp. | 3,143 | 318,794 | ||||||
Digital Realty Trust, Inc. | 2,891 | 315,090 | ||||||
Equinix, Inc. | 798 | 309,409 | ||||||
Extra Space Storage Inc. | 3,338 | 308,898 | ||||||
Iron Mountain Inc. | 7,957 | 316,927 | ||||||
Public Storage | 1,223 | 312,587 | ||||||
Weyerhaeuser Co. | 9,673 | 287,965 | ||||||
2,478,576 | ||||||||
Specialty Chemicals–0.97% | ||||||||
Albemarle Corp. | 3,698 | 293,288 | ||||||
Ecolab Inc. | 2,460 | 291,756 | ||||||
International Flavors & Fragrances Inc. | 2,297 | 289,583 | ||||||
PPG Industries, Inc. | 2,708 | 282,038 | ||||||
Sherwin-Williams Co. (The) | 1,013 | 297,488 | ||||||
1,454,153 | ||||||||
Specialty Stores–0.97% | ||||||||
Signet Jewelers Ltd. | 3,319 | 273,519 | ||||||
Staples, Inc. | 33,977 | 292,882 | ||||||
Tiffany & Co. | 4,790 | 290,466 | ||||||
Tractor Supply Co. | 3,185 | 290,408 | ||||||
Ulta Salon, Cosmetics & Fragrance, Inc.(b) | 1,232 | 300,164 | ||||||
1,447,439 | ||||||||
Steel–0.19% | ||||||||
Nucor Corp. | 5,859 | 289,493 | ||||||
Systems Software–1.02% | ||||||||
CA, Inc. | 8,970 | 294,485 |
Shares | Value | |||||||
Systems Software–(continued) | ||||||||
Microsoft Corp. | 5,748 | $ | 294,125 | |||||
Oracle Corp. | 7,639 | 312,664 | ||||||
Red Hat, Inc.(b) | 3,847 | 279,292 | ||||||
Symantec Corp. | 17,105 | 351,337 | ||||||
1,531,903 | ||||||||
Technology Hardware, Storage & Peripherals–1.37% | ||||||||
Apple Inc. | 2,993 | 286,131 | ||||||
EMC Corp. | 10,679 | 290,148 | ||||||
Hewlett Packard Enterprise Co. | 15,478 | 282,783 | ||||||
HP Inc. | 21,920 | 275,096 | ||||||
NetApp, Inc. | 12,084 | 297,146 | ||||||
Seagate Technology PLC | 12,788 | 311,516 | ||||||
Western Digital Corp. | 6,316 | 298,494 | ||||||
2,041,314 | ||||||||
Tires & Rubber–0.19% | ||||||||
Goodyear Tire & Rubber Co. (The) | 10,792 | 276,923 | ||||||
Tobacco–0.61% | ||||||||
Altria Group, Inc. | 4,474 | 308,527 | ||||||
Philip Morris International Inc. | 2,920 | 297,022 | ||||||
Reynolds American Inc. | 5,786 | 312,039 | ||||||
917,588 | ||||||||
Trading Companies & Distributors–0.58% | ||||||||
Fastenal Co. | 6,639 | 294,705 | ||||||
United Rentals, Inc.(b) | 4,138 | 277,660 | ||||||
W.W. Grainger, Inc. | 1,329 | 302,015 | ||||||
874,380 | ||||||||
Trucking–0.38% | ||||||||
J.B. Hunt Transport Services, Inc. | 3,654 | 295,718 | ||||||
Ryder System, Inc. | 4,503 | 275,314 | ||||||
571,032 | ||||||||
Water Utilities–0.22% | ||||||||
American Water Works Co., Inc. | 3,818 | 322,659 | ||||||
Total Common Stocks & Other Equity Interests |
| 148,301,277 | ||||||
Money Market Funds–53.86% | ||||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(e) | 40,234,608 | 40,234,608 | ||||||
Premier Portfolio–Institutional Class, 0.40%(e) | 40,234,609 | 40,234,609 | ||||||
Total Money Market Funds |
| 80,469,217 | ||||||
TOTAL INVESTMENTS–153.13% |
| 228,770,494 | ||||||
OTHER ASSETS LESS LIABILITIES–(53.13)% |
| (79,377,005 | ) | |||||
NET ASSETS–100.00% |
| $ | 149,393,489 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $111,165,805) | $ | 148,035,354 | ||
Investments in affiliates, at value (Cost $80,702,382) | 80,735,140 | |||
Total investments, at value (Cost $191,868,187) | 228,770,494 | |||
Cash | 1,558 | |||
Receivable for: | ||||
Variation margin — futures | 18,990 | |||
Fund shares sold | 42 | |||
Dividends | 82,780 | |||
Investment for trustee deferred compensation and retirement plans | 27,245 | |||
Other assets | 8,403 | |||
Total assets | 228,909,512 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 79,356,082 | |||
Fund shares reacquired | 14,022 | |||
Accrued fees to affiliates | 92,274 | |||
Accrued trustees’ and officers’ fees and benefits | 475 | |||
Accrued other operating expenses | 24,137 | |||
Trustee deferred compensation and retirement plans | 29,033 | |||
Total liabilities | 79,516,023 | |||
Net assets applicable to shares outstanding | $ | 149,393,489 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 104,364,657 | ||
Undistributed net investment income | 1,297,295 | |||
Undistributed net realized gain | 6,797,744 | |||
Net unrealized appreciation | 36,933,793 | |||
$ | 149,393,489 | |||
Net Assets: |
| |||
Series I | $ | 108,426,448 | ||
Series II | $ | 40,967,041 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 6,503,582 | |||
Series II | 2,518,923 | |||
Series I: | ||||
Net asset value and offering price per share | $ | 16.67 | ||
Series II: | ||||
Net asset value per share | $ | 16.26 |
Investment income: |
| |||
Dividends | $ | 719,926 | ||
Dividends from affiliates | 4,193 | |||
Total investment income | 724,119 | |||
Expenses: | ||||
Advisory fees | 39,457 | |||
Administrative services fees | 91,693 | |||
Custodian fees | 10,496 | |||
Distribution fees — Series II | 48,274 | |||
Transfer agent fees | 1,720 | |||
Trustees’ and officers’ fees and benefits | 9,948 | |||
Licensing Fees | 7,500 | |||
Reports to shareholders | 1,470 | |||
Professional services fees | 18,429 | |||
Other | 4,803 | |||
Total expenses | 233,790 | |||
Less: Fees waived | (366 | ) | ||
Net expenses | 233,424 | |||
Net investment income | 490,695 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 1,803,571 | |||
Futures contracts | (2,566 | ) | ||
1,801,005 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 2,377,215 | |||
Futures contracts | 32,080 | |||
2,409,295 | ||||
Net realized and unrealized gain | 4,210,300 | |||
Net increase in net assets resulting from operations | $ | 4,700,995 |
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) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||
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 | $ | 1,054.40 | $ | 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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Equally-Weighted S&P 500 Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the
independent Trustees. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Fund Multi-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of its performance universe for the one year period and the second quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the index for the three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. Equally-Weighted S&P 500 Fund
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one such mutual fund.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco
Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds. Invesco Advisers and its subsidiaries did not make a profit from managing the Fund. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to
certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
Invesco V.I. Equally-Weighted S&P 500 Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2016 | |||
| ||||
Invesco V.I. Equity and Income Fund | ||||
| ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIEQI-SAR-1 | ||||
| ||||
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
| |||||
Series I Shares | 1.91% | ||||
Series II Shares | 1.79 | ||||
Barclays U.S. Government/Credit Index▼ (Style-Specific Index) | 6.23 | ||||
Russell 1000 Value Index▼ (Style-Specific Index) | 6.30 | ||||
Lipper VUF Mixed-Asset Target Allocation Growth Funds Index¢ (Peer Group Index) | 2.31 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc.
| |||||
The Barclays U.S. Government/Credit Index includes Treasuries and agencies that represent the government portion of the index, and includes publicly issued US corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. The Lipper VUF Mixed-Asset Target Allocation Growth Funds Index is an unmanaged index considered representative of mixed-asset target allocation growth variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
10 Years | 6.21 | % | ||||||||
5 Years | 7.72 | |||||||||
1 Year | -1.78 | |||||||||
Series II Shares | ||||||||||
Inception (4/30/03) | 7.49 | % | ||||||||
10 Years | 6.08 | |||||||||
5 Years | 7.49 | |||||||||
1 Year | -2.03 |
Effective June 1, 2010, Class II shares of the predecessor fund, Universal Institutional Funds Equity and Income Portfolio, advised by Morgan Stanley Investment Management Inc. were reorganized into Series II shares of Invesco Van Kampen V.I. Equity and Income Fund (renamed Invesco V.I. Equity and Income Fund on April 29, 2013). Returns shown above for Series II shares are blended returns of the predecessor fund and Invesco V.I. Equity and Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series I shares incepted on June 1, 2010. Series I shares performance shown prior to that date is that of the predecessor fund’s Class II shares and includes the 12b-1 fees applicable to the predecessor fund’s Class II shares.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested
distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.65% and 0.90%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.66% and 0.91%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Equity and Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect
actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2018. See current prospectus for more information. |
Invesco V.I. Equity and Income Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–63.17% |
| |||||||
Aerospace & Defense–0.85% | ||||||||
General Dynamics Corp. | 80,043 | $ | 11,145,187 | |||||
Agricultural Products–0.47% | ||||||||
Archer-Daniels-Midland Co. | 144,527 | 6,198,763 | ||||||
Application Software–0.66% | ||||||||
Citrix Systems, Inc.(b) | 107,248 | 8,589,492 | ||||||
Asset Management & Custody Banks–1.45% | ||||||||
Northern Trust Corp. | 131,510 | 8,713,852 | ||||||
State Street Corp. | 191,702 | 10,336,572 | ||||||
19,050,424 | ||||||||
Automobile Manufacturers–0.49% | ||||||||
General Motors Co. | 227,999 | 6,452,372 | ||||||
Biotechnology–0.67% | ||||||||
Amgen Inc. | 57,282 | 8,715,456 | ||||||
Broadcasting–0.21% | ||||||||
CBS Corp.–Class B | 49,822 | 2,712,310 | ||||||
Cable & Satellite–1.61% | ||||||||
Charter Communications, Inc.–Class A(b) | 30,948 | 7,075,951 | ||||||
Comcast Corp.–Class A | 215,207 | 14,029,344 | ||||||
21,105,295 | ||||||||
Communications Equipment–1.88% | ||||||||
Cisco Systems, Inc. | 512,530 | 14,704,486 | ||||||
Juniper Networks, Inc. | 442,853 | 9,959,764 | ||||||
24,664,250 | ||||||||
Construction Machinery & Heavy Trucks–0.68% | ||||||||
Caterpillar Inc. | 117,822 | 8,932,086 | ||||||
Data Processing & Outsourced Services–0.63% | ||||||||
PayPal Holdings, Inc.(b) | 225,400 | 8,229,354 | ||||||
Diversified Banks–8.05% | ||||||||
Bank of America Corp. | 1,770,997 | 23,501,130 | ||||||
Citigroup Inc. | 829,791 | 35,174,841 | ||||||
Comerica Inc. | 190,438 | 7,832,715 | ||||||
JPMorgan Chase & Co. | 626,814 | 38,950,222 | ||||||
105,458,908 | ||||||||
Drug Retail–1.03% | ||||||||
Walgreens Boots Alliance, Inc. | 161,360 | 13,436,447 | ||||||
Electric Utilities–1.03% | ||||||||
FirstEnergy Corp. | 153,901 | 5,372,684 | ||||||
PG&E Corp. | 126,222 | 8,068,110 | ||||||
13,440,794 |
Shares | Value | |||||||
Fertilizers & Agricultural Chemicals–0.74% | ||||||||
Agrium Inc. (Canada) | 18,680 | $ | 1,689,045 | |||||
Mosaic Co. (The) | 307,066 | 8,038,988 | ||||||
9,728,033 | ||||||||
Food Distributors–0.48% | ||||||||
Sysco Corp. | 124,704 | 6,327,481 | ||||||
General Merchandise Stores–0.91% | ||||||||
Target Corp. | 169,849 | 11,858,857 | ||||||
Health Care Equipment–1.78% | ||||||||
Baxter International Inc. | 223,350 | 10,099,887 | ||||||
Medtronic PLC | 152,740 | 13,253,250 | ||||||
23,353,137 | ||||||||
Health Care Services–0.51% | ||||||||
Express Scripts Holding Co.(b) | 87,822 | 6,656,908 | ||||||
Home Improvement Retail–0.39% | ||||||||
Kingfisher PLC (United Kingdom) | 1,194,089 | 5,154,692 | ||||||
Hotels, Resorts & Cruise Lines–1.27% | ||||||||
Carnival Corp. | 375,103 | 16,579,553 | ||||||
Industrial Conglomerates–1.65% | ||||||||
General Electric Co. | 684,800 | 21,557,504 | ||||||
Industrial Machinery–0.66% | ||||||||
Ingersoll-Rand PLC | 136,213 | 8,674,044 | ||||||
Insurance Brokers–2.07% | ||||||||
Aon PLC | 97,482 | 10,647,959 | ||||||
Marsh & McLennan Cos., Inc. | 123,338 | 8,443,719 | ||||||
Willis Towers Watson PLC | 64,858 | 8,062,498 | ||||||
27,154,176 | ||||||||
Integrated Oil & Gas–3.56% | ||||||||
Exxon Mobil Corp. | 95,351 | 8,938,203 | ||||||
Occidental Petroleum Corp. | 123,301 | 9,316,623 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 665,233 | 18,164,493 | ||||||
TOTAL S.A. (France) | 211,144 | 10,162,842 | ||||||
46,582,161 | ||||||||
Integrated Telecommunication Services–0.99% | ||||||||
Koninklijke KPN N.V. (Netherlands) | 637,469 | 2,311,775 | ||||||
Orange S.A. (France) | 142,504 | 2,327,244 | ||||||
Verizon Communications Inc. | 149,174 | 8,329,876 | ||||||
12,968,895 | ||||||||
Internet Software & Services–0.64% | ||||||||
eBay Inc.(b) | 356,638 | 8,348,896 | ||||||
Investment Banking & Brokerage–2.59% | ||||||||
Charles Schwab Corp. (The) | 299,922 | 7,591,026 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Shares | Value | |||||||
Investment Banking & Brokerage–(continued) | ||||||||
Goldman Sachs Group, Inc. (The) | 55,860 | $ | 8,299,679 | |||||
Morgan Stanley | 693,934 | 18,028,405 | ||||||
33,919,110 | ||||||||
Managed Health Care–1.07% | ||||||||
Anthem, Inc. | 50,559 | 6,640,419 | ||||||
UnitedHealth Group Inc. | 51,942 | 7,334,210 | ||||||
13,974,629 | ||||||||
Movies & Entertainment–0.55% | ||||||||
Time Warner Inc. | 97,863 | 7,196,845 | ||||||
Oil & Gas Equipment & Services–1.20% | ||||||||
Baker Hughes Inc. | 234,179 | 10,568,498 | ||||||
Weatherford International PLC(b) | 926,025 | 5,139,439 | ||||||
15,707,937 | ||||||||
Oil & Gas Exploration & Production–3.64% | ||||||||
Apache Corp. | 344,616 | 19,184,773 | ||||||
Canadian Natural Resources Ltd. (Canada) | 428,768 | 13,227,578 | ||||||
Devon Energy Corp. | 421,659 | 15,285,139 | ||||||
PrairieSky Royalty Ltd. (Canada) | 1 | 13 | ||||||
47,697,503 | ||||||||
Other Diversified Financial Services–0.47% | ||||||||
Voya Financial, Inc. | 249,190 | 6,169,944 | ||||||
Packaged Foods & Meats–0.87% | ||||||||
Mondelez International, Inc.–Class A | 249,794 | 11,368,125 | ||||||
Pharmaceuticals–4.58% | ||||||||
Eli Lilly and Co. | 121,566 | 9,573,323 | ||||||
Merck & Co., Inc. | 314,011 | 18,090,174 | ||||||
Novartis AG (Switzerland) | 102,933 | 8,468,958 | ||||||
Pfizer Inc. | 435,150 | 15,321,631 | ||||||
Sanofi (France) | 101,529 | 8,532,782 | ||||||
59,986,868 | ||||||||
Publishing–0.46% | ||||||||
Thomson Reuters Corp. | 148,032 | 5,988,648 | ||||||
Railroads–0.69% | ||||||||
CSX Corp. | 345,326 | 9,006,102 | ||||||
Regional Banks–3.96% | ||||||||
BB&T Corp. | 194,937 | 6,941,707 | ||||||
Citizens Financial Group Inc. | 674,450 | 13,475,511 | ||||||
Fifth Third Bancorp | 611,188 | 10,750,797 | ||||||
First Horizon National Corp. | 486,542 | 6,704,549 | ||||||
PNC Financial Services Group, Inc. (The) | 172,642 | 14,051,332 | ||||||
51,923,896 | ||||||||
Security & Alarm Services–0.82% | ||||||||
Tyco International PLC | 252,214 | 10,744,316 | ||||||
Semiconductor Equipment–0.92% | ||||||||
Applied Materials, Inc. | 505,647 | 12,120,359 |
Shares | Value | |||||||
Semiconductors–1.79% | ||||||||
Intel Corp. | 336,105 | $ | 11,024,244 | |||||
QUALCOMM, Inc. | 231,990 | 12,427,704 | ||||||
23,451,948 | ||||||||
Specialized Finance–0.49% | ||||||||
CME Group Inc.–Class A | 66,175 | 6,445,445 | ||||||
Systems Software–2.23% | ||||||||
Microsoft Corp. | 234,589 | 12,003,919 | ||||||
Oracle Corp. | 419,899 | 17,186,466 | ||||||
29,190,385 | ||||||||
Tobacco–0.88% | ||||||||
Philip Morris International Inc. | 113,524 | 11,547,661 | ||||||
Wireless Telecommunication Services–0.60% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 253,356 | 7,826,167 | ||||||
Total Common Stocks & Other Equity Interests |
| 827,341,363 | ||||||
Principal Amount | ||||||||
Bonds and Notes–20.03% |
| |||||||
Advertising–0.03% | ||||||||
Interpublic Group of Cos., Inc. (The), Sr. Unsec. Global Notes, 2.25%, 11/15/2017 | $ | 370,000 | 372,626 | |||||
Aerospace & Defense–0.24% | ||||||||
BAE Systems Holdings Inc. (United Kingdom), Sr. Unsec. Gtd. Notes, 2.85%, | 288,000 | 295,171 | ||||||
Boeing Capital Corp., Sr. Unsec. Notes, 2.13%, 08/15/2016 | 670,000 | 670,596 | ||||||
Lockheed Martin Corp., Sr. Unsec. Global Notes, 2.13%, 09/15/2016 | 1,005,000 | 1,007,723 | ||||||
Northrop Grumman Corp., Sr. Unsec. Global Notes, 3.85%, 04/15/2045 | 190,000 | 198,544 | ||||||
Precision Castparts Corp., Sr. Unsec. Global Notes, | ||||||||
1.25%, 01/15/2018 | 590,000 | 592,910 | ||||||
2.50%, 01/15/2023 | 365,000 | 377,698 | ||||||
3,142,642 | ||||||||
Agricultural & Farm Machinery–0.10% | ||||||||
Deere & Co., Sr. Unsec. Notes, 2.60%, 06/08/2022 | 1,275,000 | 1,316,974 | ||||||
Agricultural Products–0.02% | ||||||||
Ingredion Inc., Sr. Unsec. Notes, 6.63%, 04/15/2037 | 255,000 | 323,441 | ||||||
Air Freight & Logistics–0.12% | ||||||||
FedEx Corp., | ||||||||
Sr. Unsec. Gtd. Bonds, | ||||||||
4.90%, 01/15/2034 | 440,000 | 501,050 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.10%, 01/15/2044 | 910,000 | 1,061,372 | ||||||
1,562,422 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Airlines–0.19% | ||||||||
American Airlines Pass Through Trust, Series 2014-1, Class A, Sr. Sec. First Lien Pass Through Ctfs., 3.70%, 04/01/2028 | $ | 411,026 | $ | 428,238 | ||||
Continental Airlines Pass Through Trust, | 231,084 | 231,084 | ||||||
Series 2010-1, Class A, Sr. Sec. First Lien Pass Through Ctfs., 4.75%, 01/12/2021 | 231,516 | 246,492 | ||||||
Series 2012-1, Class A, Sr. Sec. First Lien Pass Through Ctfs., 4.15%, 04/11/2024 | 434,695 | 460,234 | ||||||
Delta Air Lines Pass Through Trust, Series 2010-1, Class A, Sr. Sec. First Lien Pass Through Ctfs., 6.20%, 01/02/2020 | 131,771 | 140,534 | ||||||
United Airlines Pass Through Trust, Series 2014-2, Class A, Sr. Sec. First Lien Pass Through Ctfs., 3.75%, 09/03/2026 | 529,142 | 559,237 | ||||||
Virgin Australia Pass Through Trust (Australia), Series 2013-1, Class A, Sec. Gtd. Pass Through Ctfs., 5.00%, 10/23/2023(c) | 465,951 | 481,241 | ||||||
2,547,060 | ||||||||
Apparel Retail–0.03% | ||||||||
Ross Stores, Inc., Sr. Unsec. Notes, 3.38%, 09/15/2024 | 358,000 | 375,646 | ||||||
Application Software–0.47% | ||||||||
Citrix Systems, Inc., Sr. Unsec. Conv. Bonds, 0.50%, 04/15/2019 | 4,600,000 | 5,140,500 | ||||||
Nuance Communications, Inc., Sr. Unsec. Conv. Notes, 1.00%, 12/15/2022(c)(d) | 1,090,000 | 963,287 | ||||||
6,103,787 | ||||||||
Asset Management & Custody Banks–0.12% | ||||||||
Apollo Management Holdings L.P., Sr. Unsec. Gtd. Notes, 4.00%, 05/30/2024(c) | 425,000 | 438,115 | ||||||
4.40%, 05/27/2026(c) | 838,000 | 876,680 | ||||||
KKR Group Finance Co. III LLC, Sr. Unsec. Gtd. Bonds, 5.13%, 06/01/2044(c) | 315,000 | 319,559 | ||||||
1,634,354 | ||||||||
Automobile Manufacturers–0.25% | ||||||||
BMW US Capital, LLC (Germany), Sr. Unsec. Gtd. Notes, 2.00%, 04/11/2021(c) | 713,000 | 719,130 | ||||||
Daimler Finance North America LLC (Germany), Sr. Unsec. Gtd. Notes, 1.88%, 01/11/2018(c) | 555,000 | 560,527 | ||||||
Ford Motor Credit Co. LLC, Sr. Unsec. Global Notes, | 267,000 | 270,642 | ||||||
4.13%, 08/04/2025 | 687,000 | 739,728 |
Principal Amount | Value | |||||||
Automobile Manufacturers–(continued) | ||||||||
General Motors Co., Sr. Unsec. Global Notes, 6.60%, 04/01/2036 | $ | 397,000 | $ | 460,520 | ||||
General Motors Financial Co., Inc., Sr. Unsec. Gtd. Global Notes, 5.25%, 03/01/2026 | 503,000 | 545,126 | ||||||
3,295,673 | ||||||||
Automotive Retail–0.12% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, | 660,000 | 710,280 | ||||||
5.75%, 05/01/2020 | 399,000 | 443,671 | ||||||
AutoZone, Inc., Sr. Unsec. Global Notes, 3.13%, 04/21/2026 | 369,000 | 379,202 | ||||||
1,533,153 | ||||||||
Biotechnology–0.66% | ||||||||
AbbVie Inc., Sr. Unsec. Global Notes, 1.75%, 11/06/2017 | 2,309,000 | 2,324,556 | ||||||
4.50%, 05/14/2035 | 720,000 | 754,260 | ||||||
BioMarin Pharmaceutical Inc., Sr. Unsec. Sub. Conv. Notes, 1.50%, 10/15/2020 | 2,182,000 | 2,533,847 | ||||||
Celgene Corp., Sr. Unsec. Global Notes, 4.00%, 08/15/2023 | 485,000 | 518,396 | ||||||
4.63%, 05/15/2044 | 1,390,000 | 1,436,735 | ||||||
5.00%, 08/15/2045 | 169,000 | 187,215 | ||||||
Gilead Sciences, Inc., Sr. Unsec. Global Notes, | 350,000 | 352,997 | ||||||
4.40%, 12/01/2021 | 492,000 | 556,014 | ||||||
8,664,020 | ||||||||
Brewers–0.34% | ||||||||
Anheuser-Busch InBev Finance, Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, | 625,000 | 648,269 | ||||||
3.30%, 02/01/2023 | 593,000 | 624,147 | ||||||
4.70%, 02/01/2036 | 1,005,000 | 1,129,545 | ||||||
4.90%, 02/01/2046 | 1,122,000 | 1,321,410 | ||||||
Molson Coors Brewing Co., Sr. Unsec. Gtd. Global Notes, 1.45%, 07/15/2019 | 341,000 | 342,019 | ||||||
4.20%, 07/15/2046 | 395,000 | 399,471 | ||||||
4,464,861 | ||||||||
Broadcasting–0.46% | ||||||||
Liberty Media Corp., Sr. Unsec. Conv. Notes, 1.38%, 10/15/2023 | 6,063,000 | 6,051,632 | ||||||
Cable & Satellite–0.24% | ||||||||
Charter Communications Operating, LLC/Charter Communications Operating Capital Corp., Sr. Sec. First Lien Notes, 4.46%, | 1,065,000 | 1,146,508 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Cable & Satellite–(continued) | ||||||||
Comcast Corp., | $ | 115,000 | $ | 127,316 | ||||
5.70%, 05/15/2018 | 445,000 | 483,420 | ||||||
Sr. Unsec. Gtd. Notes, 6.45%, 03/15/2037 | 305,000 | 421,275 | ||||||
Cox Communications, Inc., Sr. Unsec. Notes, | 440,000 | 392,487 | ||||||
8.38%, 03/01/2039(c) | 80,000 | 96,264 | ||||||
NBCUniversal Media LLC, Sr. Unsec. Gtd. Global Notes, | 175,000 | 198,552 | ||||||
5.95%, 04/01/2041 | 215,000 | 287,114 | ||||||
3,152,936 | ||||||||
Catalog Retail–0.19% | ||||||||
Liberty Interactive LLC, Sr. Unsec. Conv. Global Deb., 0.75%, 03/30/2023(d) | 1,526,000 | 1,709,420 | ||||||
QVC, Inc., Sr. Sec. Gtd. First Lien Global Notes, 5.45%, 08/15/2034 | 880,000 | 812,531 | ||||||
2,521,951 | ||||||||
Commodity Chemicals–0.08% | ||||||||
Basell Finance Company B.V. (Netherlands), Sr. Unsec. Gtd. Deb., 8.10%, 03/15/2027(c) | 745,000 | 998,008 | ||||||
Communications Equipment–0.39% | ||||||||
Ciena Corp., Sr. Unsec. Conv. Notes, 4.00%, 12/15/2020(c) | 1,610,000 | 2,018,537 | ||||||
Viavi Solutions Inc., Sr. Unsec. Conv. Deb., 0.63%, 08/15/2018(d) | 3,098,000 | 3,034,104 | ||||||
5,052,641 | ||||||||
Construction & Engineering–0.11% | ||||||||
Valmont Industries, Inc., Sr. Unsec. Gtd. Global Notes, | 250,000 | 232,920 | ||||||
5.25%, 10/01/2054 | 1,321,000 | 1,195,216 | ||||||
1,428,136 | ||||||||
Construction Machinery & Heavy Trucks–0.14% | ||||||||
Caterpillar Financial Services Corp., Sr. Unsec. Notes, 1.75%, 03/24/2017 | 1,815,000 | 1,825,672 | ||||||
Consumer Finance–0.03% | ||||||||
American Express Co., Unsec. Sub. Global Notes, 3.63%, 12/05/2024 | 336,000 | 345,833 | ||||||
Data Processing & Outsourced Services–0.06% | ||||||||
Visa Inc., Sr. Unsec. Global Notes, 4.15%, 12/14/2035 | 670,000 | 760,788 | ||||||
Diversified Banks–1.46% | ||||||||
Australia and New Zealand Banking Group Ltd. (Australia), Sr. Unsec. Medium-Term Global Notes, 2.30%, 06/01/2021 | 1,000,000 | 1,018,047 |
Principal Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
Bank of America Corp., | $ | 975,000 | $ | 1,032,724 | ||||
Sr. Unsec. Medium-Term Global Notes, | 615,000 | 637,193 | ||||||
5.65%, 05/01/2018 | 350,000 | 375,054 | ||||||
BBVA Bancomer S.A. (Mexico), Sr. Unsec. Notes, 4.38%, | 700,000 | 733,520 | ||||||
BNP Paribas S.A. (France), Unsec. Gtd. Sub. Medium-Term Notes, 4.25%, 10/15/2024 | 530,000 | 541,483 | ||||||
Citigroup Inc., | 250,000 | 272,219 | ||||||
6.68%, 09/13/2043 | 815,000 | 1,054,168 | ||||||
Unsec. Sub. Notes, 4.75%, 05/18/2046 | 375,000 | 375,718 | ||||||
HBOS PLC (United Kingdom), Unsec. Sub. Medium-Term Global Notes, 6.75%, 05/21/2018(c) | 325,000 | 348,842 | ||||||
JPMorgan Chase & Co., | 415,000 | 425,320 | ||||||
4.50%, 01/24/2022 | 80,000 | 88,961 | ||||||
Unsec. Sub. Global Notes, 4.25%, 10/01/2027 | 345,000 | 363,927 | ||||||
Series V, Jr. Unsec. Sub. Global Notes, 5.00%(e) | 640,000 | 615,200 | ||||||
Series Z, Jr. Unsec. Sub. Global Notes, 5.30%(e) | 695,000 | 696,737 | ||||||
Lloyds Bank PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 2.30%, 11/27/2018 | 550,000 | 553,336 | ||||||
Mizuho Financial Group Cayman 3 Ltd. (Japan), Unsec. Gtd. Sub. Notes, 4.60%, 03/27/2024(c) | 200,000 | 219,885 | ||||||
National Australia Bank Ltd. (Australia), Sr. Unsec. Medium-Term Global Notes, 2.00%, 01/14/2019 | 930,000 | 944,156 | ||||||
Nordea Bank AB (Sweden), Sr. Unsec. Notes, 2.25%, 05/27/2021(c) | 1,250,000 | 1,264,628 | ||||||
Societe Generale S.A. (France), Sr. Unsec. Notes, 2.63%, | 890,000 | 918,157 | ||||||
Unsec. Sub. Notes, 5.00%, 01/17/2024(c) | 735,000 | 762,525 | ||||||
5.63%, 11/24/2045(c) | 330,000 | 342,157 | ||||||
Standard Chartered PLC (United Kingdom), Sr. Unsec. Notes, 3.05%, 01/15/2021(c) | 680,000 | 694,807 | ||||||
Sumitomo Mitsui Banking Corp. (Japan), Sr. Unsec. Gtd. Medium-Term Global Notes, 2.65%, 07/23/2020 | 715,000 | 732,488 | ||||||
U.S. Bancorp, Series W, Unsec. Sub. Medium-Term Notes, 3.10%, 04/27/2026 | 295,000 | 307,693 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
Wells Fargo & Co., | $ | 180,000 | $ | 181,145 | ||||
Sr. Unsec. Medium-Term Notes, 3.55%, 09/29/2025 | 655,000 | 699,653 | ||||||
Sr. Unsec. Notes, 3.90%, 05/01/2045 | 1,060,000 | 1,115,211 | ||||||
Unsec. Sub. Medium-Term Notes, 4.10%, 06/03/2026 | 450,000 | 482,770 | ||||||
4.65%, 11/04/2044 | 1,200,000 | 1,271,924 | ||||||
19,069,648 | ||||||||
Diversified Capital Markets–0.12% | ||||||||
Credit Suisse AG (Switzerland), Unsec. Sub. Notes, 6.50%, 08/08/2023(c) | 686,000 | 723,316 | ||||||
Credit Suisse Group Funding (Guernsey) Ltd. (Switzerland), Sr. Unsec. Gtd. Notes, 3.80%, 06/09/2023(c) | 875,000 | 874,459 | ||||||
1,597,775 | ||||||||
Diversified Chemicals–0.06% | ||||||||
Eastman Chemical Co., Sr. Unsec. Global Notes, 2.70%, 01/15/2020 | 795,000 | 818,024 | ||||||
Diversified Metals & Mining–0.05% | ||||||||
Rio Tinto Finance USA Ltd. (United Kingdom), Sr. Unsec. Gtd. Global Notes, | 200,000 | 250,043 | ||||||
9.00%, 05/01/2019 | 295,000 | 355,128 | ||||||
605,171 | ||||||||
Diversified Real Estate Activities–0.04% | ||||||||
Brookfield Asset Management Inc. (Canada), Sr. Unsec. Notes, 4.00%, 01/15/2025 | 460,000 | 468,661 | ||||||
Diversified Support Services–0.05% | ||||||||
Cintas Corp. No. 2, Sr. Unsec. Gtd. Notes, 6.13%, 12/01/2017 | 560,000 | 599,232 | ||||||
Drug Retail–0.21% | ||||||||
CVS Health Corp., Sr. Unsec. Global Bonds, 3.38%, 08/12/2024 | 375,000 | 400,057 | ||||||
CVS Pass Through Trust, Sr. Sec. First Lien Global Pass Through Ctfs., 6.04%, 12/10/2028 | 879,520 | 995,017 | ||||||
Walgreens Boots Alliance Inc., Sr. Unsec. Global Notes, | 293,000 | 298,294 | ||||||
3.30%, 11/18/2021 | 602,000 | 631,987 | ||||||
4.50%, 11/18/2034 | 444,000 | 466,518 | ||||||
2,791,873 | ||||||||
Electric Utilities–0.31% | ||||||||
Commonwealth Edison Co., Series104, Sr. Sec. First Mortgage Bonds, 5.95%, 08/15/2016 | 1,735,000 | 1,744,725 |
Principal Amount | Value | |||||||
Electric Utilities–(continued) | ||||||||
Electricite de France S.A. (France), | $ | 965,000 | $ | 908,306 | ||||
Sr. Unsec. Notes, 4.60%, 01/27/2020(c) | 150,000 | 164,752 | ||||||
4.88%, 01/22/2044(c) | 930,000 | 997,964 | ||||||
Ohio Power Co., Series M, Sr. Unsec. Notes, 5.38%, 10/01/2021 | 200,000 | 233,635 | ||||||
PPL Electric Utilities Corp., Sr. Sec. First Mortgage Bonds, 6.25%, 05/15/2039 | 50,000 | 70,642 | ||||||
4,120,024 | ||||||||
Environmental & Facilities Services–0.04% | ||||||||
Waste Management, Inc., Sr. Unsec. Gtd. Global Notes, | 469,000 | 496,256 | ||||||
Fertilizers & Agricultural Chemicals–0.02% | ||||||||
Monsanto Co., Sr. Unsec. Global Notes, 2.13%, 07/15/2019 | 305,000 | 309,449 | ||||||
Food Retail–0.14% | ||||||||
Kraft Foods Group, Inc., | 790,000 | 797,596 | ||||||
Sr. Unsec. Gtd. Notes, 1.60%, 06/30/2017(c) | 1,080,000 | 1,084,226 | ||||||
1,881,822 | ||||||||
General Merchandise Stores–0.18% | ||||||||
Dollar General Corp., Sr. Unsec. Global Notes, 3.25%, 04/15/2023 | 365,000 | 376,203 | ||||||
Target Corp., | 498,000 | 529,725 | ||||||
Sr. Unsec. Notes, 5.88%, 07/15/2016 | 1,440,000 | 1,441,767 | ||||||
2,347,695 | ||||||||
Health Care Distributors–0.08% | ||||||||
McKesson Corp., Sr. Unsec. Global Notes, 2.28%, 03/15/2019 | 1,095,000 | 1,120,216 | ||||||
Health Care Equipment–0.77% | ||||||||
Becton, Dickinson and Co., | 345,000 | 345,842 | ||||||
3.88%, 05/15/2024 | 685,000 | 745,686 | ||||||
4.88%, 05/15/2044 | 750,000 | 868,792 | ||||||
Sr. Unsec. Notes, 2.68%, 12/15/2019 | 314,000 | 323,034 | ||||||
Edwards Lifesciences Corp., Sr. Unsec. Global Notes, 2.88%, 10/15/2018 | 731,000 | 751,757 | ||||||
Medtronic, Inc., Sr. Unsec. Gtd. Global Notes, | 1,076,000 | 1,148,367 | ||||||
4.38%, 03/15/2035 | 358,000 | 405,776 | ||||||
4.63%, 03/15/2044 | 525,000 | 617,391 | ||||||
NuVasive, Inc., Sr. Unsec. Conv. Notes, 2.25%, 03/15/2021(c) | 1,754,000 | 2,085,068 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Health Care Equipment–(continued) | ||||||||
Wright Medical Group N.V.,Sr. Unsec. Conv. Notes, 2.25%, 11/15/2021(c) | $ | 920,000 | $ | 951,050 | ||||
Wright Medical Group, Inc.,Sr. Unsec. Conv. Bonds, 2.00%, 02/15/2020 | 2,063,000 | 1,895,381 | ||||||
10,138,144 | ||||||||
Health Care Facilities–0.48% | ||||||||
Brookdale Senior Living Inc., Sr. Unsec. Conv. Notes, 2.75%, 06/15/2018 | 2,241,000 | 2,197,581 | ||||||
HealthSouth Corp., Sr. Unsec. Sub. Conv. Notes, 2.00%, 12/01/2020(d) | 3,465,000 | 4,060,547 | ||||||
6,258,128 | ||||||||
Health Care REIT’s–0.11% | ||||||||
HCP, Inc., Sr. Unsec. Global Notes, 3.88%, 08/15/2024 | 505,000 | 515,036 | ||||||
4.20%, 03/01/2024 | 480,000 | 494,883 | ||||||
Ventas Realty L.P., Sr. Unsec. Gtd. Notes, 5.70%, 09/30/2043 | 215,000 | 249,876 | ||||||
Ventas Realty L.P./Ventas Capital Corp., Sr. Unsec. Gtd. Notes, 4.25%, 03/01/2022 | 200,000 | 216,173 | ||||||
1,475,968 | ||||||||
Health Care Services–0.11% | ||||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Global Notes, 2.25%, 06/15/2019 | 575,000 | 584,552 | ||||||
Laboratory Corp. of America Holdings, Sr. Unsec. Notes, 3.20%, 02/01/2022 | 602,000 | 623,538 | ||||||
4.70%, 02/01/2045 | 264,000 | 284,281 | ||||||
1,492,371 | ||||||||
Home Improvement Retail–0.05% | ||||||||
Home Depot, Inc. (The), Sr. Unsec. Global Notes, 2.00%, 04/01/2021 | 631,000 | 648,061 | ||||||
Homebuilding–0.06% | ||||||||
MDC Holdings, Inc., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/2043 | 1,050,000 | 832,311 | ||||||
Hotels, Resorts & Cruise Lines–0.03% | ||||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, 2.95%, 03/01/2017 | 335,000 | 337,881 | ||||||
Housewares & Specialties–0.12% | ||||||||
Newell Brands Inc., Sr. Unsec. Global Notes, 5.50%, 04/01/2046 | 222,000 | 263,774 | ||||||
Tupperware Brands Corp., Sr. Unsec. Gtd. Global Notes, 4.75%, 06/01/2021 | 1,160,000 | 1,249,826 | ||||||
1,513,600 | ||||||||
Hypermarkets & Super Centers–0.20% | ||||||||
Wal-Mart Stores, Inc., Sr. Unsec. Notes, 5.52%, 06/01/2017(d)(f) | 2,570,000 | 2,687,256 |
Principal Amount | Value | |||||||
Industrial Machinery–0.06% | ||||||||
Pentair Finance S.A. (United Kingdom), Sr. Unsec. Gtd. Global Notes, 5.00%, 05/15/2021 | $ | 690,000 | $ | 746,497 | ||||
Integrated Oil & Gas–0.34% | ||||||||
Chevron Corp., Sr. Unsec. Global Notes, | 1,428,000 | 1,442,885 | ||||||
1.72%, 06/24/2018 | 520,000 | 527,480 | ||||||
Husky Energy Inc. (Canada), Sr. Unsec. Global Notes, 3.95%, 04/15/2022 | 300,000 | 305,772 | ||||||
Occidental Petroleum Corp., Sr. Unsec. Global Notes, 3.40%, 04/15/2026 | 365,000 | 385,847 | ||||||
Petróleos Mexicanos (Mexico), Sr. Unsec. Gtd. Global Notes, 4.88%, 01/24/2022 | 570,000 | 584,564 | ||||||
Shell International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Notes, 4.00%, 05/10/2046 | 897,000 | 920,901 | ||||||
Suncor Energy Inc. (Canada), Sr. Unsec. Notes, 3.60%, 12/01/2024 | 334,000 | 349,288 | ||||||
4,516,737 | ||||||||
Integrated Telecommunication Services–0.59% | ||||||||
AT&T Inc., Sr. Unsec. Global Notes, 3.00%, 06/30/2022 | 520,000 | 534,146 | ||||||
3.40%, 05/15/2025 | 289,000 | 295,666 | ||||||
3.80%, 03/15/2022 | 330,000 | 351,942 | ||||||
4.50%, 05/15/2035 | 463,000 | 474,629 | ||||||
4.80%, 06/15/2044 | 935,000 | 966,647 | ||||||
5.15%, 03/15/2042 | 90,000 | 97,498 | ||||||
5.35%, 09/01/2040 | 101,000 | 110,355 | ||||||
6.15%, 09/15/2034 | 140,000 | 164,179 | ||||||
British Telecommunications PLC (United Kingdom), Sr. Unsec. Global Notes, 1.25%, 02/14/2017 | 550,000 | 549,127 | ||||||
Telefonica Emisiones S.A.U. (Spain), Sr. Unsec. Gtd. Global Notes, 7.05%, 06/20/2036 | 360,000 | 464,337 | ||||||
Verizon Communications Inc., Sr. Unsec. Global Notes, | 325,000 | 337,296 | ||||||
4.52%, 09/15/2048 | 1,988,000 | 2,080,907 | ||||||
5.01%, 08/21/2054 | 694,000 | 740,731 | ||||||
5.15%, 09/15/2023 | 450,000 | 525,455 | ||||||
7,692,915 | ||||||||
Investment Banking & Brokerage–1.42% | ||||||||
Goldman Sachs Group, Inc. (The), Sr. Unsec. Global Notes, 5.25%, 07/27/2021 | 400,000 | 451,832 | ||||||
Unsec. Sub. Notes, 4.25%, 10/21/2025 | 552,000 | 570,834 | ||||||
Series 0000, Sr. Unsec. Exchangeable Basket-Linked Conv. Medium-Term Notes, 1.00%, 03/15/2017(c)(g) | 3,328,000 | 4,635,005 | ||||||
1.00%, 09/28/2020(c)(h) | 6,230,000 | 7,033,795 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Investment Banking & Brokerage–(continued) | ||||||||
Jefferies Group LLC, Sr. Unsec. Conv. Deb., 3.88%, 11/01/2017(d) | $ | 3,060,000 | $ | 3,109,725 | ||||
Lazard Group LLC, Sr. Unsec. Global Notes, 3.75%, 02/13/2025 | 1,142,000 | 1,139,073 | ||||||
Morgan Stanley, | 705,000 | 958,530 | ||||||
Sr. Unsec. Medium-Term Global Notes, 4.00%, 07/23/2025 | 680,000 | 729,623 | ||||||
18,628,417 | ||||||||
IT Consulting & Other Services–0.04% | ||||||||
Computer Sciences Corp., Sr. Unsec. Global Notes, 4.45%, 09/15/2022 | 490,000 | 523,924 | ||||||
Life & Health Insurance–0.16% | ||||||||
Nationwide Financial Services Inc., Sr. Unsec. Notes, | 910,000 | 996,889 | ||||||
Prudential Financial, Inc., | 410,000 | 459,188 | ||||||
Series D, Sr. Unsec. Medium-Term Notes, 6.63%, 12/01/2037 | 110,000 | 142,480 | ||||||
Reliance Standard Life Global Funding II, Sr. Sec. Notes, 3.05%, | 465,000 | 481,042 | ||||||
2,079,599 | ||||||||
Managed Health Care–0.08% | ||||||||
Aetna, Inc., Sr. Unsec. Global Notes, | 605,000 | 651,246 | ||||||
4.38%, 06/15/2046 | 358,000 | 373,761 | ||||||
1,025,007 | ||||||||
Movies & Entertainment–0.09% | ||||||||
Live Nation Entertainment, Inc., Sr. Unsec. Conv. Bonds, 2.50%, 05/15/2019 | 1,130,000 | 1,138,475 | ||||||
Multi-Line Insurance–0.18% | ||||||||
American International Group, Inc., Sr. Unsec. Global Notes, 2.30%, 07/16/2019 | 385,000 | 392,197 | ||||||
4.38%, 01/15/2055 | 720,000 | 673,387 | ||||||
CNA Financial Corp., | 325,000 | 367,617 | ||||||
Sr. Unsec. Notes, 7.35%, 11/15/2019 | 25,000 | 28,856 | ||||||
Farmers Exchange Capital III, Unsec. Sub. Notes, 5.45%, 10/15/2054(c) | 930,000 | 901,311 | ||||||
2,363,368 | ||||||||
Multi-Utilities–0.03% | ||||||||
Enable Midstream Partners, LP, Sr. Unsec. Gtd. Global Notes, 2.40%, 05/15/2019 | 440,000 | 413,050 |
Principal Amount | Value | |||||||
Multi-Utilities–(continued) | ||||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/2019 | $ | 15,000 | $ | 16,453 | ||||
429,503 | ||||||||
Office REIT’s–0.05% | ||||||||
Piedmont Operating Partnership L.P., Sr. Unsec. Gtd. Global Notes, 4.45%, 03/15/2024 | 605,000 | 627,309 | ||||||
Office Services & Supplies–0.04% | ||||||||
Pitney Bowes Inc., Sr. Unsec. Global Notes, 4.63%, 03/15/2024 | 500,000 | 527,950 | ||||||
Oil & Gas Drilling–0.01% | ||||||||
Noble Holding International Ltd. (United Kingdom), Sr. Unsec. Gtd. Global Notes, 2.50%, 03/15/2017 | 150,000 | 149,677 | ||||||
Oil & Gas Equipment & Services–0.31% | ||||||||
Helix Energy Solutions Group, Inc., Sr. Unsec. Conv. Notes, 3.25%, 03/15/2018(d) | 1,126,000 | 1,003,548 | ||||||
Weatherford International Ltd., Sr. Unsec. Gtd. Conv. Notes, 5.88%, 07/01/2021 | 2,755,000 | 3,001,228 | ||||||
4,004,776 | ||||||||
Oil & Gas Exploration & Production–0.35% | ||||||||
Anadarko Petroleum Corp., | 288,000 | 305,988 | ||||||
6.60%, 03/15/2046 | 443,000 | 536,435 | ||||||
Cobalt International Energy Inc., Sr. Unsec. Conv. Notes, 2.63%, 12/01/2019 | 1,902,000 | 722,760 | ||||||
ConocoPhillips Co., Sr. Unsec. Gtd. Global Notes, | 859,000 | 880,099 | ||||||
4.15%, 11/15/2034 | 921,000 | 925,249 | ||||||
Devon Energy Corp., Sr. Unsec. Global Notes, 2.25%, 12/15/2018 | 430,000 | 428,388 | ||||||
Noble Energy, Inc., Sr. Unsec. Global Notes, 5.25%, 11/15/2043 | 830,000 | 847,096 | ||||||
4,646,015 | ||||||||
Oil & Gas Storage & Transportation–0.35% | ||||||||
Energy Transfer Partners, L.P., Sr. Unsec. Notes, 4.90%, 03/15/2035 | 357,000 | 323,037 | ||||||
Enterprise Products Operating LLC, | 25,000 | 30,767 | ||||||
Sr. Unsec. Gtd. Global Notes, | 155,000 | 172,950 | ||||||
Sr. Unsec. Gtd. Notes, | 370,000 | 381,896 | ||||||
Series N, Sr. Unsec. Gtd. Notes, 6.50%, 01/31/2019 | 245,000 | 275,136 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Oil & Gas Storage & Transportation–(continued) | ||||||||
Kinder Morgan Inc., Sr. Unsec. Gtd. Notes, 5.30%, 12/01/2034 | $ | 422,000 | $ | 415,757 | ||||
Plains All American Pipeline L.P./ PAA Finance Corp., Sr. Unsec. Global Notes, 3.65%, 06/01/2022 | 355,000 | 350,061 | ||||||
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 7.50%, 09/15/2038 | 120,000 | 137,799 | ||||||
Spectra Energy Partners, L.P., Sr. Unsec. Global Notes, 4.50%, 03/15/2045 | 536,000 | 549,287 | ||||||
Sunoco Logistics Partners Operations L.P., Sr. Unsec. Gtd. Notes, 5.30%, 04/01/2044 | 645,000 | 639,616 | ||||||
5.50%, 02/15/2020 | 535,000 | 576,962 | ||||||
Texas Eastern Transmission L.P., Sr. Unsec. Notes, 7.00%, 07/15/2032 | 185,000 | 227,604 | ||||||
Western Gas Partners L.P., Sr. Unsec. Notes, 5.45%, 04/01/2044 | 600,000 | 576,750 | ||||||
4,657,622 | ||||||||
Other Diversified Financial Services–0.19% | ||||||||
Athene Global Funding, Sec. Notes, 2.88%, 10/23/2018(c) | 624,000 | 619,195 | ||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 2.35%, 10/15/2019(c) | 935,000 | 953,389 | ||||||
MassMutual Global Funding II, Sec. Notes, 2.00%, 04/15/2021(c) | 945,000 | 958,288 | ||||||
2,530,872 | ||||||||
Packaged Foods & Meats–0.09% | ||||||||
General Mills, Inc., Sr. Unsec. Global Notes, 2.20%, 10/21/2019 | 850,000 | 871,550 | ||||||
Mead Johnson Nutrition Co., Sr. Unsec. Global Notes, 4.13%, 11/15/2025 | 64,000 | 69,945 | ||||||
Tyson Foods, Inc., Sr. Unsec. Gtd. Global Bonds, 4.88%, 08/15/2034 | 214,000 | 237,842 | ||||||
1,179,337 | ||||||||
Paper Packaging–0.12% | ||||||||
International Paper Co., Sr. Unsec. Global Notes, 6.00%, 11/15/2041 | 245,000 | 286,732 | ||||||
Packaging Corp. of America, Sr. Unsec. Global Notes, 4.50%, 11/01/2023 | 1,139,000 | 1,242,669 | ||||||
1,529,401 | ||||||||
Pharmaceuticals–0.71% | ||||||||
Actavis Funding SCS, Sr. Unsec. Gtd. Global Notes, | 909,000 | 912,834 | ||||||
4.85%, 06/15/2044 | 950,000 | 1,006,139 | ||||||
Bayer US Finance LLC (Germany), Sr. Unsec. Gtd. Notes, 3.00%, 10/08/2021(c) | 590,000 | 616,545 | ||||||
GlaxoSmithKline Capital Inc. (United Kingdom), Sr. Unsec. Gtd. Global Bonds, | 75,000 | 81,296 | ||||||
6.38%, 05/15/2038 | 70,000 | 100,054 |
Principal Amount | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
GlaxoSmithKline Capital PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 1.50%, 05/08/2017 | $ | 2,175,000 | $ | 2,186,890 | ||||
Jazz Investments I Ltd., Sr. Unsec. Gtd. Conv. Bonds, 1.88%, 08/15/2021 | 1,455,000 | 1,565,034 | ||||||
Medicines Co. (The), Sr. Unsec. Conv. Notes, 2.75%, 07/15/2023(c) | 526,000 | 506,932 | ||||||
Merck Sharp & Dohme Corp., Sr. Unsec. Gtd. Global Notes, 5.00%, 06/30/2019 | 280,000 | 311,492 | ||||||
Mylan N.V., Sr. Unsec. Gtd. Notes, 3.15%, 06/15/2021(c) | 431,000 | 435,771 | ||||||
5.25%, 06/15/2046(c) | 590,000 | 615,209 | ||||||
Perrigo Co. PLC, Sr. Unsec. Global Notes, 2.30%, 11/08/2018 | 405,000 | 408,977 | ||||||
Perrigo Finance Unlimited Co., Sr. Unsec. Gtd. Global Notes, 3.50%, 03/15/2021 | 200,000 | 208,099 | ||||||
Zoetis Inc., Sr. Unsec. Global Notes, 4.70%, 02/01/2043 | 365,000 | 362,588 | ||||||
9,317,860 | ||||||||
Property & Casualty Insurance–0.29% | ||||||||
Liberty Mutual Group Inc., Sr. Unsec. Gtd. Bonds, 4.85%, 08/01/2044(c) | 975,000 | 997,267 | ||||||
Markel Corp., Sr. Unsec. Notes, 5.00%, 03/30/2043 | 385,000 | 415,209 | ||||||
Old Republic International Corp., Sr. Unsec. Conv. Notes, 3.75%, 03/15/2018 | 855,000 | 1,096,537 | ||||||
Travelers Cos., Inc. (The), Sr. Unsec. Global Notes, 4.60%, 08/01/2043 | 665,000 | 798,518 | ||||||
WR Berkley Corp., Sr. Unsec. Global Notes, 4.63%, 03/15/2022 | 420,000 | 458,757 | ||||||
3,766,288 | ||||||||
Railroads–0.32% | ||||||||
Burlington Northern Santa Fe, LLC, Sr. Unsec. Deb., 5.15%, 09/01/2043 | 1,990,000 | 2,451,156 | ||||||
CSX Corp., Sr. Unsec. Notes, 5.50%, 04/15/2041 | 380,000 | 478,273 | ||||||
Union Pacific Corp., | 101,000 | 111,701 | ||||||
Sr. Unsec. Notes, 4.15%, 01/15/2045 | 440,000 | 485,628 | ||||||
4.85%, 06/15/2044 | 570,000 | 686,059 | ||||||
4,212,817 | ||||||||
Regional Banks–0.20% | ||||||||
PNC Bank, N.A., Series BKNT, Sr. Unsec. Notes, 1.30%, 10/03/2016 | 1,610,000 | 1,611,626 | ||||||
SunTrust Banks, Inc., Unsec. Sub. Global Notes, 3.30%, 05/15/2026 | 945,000 | 960,129 | ||||||
2,571,755 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Reinsurance–0.06% | ||||||||
Reinsurance Group of America, Inc., Sr. Unsec. Medium-Term Notes, 4.70%, 09/15/2023 | $ | 780,000 | $ | 848,595 | ||||
Renewable Electricity–0.05% | ||||||||
Oglethorpe Power Corp., Sr. Sec. First Mortgage Bonds, 4.55%, 06/01/2044 | 581,000 | 630,542 | ||||||
Research & Consulting Services–0.02% | ||||||||
Verisk Analytics, Inc., Sr. Unsec. Global Notes, 5.50%, 06/15/2045 | 220,000 | 227,005 | ||||||
Semiconductor Equipment–0.34% | ||||||||
Lam Research Corp., Series B, Sr. Unsec. Conv. Notes, 1.25%, 05/15/2018 | 3,026,000 | 4,414,177 | ||||||
Semiconductors–1.12% | ||||||||
Intel Corp., Sr. Unsec. Global Notes, 1.35%, 12/15/2017 | 740,000 | 744,668 | ||||||
Microchip Technology, Inc., Sr. Unsec. Sub. Conv. Bonds, 1.63%, 02/15/2025 | 1,803,000 | 2,004,710 | ||||||
Micron Technology, Inc., Series G, Sr. Unsec. Conv. Global Bonds, 3.00%, 11/15/2028(d) | 3,601,000 | 2,768,269 | ||||||
NVIDIA Corp., Sr. Unsec. Conv. Bonds, 1.00%, 12/01/2018(c) | 2,504,000 | 5,846,840 | ||||||
ON Semiconductor Corp., Sr. Unsec. Gtd. Conv. Bonds, 1.00%, 12/01/2020 | 3,620,000 | 3,253,475 | ||||||
14,617,962 | ||||||||
Soft Drinks–0.13% | ||||||||
Coca-Cola Co. (The), Sr. Unsec. Global Notes, 1.80%, 09/01/2016 | 1,735,000 | 1,738,129 | ||||||
Specialized Finance–0.42% | ||||||||
Air Lease Corp., Sr. Unsec. Global Notes, | 865,000 | 866,081 | ||||||
4.25%, 09/15/2024 | 430,000 | 439,944 | ||||||
Aviation Capital Group Corp., | 745,000 | 746,099 | ||||||
4.88%, 10/01/2025(c) | 735,000 | 725,015 | ||||||
Moody’s Corp., Sr. Unsec. Global Notes, 4.50%, 09/01/2022 | 935,000 | 1,042,277 | ||||||
National Rural Utilities Cooperative Finance Corp. (The), Sr. Unsec. Medium-Term Notes, 0.95%, 04/24/2017 | 1,715,000 | 1,715,621 | ||||||
5,535,037 | ||||||||
Specialized REIT’s–0.27% | ||||||||
Crown Castle International Corp., Sr. Unsec. Notes, 4.45%, 02/15/2026 | 615,000 | 669,581 |
Principal Amount | Value | |||||||
Specialized REIT’s–(continued) | ||||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. First Lien Notes, 4.88%, 08/15/2020(c) | $ | 538,000 | $ | 589,114 | ||||
6.11%, 01/15/2020(c) | 770,000 | 854,323 | ||||||
Sovran Acquisition LP, Sr. Unsec. Gtd. Global Notes, 3.50%, 07/01/2026 | 1,365,000 | 1,381,081 | ||||||
3,494,099 | ||||||||
Systems Software–0.50% | ||||||||
FireEye, Inc., | 1,085,000 | 989,385 | ||||||
Series B, Sr. Unsec. Conv. Bonds, 1.63%, 06/01/2022(d) | 1,085,000 | 962,259 | ||||||
Microsoft Corp., Sr. Unsec. Global Notes, 3.50%, 02/12/2035 | 403,000 | 415,044 | ||||||
NetSuite Inc., Sr. Unsec. Conv. Notes, 0.25%, 06/01/2018 | 2,326,000 | 2,289,656 | ||||||
Oracle Corp., Sr. Unsec. Global Notes, 1.90%, 09/15/2021 | 1,285,000 | 1,290,200 | ||||||
4.30%, 07/08/2034 | 600,000 | 638,955 | ||||||
6,585,499 | ||||||||
Technology Distributors–0.06% | ||||||||
Avnet, Inc., Sr. Unsec. Global Notes, 4.63%, 04/15/2026 | 705,000 | 733,935 | ||||||
Technology Hardware, Storage & Peripherals–0.62% | ||||||||
Apple Inc., Sr. Unsec. Global Notes, 2.15%, 02/09/2022 | 716,000 | 730,516 | ||||||
Diamond 1 Finance Corp./ Diamond 2 Finance Corp., Sr. Sec. First Lien Notes, | 645,000 | 667,524 | ||||||
8.35%, 07/15/2046(c) | 249,000 | 268,447 | ||||||
Hewlett Packard Enterprise Co., Sr. Unsec. Notes, 2.85%, 10/05/2018(c) | 1,385,000 | 1,417,221 | ||||||
SanDisk Corp., Sr. Unsec. Gtd. Conv. Bonds, | 3,936,000 | 4,255,875 | ||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. Global Bonds, | 325,000 | 257,766 | ||||||
5.75%, 12/01/2034 | 702,000 | 496,665 | ||||||
8,094,014 | ||||||||
Thrifts & Mortgage Finance–0.78% | ||||||||
MGIC Investment Corp., Sr. Unsec. Conv. Notes, | 710,000 | 791,650 | ||||||
5.00%, 05/01/2017 | 6,201,000 | 6,433,537 | ||||||
Radian Group Inc., Sr. Unsec. Conv. Notes, | 412,000 | 472,513 | ||||||
3.00%, 11/15/2017 | 2,275,000 | 2,493,969 | ||||||
10,191,669 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Tobacco–0.27% | ||||||||
Philip Morris International Inc., Sr. Unsec. Global Bonds, 1.25%, 08/11/2017 | $ | 214,000 | $ | 214,936 | ||||
Sr. Unsec. Global Notes, 1.63%, 03/20/2017 | 1,380,000 | 1,388,296 | ||||||
3.60%, 11/15/2023 | 405,000 | 445,344 | ||||||
4.88%, 11/15/2043 | 1,210,000 | 1,444,463 | ||||||
3,493,039 | ||||||||
Trading Companies & Distributors–0.03% | ||||||||
AerCap Ireland Capital Ltd./AerCap Global Aviation Trust (Netherlands), Sr. Unsec. Gtd. Global Notes, 3.95%, 02/01/2022 | 385,000 | 384,037 | ||||||
Wireless Telecommunication Services–0.26% | ||||||||
America Movil S.A.B. de C.V. (Mexico), | 600,000 | 605,791 | ||||||
Sr. Unsec. Gtd. Global Notes, 2.38%, 09/08/2016 | 255,000 | 255,296 | ||||||
Rogers Communications Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 4.50%, 03/15/2043 | 585,000 | 622,350 | ||||||
Vodafone Group PLC (United Kingdom), Sr. Unsec. Global Notes, 1.63%, 03/20/2017 | 1,970,000 | 1,976,290 | ||||||
3,459,727 | ||||||||
Total Bonds and Notes | 262,397,409 | |||||||
U.S. Treasury Securities–10.56% |
| |||||||
U.S. Treasury Bills–0.01% | ||||||||
0.45%, 11/17/2016(i)(j) | 75,000 | 74,928 | ||||||
U.S. Treasury Notes–10.16% | ||||||||
0.50%, 04/30/2017 | 20,000,000 | 20,001,920 | ||||||
0.75%, 06/30/2017 | 9,000,000 | 9,022,500 | ||||||
0.63%, 06/30/2018 | 43,263,000 | 43,290,905 | ||||||
1.25%, 01/31/2019 | 8,000,000 | 8,120,000 | ||||||
0.88%, 06/15/2019 | 24,035,000 | 24,155,175 | ||||||
3.63%, 08/15/2019 | 1,525,000 | 1,661,594 | ||||||
3.38%, 11/15/2019 | 300,000 | 326,098 | ||||||
3.63%, 02/15/2020 | 46,000 | 50,637 | ||||||
2.63%, 11/15/2020 | 600,000 | 643,090 | ||||||
1.13%, 06/30/2021 | 1,976,600 | 1,987,293 | ||||||
1.38%, 06/30/2023 | 5,553,000 | 5,583,802 | ||||||
1.63%, 05/15/2026 | 17,945,900 | 18,176,541 | ||||||
133,019,555 | ||||||||
U.S. Treasury Bonds–0.39% | ||||||||
4.50%, 08/15/2039 | 40,000 | 57,872 | ||||||
4.38%, 05/15/2040 | 80,000 | 113,936 | ||||||
2.50%, 02/15/2046 | 4,781,800 | 4,983,907 | ||||||
5,155,715 | ||||||||
Total U.S. Treasury Securities (Cost $136,985,269) | 138,250,198 |
Shares | Value | |||||||
Preferred Stocks–0.89% |
| |||||||
Asset Management & Custody Banks–0.19% | ||||||||
AMG Capital Trust II, $2.58 Jr. Unsec. Gtd. Sub. Conv. Pfd. | 43,000 | $ | 2,359,625 | |||||
State Street Corp., Series D, 5.90% Pfd. | 5,468 | 154,143 | ||||||
2,513,768 | ||||||||
Diversified Banks–0.02% | ||||||||
Wells Fargo & Co., 5.85% Pfd. | 12,000 | 331,080 | ||||||
Oil & Gas Storage & Transportation–0.37% | ||||||||
El Paso Energy Capital Trust I, $2.38 Jr. Unsec. Gtd. Sub. Conv. Pfd. | 95,499 | 4,802,645 | ||||||
Regional Banks–0.31% | ||||||||
KeyCorp., Series A, $7.75 Conv. Pfd. | 30,290 | 4,058,860 | ||||||
Total Preferred Stocks | 11,706,353 | |||||||
Principal Amount | ||||||||
U.S. Government Sponsored Agency |
| |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.30% | ||||||||
Unsec. Global Notes, | ||||||||
5.00%, 04/18/2017 | $ | 1,500,000 | 1,552,444 | |||||
5.50%, 08/23/2017 | 140,000 | 147,816 | ||||||
4.88%, 06/13/2018 | 1,000,000 | 1,080,991 | ||||||
6.75%, 03/15/2031 | 750,000 | 1,165,947 | ||||||
Total U.S. Government Sponsored Agency Securities |
| 3,947,198 | ||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–0.00% |
| |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.00% | ||||||||
Pass Through Ctfs., | ||||||||
6.50%, 02/01/2026 | 145 | 167 | ||||||
5.50%, 02/01/2037 | 46 | 50 | ||||||
217 | ||||||||
Federal National Mortgage Association (FNMA)–0.00% | ||||||||
Pass Through Ctfs., | ||||||||
6.00%, 01/01/2017 | 81 | 82 | ||||||
5.50%, 03/01/2021 | 119 | 128 | ||||||
8.00%, 08/01/2021 | 794 | 804 | ||||||
9.50%, 04/01/2030 | 3,341 | 3,900 | ||||||
4,914 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities |
| 5,131 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Shares | Value | |||||||
Money Market Funds–4.66% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(k) | 30,502,635 | $ | 30,502,635 | |||||
Premier Portfolio–Institutional Class, | 30,502,635 | 30,502,635 | ||||||
Total Money Market Funds | 61,005,270 | |||||||
TOTAL INVESTMENTS–99.61% | 1,304,652,922 | |||||||
OTHER ASSETS LESS LIABILITIES–0.39% |
| 5,052,772 | ||||||
NET ASSETS–100.00% | $ | 1,309,705,694 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,092,660,634) | $ | 1,243,647,652 | ||
Investments in affiliated money market funds, at value and cost | 61,005,270 | |||
Total investments, at value (Cost $1,153,665,904) | 1,304,652,922 | |||
Cash | 41,994 | |||
Foreign currencies, at value (Cost $633,083) | 631,124 | |||
Receivable for: | ||||
Investments sold | 4,115,628 | |||
Fund shares sold | 732,330 | |||
Dividends and interest | 3,689,871 | |||
Investment for trustee deferred compensation and retirement plans | 136,534 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 2,805,439 | |||
Other assets | 183 | |||
Total assets | 1,316,806,025 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 3,671,208 | |||
Fund shares reacquired | 665,096 | |||
Variation margin — futures | 625 | |||
Accrued fees to affiliates | 2,125,636 | |||
Accrued trustees’ and officers’ fees and benefits | 1,080 | |||
Accrued other operating expenses | 70,170 | |||
Trustee deferred compensation and retirement plans | 154,092 | |||
Unrealized depreciation on forward foreign currency contracts outstanding | 412,424 | |||
Total liabilities | 7,100,331 | |||
Net assets applicable to shares outstanding | $ | 1,309,705,694 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,093,969,075 | ||
Undistributed net investment income | 27,655,397 | |||
Undistributed net realized gain | 34,851,229 | |||
Net unrealized appreciation | 153,229,993 | |||
$ | 1,309,705,694 | |||
Net Assets: | ||||
Series I | $ | 118,905,669 | ||
Series II | $ | 1,190,800,025 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 7,188,332 | |||
Series II | 72,372,605 | |||
Series I: | ||||
Net asset value per share | $ | 16.54 | ||
Series II: | ||||
Net asset value per share | $ | 16.45 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $287,083) | $ | 10,358,388 | ||
Dividends from affiliated money market funds | 157,233 | |||
Interest | 4,387,966 | |||
Total investment income | 14,903,587 | |||
Expenses: | ||||
Advisory fees | 2,300,598 | |||
Administrative services fees | 1,533,155 | |||
Custodian fees | 34,560 | |||
Distribution fees — Series II | 1,381,353 | |||
Transfer agent fees | 33,698 | |||
Trustees’ and officers’ fees and benefits | 17,332 | |||
Reports to shareholders | 2,641 | |||
Professional services fees | 65,181 | |||
Other | 24,127 | |||
Total expenses | 5,392,645 | |||
Less: Fees waived | (55,204 | ) | ||
Net expenses | 5,337,441 | |||
Net investment income | 9,566,146 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 1,157,040 | |||
Foreign currencies | 80,264 | |||
Forward foreign currency contracts | (836,231 | ) | ||
Futures contracts | (304,425 | ) | ||
96,648 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 9,204,125 | |||
Foreign currencies | 9,591 | |||
Forward foreign currency contracts | 1,769,064 | |||
Futures contracts | (165,218 | ) | ||
10,817,562 | ||||
Net realized and unrealized gain | 10,914,210 | |||
Net increase in net assets resulting from operations | $ | 20,480,356 |
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:
CAD | – Canadian Dollar | |
CHF | – Swiss Franc | |
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Open Futures Contracts | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Equity and Income Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s
evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Funds Mixed-Asset Target Allocation Growth Funds Index. The Board noted that performance of Series II shares of the Fund was in the fifth quintile of its performance universe for the one year period and the second quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series II shares of the Fund was below the performance of the Index for the one year period and above the performance of the index for the three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. Equity and Income Fund
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series II shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one mutual fund. The Board also noted how the Fund’s rate compared to the effective sub-adviser fee rate of three funds sub-advised by Invesco Advisers. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts that are managed using an investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory
and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees
payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered that the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and was advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
Invesco V.I. Equity and Income Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2016 | |||
| ||||
Invesco V.I. Global Core Equity Fund | ||||
| ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIGCE-SAR-1 | ||||
| ||||
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
| |||||
Series I Shares | 0.36% | ||||
Series II Shares | 0.24 | ||||
MSCI World Index▼ (Broad Market/Style-Specific Index) | 0.66 | ||||
Lipper VUF Global Multi-Cap Value Funds Classification Average¢ (Peer Group) | -1.54 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc.
| |||||
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries. The index is computed using the net return, which withholds applicable taxes for non-resident investors. The Lipper VUF Global Multi-Cap Value Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper Global Multi-Cap Value Funds classification. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns As of 6/30/16 |
Series I Shares | |||||
Inception (1/2/97) | 4.44 | % | |||
10 Years | 1.64 | ||||
5 Years | 3.52 | ||||
1 Year | –5.10 | ||||
Series II Shares | |||||
10 Years | 1.39 | % | |||
5 Years | 3.27 | ||||
1 Year | –5.23 |
Effective June 1, 2010, Class I shares of the predecessor fund, Universal Funds Global Value Equity Portfolio, advised by Morgan Stanley Investment Management Inc. were reorganized into Series I shares of Invesco Van Kampen V.I. Global Value Equity Fund (renamed Invesco V.I. Global Core Equity Fund on April 30, 2012). Returns shown above for Series I shares are blended returns of the predecessor fund and Invesco V.I. Global Value Equity Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series II shares incepted on June 1, 2010. Series II share performance shown prior to that date is that of the predecessor fund’s Class I shares restated to reflect the higher 12b-1 fees applicable to Series II shares.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.06% and 1.31%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Global Core Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. Global Core Equity Fund |
Schedule of Investments
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.03% |
| |||||||
Australia–1.89% | ||||||||
Australia and New Zealand Banking Group Ltd. | 76,262 | $ | 1,390,578 | |||||
China–1.13% | ||||||||
Baidu, Inc.–ADR(a) | 5,067 | 836,815 | ||||||
Finland–0.87% | ||||||||
Sampo Oyj–Class A | 15,641 | 638,912 | ||||||
France–4.60% | ||||||||
Danone | 20,738 | 1,462,028 | ||||||
LVMH Moet Hennessy Louis Vuitton S.E. | 5,784 | 875,639 | ||||||
Publicis Groupe S.A. | 15,601 | 1,056,747 | ||||||
3,394,414 | ||||||||
Germany–1.26% | ||||||||
Bayer AG | 9,213 | 926,773 | ||||||
Hong Kong–2.19% | ||||||||
AIA Group Ltd. | 267,400 | 1,611,231 | ||||||
Israel–0.95% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 13,944 | 700,407 | ||||||
Japan–5.60% | ||||||||
ASICS Corp. | 37,800 | 634,572 | ||||||
Hitachi, Ltd. | 290,000 | 1,205,618 | ||||||
KDDI Corp. | 49,700 | 1,513,080 | ||||||
Toyota Motor Corp. | 15,500 | 775,026 | ||||||
4,128,296 | ||||||||
Netherlands–4.61% | ||||||||
GrandVision N.V.–REGS(b) | 35,065 | 913,783 | ||||||
ING Groep N.V. | 95,003 | 987,266 | ||||||
Koninklijke DSM N.V. | 12,648 | 732,717 | ||||||
Koninklijke Philips N.V. | 30,581 | 762,903 | ||||||
3,396,669 | ||||||||
Singapore–1.06% | ||||||||
DBS Group Holdings Ltd. | 66,600 | 784,687 | ||||||
Sweden–0.76% | ||||||||
Sandvik AB | 56,573 | 563,853 | ||||||
Switzerland–4.31% | ||||||||
ABB Ltd. | 56,256 | 1,108,218 | ||||||
Roche Holding AG | 5,179 | 1,367,624 | ||||||
TE Connectivity Ltd. | 12,362 | 705,994 | ||||||
3,181,836 | ||||||||
Taiwan–2.00% | ||||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 292,000 | 1,476,563 | ||||||
United Kingdom–16.12% | ||||||||
British American Tobacco PLC | 10,713 | 697,152 |
Shares | Value | |||||||
United Kingdom–(continued) | ||||||||
Delphi Automotive PLC | 16,780 | $ | 1,050,428 | |||||
Diageo PLC | 52,148 | 1,459,274 | ||||||
Kingfisher PLC | 75,180 | 324,540 | ||||||
Liberty Global PLC–Series A(a) | 52,125 | 1,514,753 | ||||||
Liberty Global PLC LiLAC–Series A(a) | 1,859 | 59,977 | ||||||
Liberty Global PLC LiLAC–Series C(a) | 4,644 | 150,896 | ||||||
Rio Tinto PLC | 17,448 | 539,361 | ||||||
Royal Dutch Shell PLC–Class A–ADR | 42,481 | 2,345,801 | ||||||
St. James’s Place PLC | 118,447 | 1,268,804 | ||||||
Vodafone Group PLC | 251,251 | 764,914 | ||||||
Vodafone Group PLC–ADR | 55,513 | 1,714,797 | ||||||
11,890,697 | ||||||||
United States–50.68% | ||||||||
AbbVie Inc. | 18,603 | 1,151,712 | ||||||
Allergan PLC(a) | 3,564 | 823,605 | ||||||
Alphabet Inc.–Class C(a) | 3,576 | 2,474,950 | ||||||
American Express Co. | 20,888 | 1,269,155 | ||||||
Amphenol Corp.–Class A | 8,870 | 508,517 | ||||||
Berkshire Hathaway Inc.–Class A(a) | 5 | 1,084,875 | ||||||
Biogen Inc.(a) | 6,393 | 1,545,955 | ||||||
BioMarin Pharmaceutical Inc.(a) | 2,378 | 185,008 | ||||||
Cabot Oil & Gas Corp. | 16,490 | 424,453 | ||||||
Celgene Corp.(a) | 11,227 | 1,107,319 | ||||||
Chevron Corp. | 8,123 | 851,534 | ||||||
Coca-Cola Co. (The) | 24,636 | 1,116,750 | ||||||
Cognizant Technology Solutions Corp.–Class A(a) | 19,239 | 1,101,240 | ||||||
Comcast Corp.–Class A | 17,608 | 1,147,865 | ||||||
Concho Resources Inc.(a) | 3,913 | 466,703 | ||||||
Dick’s Sporting Goods, Inc. | 13,826 | 623,000 | ||||||
Eaton Corp. PLC | 20,625 | 1,231,931 | ||||||
Exxon Mobil Corp. | 12,367 | 1,159,283 | ||||||
First Republic Bank | 20,982 | 1,468,530 | ||||||
General Electric Co. | 39,721 | 1,250,417 | ||||||
Halliburton Co. | 17,818 | 806,977 | ||||||
HCA Holdings, Inc.(a) | 10,033 | 772,641 | ||||||
Hertz Global Holdings, Inc.(a) | 55,922 | 619,057 | ||||||
Incyte Corp.(a) | 1,270 | 101,575 | ||||||
International Business Machines Corp. | 12,429 | 1,886,474 | ||||||
Marsh & McLennan Cos., Inc. | 17,347 | 1,187,576 | ||||||
McKesson Corp. | 3,134 | 584,961 | ||||||
Moody’s Corp. | 18,499 | 1,733,541 | ||||||
Nielsen Holdings PLC | 17,059 | 886,556 | ||||||
Priceline Group Inc. (The)(a) | 559 | 697,861 | ||||||
Progressive Corp. (The) | 34,212 | 1,146,102 | ||||||
QUALCOMM, Inc. | 24,552 | 1,315,251 | ||||||
Shire PLC–ADR | 5,839 | 1,074,843 | ||||||
Thermo Fisher Scientific, Inc. | 3,996 | 590,449 | ||||||
United Parcel Service, Inc.–Class B | 8,666 | 933,502 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
Shares | Value | |||||||
United States–(continued) | ||||||||
Vertex Pharmaceuticals Inc.(a) | 1,910 | $ | 164,298 | |||||
Wal-Mart Stores, Inc. | 8,373 | 611,396 | ||||||
Walt Disney Co. (The) | 12,973 | 1,269,019 | ||||||
37,374,881 | ||||||||
Total Common Stocks & Other Equity Interests |
| 72,296,612 | ||||||
Money Market Funds–1.04% | ||||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(c) | 382,554 | 382,554 | ||||||
Premier Portfolio–Institutional Class, 0.40%(c) | 382,554 | 382,554 | ||||||
Total Money Market Funds | 765,108 | |||||||
TOTAL INVESTMENTS–99.07% | 73,061,720 | |||||||
OTHER ASSETS LESS LIABILITIES–0.93% |
| 685,200 | ||||||
NET ASSETS–100.00% |
| $ | 73,746,920 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: | ||||
Investments, at value (Cost $72,140,576) | $ | 72,296,612 | ||
Investments in affiliated money market funds, at value and cost | 765,108 | |||
Total investments, at value (Cost $72,905,684) | 73,061,720 | |||
Foreign currencies, at value (Cost $141,519) | 141,250 | |||
Receivable for: | ||||
Investments sold | 397,794 | |||
Fund shares sold | 14,873 | |||
Dividends | 256,636 | |||
Investment for trustee deferred compensation and retirement plans | 32,589 | |||
Other assets | 964 | |||
Total assets | 73,905,826 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 12,228 | |||
Fund shares reacquired | 10,498 | |||
Accrued fees to affiliates | 82,382 | |||
Accrued trustees’ and officers’ fees and benefits | 625 | |||
Accrued other operating expenses | 18,341 | |||
Trustee deferred compensation and retirement plans | 34,832 | |||
Total liabilities | 158,906 | |||
Net assets applicable to shares outstanding | $ | 73,746,920 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 79,178,374 | ||
Undistributed net investment income | 1,225,859 | |||
Undistributed net realized gain (loss) | (6,811,605 | ) | ||
Net unrealized appreciation | 154,292 | |||
$ | 73,746,920 | |||
Net Assets: | ||||
Series I | $ | 61,182,931 | ||
Series II | $ | 12,563,989 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 7,297,226 | |||
Series II | 1,500,998 | |||
Series I: | ||||
Net asset value per share | $ | 8.38 | ||
Series II: | ||||
Net asset value per share | $ | 8.37 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $72,382) | $ | 986,300 | ||
Dividends from affiliated money market funds | 1,046 | |||
Total investment income | 987,346 | |||
Expenses: | ||||
Advisory fees | 246,287 | |||
Administrative services fees | 99,324 | |||
Custodian fees | 8,562 | |||
Distribution fees — Series II | 15,747 | |||
Transfer agent fees | 5,584 | |||
Trustees’ and officers’ fees and benefits | 10,158 | |||
Reports to shareholders | 1,513 | |||
Professional services fees | 23,657 | |||
Other | 5,258 | |||
Total expenses | 416,090 | |||
Less: Fees waived | (244 | ) | ||
Net expenses | 415,846 | |||
Net investment income | 571,500 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (1,216,717 | ) | ||
Foreign currencies | 110,061 | |||
(1,106,656 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities | 640,200 | |||
Foreign currencies | 4,090 | |||
644,290 | ||||
Net realized and unrealized gain (loss) | (462,366 | ) | ||
Net increase in net assets resulting from operations | $ | 109,134 |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Global Core Equity Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s
evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe. The Board noted that performance of Series I shares of the Fund was in the third quintile of its performance universe for the one year period and in the fifth quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). Invesco Advisers noted that a new co-chief investment officer had been named to the portfolio management team. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s
Invesco V.I. Global Core Equity Fund
Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was below the rate of one mutual fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a similar scope of services.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the
sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements
shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered that the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and was advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
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 |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -9.51 | % | |||
Series II Shares | -9.63 | ||||
MSCI World Index▼ (Broad Market Index) | 0.66 | ||||
MSCI World Health Care Index▼ (Style-Specific Index) | -1.61 | ||||
Lipper VUF Health/Biotechnology Funds Classification Average¢ (Peer Group) | -6.96 |
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc.
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The MSCI World Health Care Index is an unmanaged index considered representative of health care stocks of developed countries. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Lipper VUF Health/Biotechnology Funds Classification Average represents an average of the variable insurance underlying funds in the Lipper Health/Biotechnology Funds classification.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/16
Series I Shares | |||||
Inception (5/21/97) | 8.46 | % | |||
10 Years | 8.54 | ||||
5 Years | 11.49 | ||||
1 Year | -16.20 | ||||
Series II Shares | |||||
Inception (4/30/04) | 7.56 | % | |||
10 Years | 8.26 | ||||
5 Years | 11.21 | ||||
1 Year | -16.40 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.07% and 1.32%, respectively.1 The total annual Fund operating
expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.08% and 1.33%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Global Health Care Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges,
expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2018. See current prospectus for more information. |
Invesco V.I. Global Health Care Fund
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.18% |
| |||||||
Biotechnology–34.66% | ||||||||
AbbVie Inc. | 146,879 | $ | 9,093,279 | |||||
ACADIA Pharmaceuticals Inc.(b) | 37,920 | 1,230,883 | ||||||
Alder Biopharmaceuticals, Inc.(b) | 52,381 | 1,307,953 | ||||||
Alexion Pharmaceuticals, Inc.(b) | 25,334 | 2,957,998 | ||||||
Amgen Inc. | 49,331 | 7,505,712 | ||||||
Atara Biotherapeutics Inc.(b) | 12,715 | 286,215 | ||||||
Biogen Inc.(b) | 41,107 | 9,940,495 | ||||||
BioMarin Pharmaceutical Inc.(b) | 66,415 | 5,167,087 | ||||||
Bluebird Bio, Inc.(b) | 24,590 | 1,064,501 | ||||||
Celgene Corp.(b) | 124,538 | 12,283,183 | ||||||
DBV Technologies S.A.–ADR (France)(b) | 76,989 | 2,511,381 | ||||||
Gilead Sciences, Inc. | 46,577 | 3,885,453 | ||||||
Heron Therapeutics, Inc.(b) | 52,267 | 943,419 | ||||||
Incyte Corp.(b) | 61,809 | 4,943,484 | ||||||
Intellia Therapeutics, Inc.(b) | 9,311 | 198,790 | ||||||
Medivation Inc.(b) | 42,951 | 2,589,945 | ||||||
Neurocrine Biosciences, Inc.(b) | 30,844 | 1,401,860 | ||||||
Prothena Corp. PLC (Ireland)(b) | 28,656 | 1,001,814 | ||||||
REGENXBIO Inc.(b) | 34,956 | 279,648 | ||||||
Sarepta Therapeutics, Inc.(b) | 40,665 | 775,481 | ||||||
Shire PLC–ADR | 62,947 | 11,587,284 | ||||||
Spark Therapeutics, Inc.(b) | 26,983 | 1,379,641 | ||||||
Synergy Pharmaceuticals, Inc.(b) | 181,688 | 690,414 | ||||||
United Therapeutics Corp.(b) | 12,090 | 1,280,573 | ||||||
Vertex Pharmaceuticals Inc.(b) | 36,942 | 3,177,751 | ||||||
87,484,244 | ||||||||
Drug Retail–0.55% | ||||||||
Raia Drogasil S.A. (Brazil) | 69,660 | 1,369,174 | ||||||
Health Care Distributors–2.09% | ||||||||
Cardinal Health, Inc. | 31,862 | 2,485,555 | ||||||
McKesson Corp. | 14,953 | 2,790,977 | ||||||
5,276,532 | ||||||||
Health Care Equipment–3.86% | ||||||||
Olympus Corp. (Japan) | 98,500 | 3,664,939 | ||||||
ResMed Inc. | 44,528 | 2,815,505 | ||||||
Wright Medical Group N.V.(b) | 188,175 | 3,268,600 | ||||||
9,749,044 | ||||||||
Health Care Facilities–3.47% | ||||||||
Brookdale Senior Living Inc.(b) | 78,525 | 1,212,426 | ||||||
HCA Holdings, Inc.(b) | 49,668 | 3,824,933 | ||||||
Universal Health Services, Inc.–Class B | 27,711 | 3,716,045 | ||||||
8,753,404 | ||||||||
Health Care Services–1.47% | ||||||||
Air Methods Corp.(b) | 33,248 | 1,191,276 | ||||||
Express Scripts Holding Co.(b) | 33,305 | 2,524,519 | ||||||
3,715,795 |
Shares | Value | |||||||
Life Sciences Tools & Services–5.10% | ||||||||
Agilent Technologies, Inc. | 46,191 | $ | 2,049,033 | |||||
Thermo Fisher Scientific, Inc. | 73,297 | 10,830,365 | ||||||
12,879,398 | ||||||||
Managed Health Care–5.34% | ||||||||
Aetna Inc. | 49,605 | 6,058,259 | ||||||
Qualicorp S.A. (Brazil) | 109,000 | 631,456 | ||||||
UnitedHealth Group Inc. | 48,107 | 6,792,708 | ||||||
13,482,423 | ||||||||
Pharmaceuticals–41.64% | ||||||||
Agile Therapeutics, Inc.(b) | 76,590 | 582,850 | ||||||
Allergan PLC(b) | 36,584 | 8,454,196 | ||||||
Bayer AG (Germany) | 36,831 | 3,704,980 | ||||||
Bristol-Myers Squibb Co. | 124,580 | 9,162,859 | ||||||
Cempra, Inc.(b) | 48,971 | 807,532 | ||||||
Dermira, Inc.(b) | 61,818 | 1,808,176 | ||||||
Eli Lilly and Co. | 107,895 | 8,496,731 | ||||||
Endo International PLC(b) | 144,407 | 2,251,305 | ||||||
GlaxoSmithKline PLC–ADR (United Kingdom) | 81,899 | 3,549,503 | ||||||
Hikma Pharmaceuticals PLC (Jordan) | 58,937 | 1,943,678 | ||||||
Jazz Pharmaceuticals PLC(b) | 29,212 | 4,127,948 | ||||||
Johnson & Johnson | 35,668 | 4,326,528 | ||||||
Lipocine Inc.(b) | 121,754 | 370,132 | ||||||
Medicines Co. (The)(b) | 21,080 | 708,920 | ||||||
Merck & Co., Inc. | 167,170 | 9,630,664 | ||||||
Nippon Shinyaku Co., Ltd. (Japan) | 51,600 | 2,703,221 | ||||||
Novartis AG–ADR (Switzerland) | 84,031 | 6,933,398 | ||||||
Pfizer Inc. | 154,913 | 5,454,487 | ||||||
Roche Holding AG (Switzerland) | 41,914 | 11,068,278 | ||||||
Sanofi–ADR (France) | 242,552 | 10,150,801 | ||||||
Supernus Pharmaceuticals Inc.(b) | 105,510 | 2,149,239 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 118,729 | 5,963,758 | ||||||
Zogenix, Inc.(b) | 95,229 | 766,593 | ||||||
105,115,777 | ||||||||
Total Common Stocks & Other Equity Interests |
| 247,825,791 | ||||||
Money Market Funds–1.58% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(c) | 1,997,548 | 1,997,548 | ||||||
Premier Portfolio–Institutional Class, 0.40%(c) | 1,997,548 | 1,997,548 | ||||||
Total Money Market Funds |
| 3,995,096 | ||||||
TOTAL INVESTMENTS–99.76% |
| 251,820,887 | ||||||
OTHER ASSETS LESS LIABILITIES–0.24% |
| 609,640 | ||||||
NET ASSETS–100.00% | $ | 252,430,527 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $213,811,935) | $ | 247,825,791 | ||
Investments in affiliated money market funds, at value and cost | 3,995,096 | |||
Total investments, at value (Cost $217,807,031) | 251,820,887 | |||
Foreign currencies, at value (Cost $139,501) | 142,672 | |||
Receivable for: | ||||
Investments sold | 632,347 | |||
Fund shares sold | 115,207 | |||
Dividends | 469,845 | |||
Investment for trustee deferred compensation and retirement plans | 66,432 | |||
Other assets | 39,478 | |||
Total assets | 253,286,868 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 362,456 | |||
Accrued fees to affiliates | 382,884 | |||
Accrued trustees’ and officers’ fees and benefits | 716 | |||
Accrued other operating expenses | 33,476 | |||
Trustee deferred compensation and retirement plans | 76,809 | |||
Total liabilities | 856,341 | |||
Net assets applicable to shares outstanding | $ | 252,430,527 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 179,632,901 | ||
Undistributed net investment income | 787,015 | |||
Undistributed net realized gain | 37,998,944 | |||
Net unrealized appreciation | 34,011,667 | |||
$ | 252,430,527 | |||
Net Assets: |
| |||
Series I | $ | 169,749,178 | ||
Series II | $ | 82,681,349 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 5,909,020 | |||
Series II | 2,985,258 | |||
Series I: | ||||
Net asset value per share | $ | 28.73 | ||
Series II: | ||||
Net asset value per share | $ | 27.70 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $180,900) | $ | 2,380,849 | ||
Dividends from affiliated money market funds | 12,932 | |||
Total investment income | 2,393,781 | |||
Expenses: | ||||
Advisory fees | 982,539 | |||
Administrative services fees | 359,278 | |||
Custodian fees | 12,707 | |||
Distribution fees — Series II | 108,503 | |||
Transfer agent fees | 24,092 | |||
Trustees’ and officers’ fees and benefits | 11,754 | |||
Reports to shareholders | 2,370 | |||
Professional services fees | 26,366 | |||
Other | 5,708 | |||
Total expenses | 1,533,317 | |||
Less: Fees waived | (5,767 | ) | ||
Net expenses | 1,527,550 | |||
Net investment income | 866,231 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 1,497,671 | |||
Foreign currencies | 13,105 | |||
1,510,776 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (32,976,117 | ) | ||
Foreign currencies | 17,815 | |||
(32,958,302 | ) | |||
Net realized and unrealized gain (loss) | (31,447,526 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (30,581,295 | ) |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Global Health Care Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s
evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Funds Health/Biotechnology Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of its performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. Invesco Advisers noted that a new co-chief investment officer had been named to the portfolio management team. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. Global Health Care Fund
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of
profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory
fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered that the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and was advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
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 |
Performance summary
Fund vs. Indexes Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
|
Series I Shares | 6.72 | % | |||
Series II Shares | 6.60 | ||||
MSCI World Index▼ (Broad Market Index) | 0.66 | ||||
Custom Invesco Global Real Estate Index¢ (Style-Specific Index) | 8.35 | ||||
Lipper VUF Real Estate Funds Classification Averaget (Peer Group) | 11.31 |
Source(s): ▼FactSet Research Systems Inc.; ¢Invesco, FactSet Research Systems Inc.;
tLipper Inc.
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Custom Invesco Global Real Estate Index is composed of the FTSE EPRA/ NAREIT Developed Index (net) through June 30, 2014; and the FTSE EPRA/ NAREIT Global Index (net) since July 1, 2014.
The Lipper VUF Real Estate Funds Classification Average represents an average of all of the variable insurance underlying funds in the Lipper Real Estate Funds classification.
The FTSE EPRA/NAREIT Developed Index is an unmanaged index considered representative of listed real estate companies and REITs worldwide.
The FTSE EPRA/NAREIT Global Index is a free float, market capitalization-weighted real estate index designed to represent publicly-traded equity REITs and listed property companies in 38 countries worldwide, covering both the developed and emerging markets.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns As of 6/30/16 |
Series I Shares | |||||
Inception (3/31/98) | 8.24 | % | |||
10 Years | 4.14 | ||||
5 Years | 7.01 | ||||
1 Year | 7.26 | ||||
Series II Shares | |||||
Inception (4/30/04) | 8.38 | % | |||
10 Years | 3.88 | ||||
5 Years | 6.74 | ||||
1 Year | 6.97 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.11% and 1.36%, respectively. The expense ratios presented above may vary from the expense
ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Global Real Estate Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above,
for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. Global Real Estate Fund
Schedule of Investments
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Real Estate Investment Trusts, Common Stocks & Other Equity Interests–98.56% |
| |||||||
Australia–5.61% | ||||||||
DEXUS Property Group | �� | 454,536 | $ | 3,069,829 | ||||
Goodman Group | 485,162 | 2,586,388 | ||||||
Mirvac Group | 1,894,228 | 2,865,911 | ||||||
Scentre Group | 797,893 | 2,934,849 | ||||||
Vicinity Centres | 2,205,018 | 5,486,901 | ||||||
Westfield Corp. | 803,503 | 6,402,215 | ||||||
23,346,093 | ||||||||
Brazil–0.46% | ||||||||
BR Malls Participacoes S.A.(a) | 74,760 | 299,049 | ||||||
Iguatemi Empresa de Shopping Centers S.A. | 109,400 | 959,344 | ||||||
Multiplan Empreendimentos Imobiliarios S.A. | 35,400 | 664,053 | ||||||
1,922,446 | ||||||||
Canada–2.68% | ||||||||
Allied Properties REIT | 65,900 | 1,972,843 | ||||||
Canadian Apartment Properties REIT | 38,413 | 985,856 | ||||||
Canadian REIT | 27,851 | 1,041,139 | ||||||
Chartwell Retirement Residences | 111,048 | 1,355,386 | ||||||
First Capital Realty, Inc. | 88,455 | 1,517,095 | ||||||
H&R REIT | 128,700 | 2,242,202 | ||||||
Smart REIT | 68,800 | 2,034,101 | ||||||
11,148,622 | ||||||||
China–3.77% | ||||||||
China Jinmao Holdings Group Ltd. | 3,406,000 | 961,238 | ||||||
China Overseas Land & Investment Ltd. | 1,226,000 | 3,912,348 | ||||||
China Resources Land Ltd. | 1,124,444 | 2,636,066 | ||||||
China Vanke Co., Ltd.–Class H | 364,000 | 720,486 | ||||||
CIFI Holdings (Group) Co. Ltd. | 1,494,000 | 368,067 | ||||||
Dalian Wanda Commercial Properties Co. Ltd.–Class H,–REGS(b) | 188,200 | 1,158,410 | ||||||
Global Logistic Properties Ltd. | 950,700 | 1,283,073 | ||||||
Greentown China Holdings Ltd.(a) | 285,000 | 200,185 | ||||||
Guangzhou R&F Properties Co. Ltd.–Class H | 376,400 | 477,406 | ||||||
KWG Property Holding Ltd. | 652,500 | 381,417 | ||||||
Longfor Properties Co. Ltd. | 1,316,000 | 1,712,990 | ||||||
Shenzhen Investment Ltd. | 1,929,700 | 773,971 | ||||||
Shimao Property Holdings Ltd. | 698,500 | 884,683 | ||||||
Shui On Land Ltd. | 894,500 | 227,316 | ||||||
15,697,656 | ||||||||
France–2.94% | ||||||||
ICADE | 28,163 | 2,002,258 | ||||||
Klepierre | 93,289 | 4,161,191 | ||||||
Unibail-Rodamco S.E. | 23,094 | 6,049,384 | ||||||
12,212,833 |
Shares | Value | |||||||
Germany–2.91% | ||||||||
Deutsche Euroshop AG | 21,931 | $ | 1,002,520 | |||||
LEG Immobilien AG | 38,176 | 3,567,414 | ||||||
Vonovia SE | 206,214 | 7,524,483 | ||||||
12,094,417 | ||||||||
Hong Kong–6.48% | ||||||||
Cheung Kong Property Holdings Ltd. | 832,300 | 5,238,742 | ||||||
Hang Lung Properties Ltd. | 212,000 | 430,393 | ||||||
Henderson Land Development Co. Ltd. | 311,600 | 1,765,596 | ||||||
Hongkong Land Holdings Ltd. | 379,300 | 2,318,341 | ||||||
Link REIT | 611,500 | 4,183,129 | ||||||
Sino Land Co. Ltd. | 739,200 | 1,219,207 | ||||||
Sun Hung Kai Properties Ltd. | 647,000 | 7,794,667 | ||||||
Swire Properties Ltd. | 1,023,000 | 2,722,391 | ||||||
Wharf Holdings Ltd. (The) | 210,000 | 1,284,691 | ||||||
26,957,157 | ||||||||
Indonesia–0.48% | ||||||||
PT Bumi Serpong Damai Tbk | 5,037,300 | 808,983 | ||||||
PT Ciputra Development Tbk | 445,500 | 49,055 | ||||||
PT Pakuwon Jati Tbk | 15,478,500 | 725,052 | ||||||
PT Summarecon Agung Tbk | 3,121,300 | 430,500 | ||||||
2,013,590 | ||||||||
Ireland–0.38% | ||||||||
Green REIT PLC | 1,031,709 | 1,595,704 | ||||||
Japan–10.23% | ||||||||
Activia Properties, Inc. | 322 | 1,699,514 | ||||||
Advance Residence Investment Corp. | 589 | 1,574,578 | ||||||
Daiwa House REIT Investment Corp. | 172 | 1,006,130 | ||||||
GLP J-REIT(b) | 213 | 268,948 | ||||||
GLP J-REIT | 1,095 | 1,382,618 | ||||||
Hulic Reit, Inc. | 833 | 1,515,059 | ||||||
Japan Excellent, Inc. | 326 | 445,104 | ||||||
Japan Hotel REIT Investment Corp. | 2,473 | 2,079,022 | ||||||
Japan Logistics Fund Inc. | 354 | 822,818 | ||||||
Japan Real Estate Investment Corp. | 848 | 5,219,740 | ||||||
Japan Retail Fund Investment Corp. | 698 | 1,776,599 | ||||||
Kenedix Office Investment Corp. | 199 | 1,181,415 | ||||||
Mitsubishi Estate Co. Ltd. | 337,000 | 6,162,326 | ||||||
Mitsui Fudosan Co., Ltd. | 386,000 | 8,812,442 | ||||||
Nomura Real Estate Master Fund, Inc. | 1,652 | 2,611,664 | ||||||
ORIX JREIT Inc. | 316 | 542,606 | ||||||
Sumitomo Realty & Development Co., Ltd. | 114,000 | 3,076,667 | ||||||
United Urban Investment Corp. | 1,339 | 2,405,357 | ||||||
42,582,607 | ||||||||
Malaysia–0.39% | ||||||||
IGB REIT | 1,377,100 | 550,327 | ||||||
IOI Properties Group Berhad | 471,200 | 274,854 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Shares | Value | |||||||
Malaysia–(continued) | ||||||||
KLCCP Stapled Group | 239,900 | $ | 447,181 | |||||
Mah Sing Group Berhad | 497,800 | 181,975 | ||||||
SP Setia Berhad Group | 252,500 | 181,756 | ||||||
1,636,093 | ||||||||
Malta–0.00% | ||||||||
BGP Holdings PLC | 3,053,090 | 0 | ||||||
Mexico–0.57% | ||||||||
Fibra Uno Administracion S.A. de C.V. | 786,600 | 1,674,372 | ||||||
Macquarie Mexico Real Estate Management S.A. de C.V. | 545,900 | 715,406 | ||||||
2,389,778 | ||||||||
Netherlands–0.62% | ||||||||
Wereldhave N.V. | 56,744 | 2,574,571 | ||||||
Philippines–0.83% | ||||||||
Ayala Land, Inc. | 1,232,400 | 1,016,782 | ||||||
Megaworld Corp. | 4,960,100 | 491,994 | ||||||
Robinsons Land Corp. | 1,165,000 | 728,704 | ||||||
SM Prime Holdings Inc. | 2,088,800 | 1,216,418 | ||||||
3,453,898 | ||||||||
Singapore–2.38% | ||||||||
Ascendas India Trust | 858,800 | 631,142 | ||||||
Ascendas REIT | 1,299,900 | 2,401,443 | ||||||
CapitaLand Ltd. | 1,070,300 | 2,458,675 | ||||||
CapitaLand Mall Trust | 677,200 | 1,075,300 | ||||||
CapitaLand Retail China Trust | 639,200 | 711,751 | ||||||
City Developments Ltd. | 82,600 | 503,269 | ||||||
Mapletree Greater China Commercial Trust–REGS(b) | 286,000 | 214,884 | ||||||
Mapletree Industrial Trust | 1,504,000 | 1,923,914 | ||||||
9,920,378 | ||||||||
South Africa–1.04% | ||||||||
Growthpoint Properties Ltd. | 975,466 | 1,712,455 | ||||||
Hyprop Investments Ltd. | 141,498 | 1,251,716 | ||||||
Resilient REIT Ltd. | 79,893 | 717,442 | ||||||
SA Corporate Real Estate Fund Nominees Proprietary Ltd. | 1,796,108 | 628,547 | ||||||
4,310,160 | ||||||||
Spain–0.85% | ||||||||
Inmobiliaria Colonial S.A. | 1,899,325 | 1,376,102 | ||||||
Merlin Properties Socimi, S.A. | 206,220 | 2,180,298 | ||||||
3,556,400 | ||||||||
Sweden–0.88% | ||||||||
Fabege AB | 67,654 | 1,144,569 | ||||||
Wihlborgs Fastigheter AB | 124,246 | 2,528,695 | ||||||
3,673,264 | ||||||||
Switzerland–0.82% | ||||||||
Swiss Prime Site AG | 37,828 | 3,421,769 |
Shares | Value | |||||||
Thailand–0.33% | ||||||||
Central Pattana PCL | 539,000 | $ | 919,705 | |||||
Land and Houses PCL | 1,088,800 | 275,910 | ||||||
Land and Houses PCL–NVDR | 609,000 | 157,353 | ||||||
1,352,968 | ||||||||
United Arab Emirates–0.32% | ||||||||
Emaar Malls Group PJSC | 539,955 | 414,570 | ||||||
Emaar Properties PJSC | 527,200 | 896,287 | ||||||
1,310,857 | ||||||||
United Kingdom–4.07% | ||||||||
Derwent London PLC | 54,996 | 1,938,073 | ||||||
Great Portland Estates PLC | 241,658 | 2,024,907 | ||||||
Hammerson PLC | 204,963 | 1,497,476 | ||||||
Kennedy Wilson Europe Real Estate PLC | 140,567 | 1,807,211 | ||||||
Land Securities Group PLC | 345,177 | 4,885,570 | ||||||
LondonMetric Property PLC | 367,408 | 736,276 | ||||||
Segro PLC | 306,362 | 1,719,999 | ||||||
UNITE Group PLC (The) | 278,312 | 2,306,920 | ||||||
16,916,432 | ||||||||
United States–49.52% | ||||||||
Acadia Realty Trust | 43,587 | 1,548,210 | ||||||
American Campus Communities, Inc. | 67,534 | 3,570,523 | ||||||
American Homes 4 Rent–Class A | 141,600 | 2,899,968 | ||||||
Apartment Investment & Management Co.– Class A | 62,736 | 2,770,422 | ||||||
Apple Hospitality REIT, Inc. | 11,052 | 207,888 | ||||||
AvalonBay Communities, Inc. | 65,154 | 11,753,130 | ||||||
Boston Properties, Inc. | 60,875 | 8,029,412 | ||||||
Brandywine Realty Trust | 125,032 | 2,100,538 | ||||||
Brixmor Property Group, Inc. | 173,416 | 4,588,587 | ||||||
Brookdale Senior Living Inc.(a) | 155,988 | 2,408,455 | ||||||
Care Capital Properties, Inc. | 106,024 | 2,778,889 | ||||||
Cousins Properties, Inc. | 225,761 | 2,347,914 | ||||||
CubeSmart | 50,548 | 1,560,922 | ||||||
CyrusOne Inc. | 21,854 | 1,216,394 | ||||||
DCT Industrial Trust Inc. | 34,542 | 1,659,398 | ||||||
DDR Corp. | 10,856 | 196,928 | ||||||
DiamondRock Hospitality Co. | 293,191 | 2,647,515 | ||||||
Digital Realty Trust, Inc. | 7,704 | 839,659 | ||||||
Empire State Realty Trust Inc.–Class A | 63,254 | 1,201,193 | ||||||
EPR Properties | 38,348 | 3,093,917 | ||||||
Equinix, Inc. | 4,999 | 1,938,262 | ||||||
Equity Lifestyle Properties, Inc. | 33,100 | 2,649,655 | ||||||
Equity Residential | 81,657 | 5,624,534 | ||||||
Essex Property Trust, Inc. | 26,558 | 6,057,614 | ||||||
Extra Space Storage Inc. | 51,638 | 4,778,580 | ||||||
Federal Realty Investment Trust | 22,698 | 3,757,654 | ||||||
First Industrial Realty Trust, Inc. | 82,830 | 2,304,331 | ||||||
General Growth Properties, Inc. | 212,592 | 6,339,493 | ||||||
HCP, Inc. | 224,912 | 7,957,387 | ||||||
Healthcare Realty Trust, Inc. | 153,138 | 5,358,299 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Shares | Value | |||||||
United States–(continued) | ||||||||
Hilton Worldwide Holdings Inc. | 104,542 | $ | 2,355,331 | |||||
Host Hotels & Resorts Inc. | 187,528 | 3,039,829 | ||||||
Hudson Pacific Properties Inc. | 167,962 | 4,901,131 | ||||||
InfraREIT Inc. | 54,669 | 958,894 | ||||||
Liberty Property Trust | 84,423 | 3,353,282 | ||||||
LTC Properties, Inc. | 19,010 | 983,387 | ||||||
National Health Investors, Inc. | 17,034 | 1,279,083 | ||||||
National Retail Properties, Inc. | 33,372 | 1,726,000 | ||||||
Paramount Group, Inc. | 86,816 | 1,383,847 | ||||||
Post Properties, Inc. | 34,994 | 2,136,384 | ||||||
Prologis, Inc. | 159,077 | 7,801,136 | ||||||
Public Storage | 33,936 | 8,673,702 | ||||||
QTS Realty Trust, Inc.–Class A | 44,758 | 2,505,553 | ||||||
Realty Income Corp. | 56,604 | 3,926,053 | ||||||
Retail Opportunity Investments Corp. | 190,192 | 4,121,461 | ||||||
Rexford Industrial Realty, Inc. | 68,182 | 1,437,958 | ||||||
RLJ Lodging Trust | 2,385 | 51,158 | ||||||
Simon Property Group, Inc. | 94,750 | 20,551,275 | ||||||
SL Green Realty Corp. | 54,804 | 5,834,982 | ||||||
Sunstone Hotel Investors, Inc. | 189,445 | 2,286,601 |
Shares | Value | |||||||
United States–(continued) | ||||||||
Ventas, Inc. | 14,626 | $ | 1,065,065 | |||||
Vornado Realty Trust | 111,041 | 11,117,425 | ||||||
Washington REIT | 28,699 | 902,871 | ||||||
Weingarten Realty Investors | 109,740 | 4,479,587 | ||||||
Welltower Inc. | 65,487 | 4,988,145 | ||||||
206,045,811 | ||||||||
Total Real Estate Investment Trusts, Common Stocks & Other Equity Interests |
| 410,133,504 | ||||||
Money Market Funds–0.28% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(c) | 584,320 | 584,320 | ||||||
Premier Portfolio–Institutional Class, 0.40%(c) | 584,320 | 584,320 | ||||||
Total Money Market Funds | 1,168,640 | |||||||
TOTAL INVESTMENTS–98.84% | 411,302,144 | |||||||
OTHER ASSETS LESS LIABILITIES–1.16% | 4,809,609 | |||||||
NET ASSETS–100.00% | $ | 416,111,753 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $352,054,887) | $ | 410,133,504 | ||
Investments in affiliated money market funds, at value and cost | 1,168,640 | |||
Total investments, at value (Cost $353,223,527) | 411,302,144 | |||
Foreign currencies, at value (Cost $1,481,144) | 1,480,658 | |||
Receivable for: | ||||
Investments sold | 6,082,094 | |||
Fund shares sold | 209,289 | |||
Dividends | 1,622,718 | |||
Investment for trustee deferred compensation and retirement plans | 59,245 | |||
Other assets | 1,655 | |||
Total assets | 420,757,803 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 2,551,045 | |||
Fund shares reacquired | 1,269,948 | |||
Accrued foreign taxes | 28,337 | |||
Accrued fees to affiliates | 655,372 | |||
Accrued trustees’ and officers’ fees and benefits | 758 | |||
Accrued other operating expenses | 72,655 | |||
Trustee deferred compensation and retirement plans | 67,935 | |||
Total liabilities | 4,646,050 | |||
Net assets applicable to shares outstanding | $ | 416,111,753 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 348,052,090 | ||
Undistributed net investment income | 3,810,791 | |||
Undistributed net realized gain | 6,175,192 | |||
Net unrealized appreciation | 58,073,680 | |||
$ | 416,111,753 | |||
Net Assets: |
| |||
Series I | $ | 178,270,206 | ||
Series II | $ | 237,841,547 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 10,211,255 | |||
Series II | 14,024,281 | |||
Series I: | ||||
Net asset value per share | $ | 17.46 | ||
Series II: | ||||
Net asset value per share | $ | 16.96 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $358,688) | $ | 7,402,093 | ||
Dividends from affiliated money market funds | 9,253 | |||
Total investment income | 7,411,346 | |||
Expenses: | ||||
Advisory fees | 1,543,020 | |||
Administrative services fees | 561,418 | |||
Custodian fees | 102,238 | |||
Distribution fees — Series II | 267,684 | |||
Transfer agent fees | 18,818 | |||
Trustees’ and officers’ fees and benefits | 12,035 | |||
Reports to shareholders | 2,014 | |||
Professional services fees | 27,756 | |||
Other | 8,117 | |||
Total expenses | 2,543,100 | |||
Less: Fees waived | (3,429 | ) | ||
Net expenses | 2,539,671 | |||
Net investment income | 4,871,675 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 2,656,353 | |||
Foreign currencies | 91,889 | |||
2,748,242 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 19,257,459 | |||
Foreign currencies | 4,863 | |||
19,262,322 | ||||
Net realized and unrealized gain | 22,010,564 | |||
Net increase in net assets resulting from operations | $ | 26,882,239 |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Global Real Estate Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s
evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement as well as the sub-advisory contracts for the Fund, as Invesco Asset Management Limited currently manages certain assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Fund Global Real Estate Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of its performance universe for the one and three year periods and the third quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s
Invesco V.I. Global Real Estate Fund
Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one such mutual fund. The Board also noted how the Fund’s rate compared to off-shore funds advised by Invesco Advisers and to the effective sub-adviser fee rate of other funds sub-advised by Invesco Advisers.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers retains overall responsibility for, and provides services to, sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described herein other than day-to-day portfolio management. The Board also noted
that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research
services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
Invesco V.I. Global Real Estate Fund
About your Fund
Invesco V.I. Government Money Market Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risks associated with an investment in the 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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, excluding repurchase agreements, at value and cost | $ | 521,563,072 | ||
Repurchase agreements, at value and cost | 350,068,071 | |||
Total investments, at value and cost | 871,631,143 | |||
Receivable for: | ||||
Fund shares sold | 233,536 | |||
Interest | 207,149 | |||
Fund expenses absorbed | 35,287 | |||
Investment for trustee deferred compensation and retirement plans | 50,789 | |||
Total assets | 872,157,904 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 9,997,450 | |||
Fund shares reacquired | 19,757,070 | |||
Dividends | 1,464 | |||
Accrued fees to affiliates | 425,149 | |||
Accrued trustees’ and officers’ fees and benefits | 888 | |||
Accrued other operating expenses | 23,065 | |||
Trustee deferred compensation and retirement plans | 58,596 | |||
Total liabilities | 30,263,682 | |||
Net assets applicable to shares outstanding | $ | 841,894,222 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 841,896,055 | ||
Undistributed net investment income | (11,145 | ) | ||
Undistributed net realized gain | 9,312 | |||
$ | 841,894,222 | |||
Net Assets: |
| |||
Series I | $ | 736,416,301 | ||
Series II | $ | 105,477,921 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 736,406,647 | |||
Series II | 105,476,546 | |||
Series I: | ||||
Net asset value per share | $ | 1.00 | ||
Series II: | ||||
Net asset value per share | $ | 1.00 |
Investment income: |
| |||
Interest | $ | 1,580,252 | ||
Expenses: | ||||
Advisory fees | 1,103,826 | |||
Administrative services fees | 501,239 | |||
Custodian fees | 7,464 | |||
Distribution fees — Series II | 65,821 | |||
Transfer agent fees | 8,678 | |||
Trustees’ and officers’ fees and benefits | 14,687 | |||
Reports to shareholders | 3,455 | |||
Professional services fees | 33,528 | |||
Other | 9,265 | |||
Total expenses | 1,747,963 | |||
Less: Fees waived and expenses reimbursed | (290,805 | ) | ||
Net expenses | 1,457,158 | |||
Net investment income | 123,094 | |||
Net realized gain from investment securities | 3,730 | |||
Net increase in net assets resulting from operations | $ | 126,824 |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Government Money Market Fund’s (the Fund) (formerly Invesco V.I. Money Market Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of
the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office
support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Annuity Underlying Funds Money Market Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of its performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was at the contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management
Invesco V.I. Government Money Market Fund
fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was below the rate of one mutual fund and above the rate of one mutual fund.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board noted that the Fund does not benefit from economies of scale through contractual breakpoints, but does share directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds. The Board noted that in the current low yield environment Invesco Advisers and its
subsidiaries did not make a profit from managing the Fund. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the 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 |
Performance summary
| |||||
Fund vs. Indexes Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. |
| ||||
Series I Shares | 3.99 | % | |||
Series II Shares | 3.94 | ||||
Barclays U.S. Aggregate Index▼(Broad Market Index) | 5.31 | ||||
Barclays U.S. Government Index▼(Style-Specific Index) | 5.22 | ||||
Lipper VUF General U.S. Government Funds Index¢ (Peer Group Index) | 3.64 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc.
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market. The Barclays U.S. Government Index is an unmanaged index considered representative of fixed income obligations issued by the US Treasury, government agencies and quasi-federal corporations. The Lipper VUF General U.S. Government Funds Index is an unmanaged index considered representative of general US government variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Average Annual Total Returns | ||
As of 6/30/16 |
Series I Shares | |||||
Inception (5/5/93) | 4.54 | % | |||
10 Years | 4.32 | ||||
5 Years | 2.80 | ||||
1 Year | 4.26 | ||||
Series II Shares | |||||
Inception (9/19/01) | 3.66 | % | |||
10 Years | 4.05 | ||||
5 Years | 2.55 | ||||
1 Year | 4.09 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.77% and 1.02%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Government Securities Fund, a series portfolio of AIM Variable
Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. Government Securities Fund
Schedule of Investments
June 30, 2016
(Unaudited)
Principal Amount | Value | |||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–44.87% |
| |||||||
Collateralized Mortgage Obligations–18.33% | ||||||||
Fannie Mae REMICs, | $ | 3,897,810 | $ | 4,170,601 | ||||
5.00%, 08/25/2019 | 763,165 | 787,215 | ||||||
3.00%, 10/25/2025 | 1,012,410 | 1,036,547 | ||||||
2.50%, 03/25/2026 | 1,148,053 | 1,165,766 | ||||||
7.00%, 09/18/2027 | 396,755 | 444,648 | ||||||
6.50%, 03/25/2032 | 1,043,759 | 1,206,338 | ||||||
5.75%, 10/25/2035 | 564,935 | 634,399 | ||||||
0.75%, 05/25/2036(a) | 3,754,326 | 3,743,916 | ||||||
4.25%, 02/25/2037 | 1,513,863 | 1,592,696 | ||||||
0.90%, 03/25/2037(a) | 2,120,777 | 2,122,870 | ||||||
0.95%, 03/25/2037 to 05/25/2041(a) | 7,210,802 | 7,249,892 | ||||||
0.85%, 06/25/2038(a) | 5,970,424 | 5,976,862 | ||||||
6.58%, 06/25/2039(a) | 4,340,995 | 5,145,407 | ||||||
1.00%, 02/25/2041(a) | 4,182,780 | 4,206,893 | ||||||
0.97%, 11/25/2041(a) | 1,847,523 | 1,856,832 | ||||||
Federal Home Loan Bank | 872,025 | 927,314 | ||||||
Freddie Mac REMICs, | 220,527 | 224,065 | ||||||
5.00%, 02/15/2018 to 04/15/2019 | 761,442 | 774,617 | ||||||
4.50%, 07/15/2018 | 203,542 | 209,853 | ||||||
3.00%, 10/15/2018 to 04/15/2026 | 2,337,890 | 2,392,760 | ||||||
0.94%, 12/15/2035 to 03/15/2040(a) | 6,457,499 | 6,487,758 | ||||||
0.74%, 03/15/2036(a) | 3,519,386 | 3,512,266 | ||||||
0.81%, 11/15/2036 to 03/15/2037(a) | 7,959,910 | 7,959,047 | ||||||
0.84%, 05/15/2037 to 06/15/2037(a) | 4,563,500 | 4,571,690 | ||||||
1.30%, 11/15/2039(a) | 1,094,626 | 1,112,850 | ||||||
0.89%, 03/15/2040 to 02/15/2042(a) | 16,890,141 | 16,918,896 | ||||||
Freddie Mac STRIPS, 0.81%, 10/15/2037(a) | 4,882,941 | 4,858,779 | ||||||
Ginnie Mae REMICs, | 590,247 | 656,008 | ||||||
5.73%, 08/20/2034(a) | 1,516,103 | 1,723,330 | ||||||
4.50%, 09/16/2034 | 385,122 | 389,819 | ||||||
4.00%, 12/20/2036 to 02/20/2038 | 462,940 | 470,151 | ||||||
5.87%, 01/20/2039(a) | 5,239,000 | 5,985,020 | ||||||
1.24%, 09/16/2039(a) | 1,855,600 | 1,881,748 | ||||||
4.49%, 07/20/2041(a) | 1,112,188 | 1,211,685 | ||||||
1.92%, 09/20/2041(a) | 5,066,876 | 5,237,084 | ||||||
0.70%, 01/20/2042(a) | 1,406,313 | 1,401,332 | ||||||
Ginnie Mae REMICs, IO, 1.59%, 09/20/2064(a) | 10,413,695 | 924,215 | ||||||
1.63%, 11/20/2064(a) | 6,802,928 | 648,404 | ||||||
1.69%, 12/20/2064(a) | 17,956,964 | 1,705,912 | ||||||
113,525,485 |
Principal Amount | Value | |||||||
Federal Deposit Insurance Co. (FDIC)–0.01% | ||||||||
Series 2010-S1, Class 1A, Structured Sale Gtd. Floating Rate Notes, 1.01%, 02/25/2048(a)(b) | $ | 42,255 | $ | 42,260 | ||||
Federal Home Loan Mortgage Corp. (FHLMC)–10.89% | ||||||||
Pass Through Ctfs., | 3,621,858 | 4,204,691 | ||||||
7.00%, 12/01/2016 to 03/01/2036 | 4,222,433 | 4,957,333 | ||||||
6.00%, 04/01/2017 to 07/01/2038 | 833,430 | 905,201 | ||||||
5.00%, 07/01/2018 to 01/01/2040 | 1,943,856 | 2,151,730 | ||||||
4.50%, 09/01/2020 to 08/01/2041 | 12,389,109 | 13,735,444 | ||||||
8.50%, 09/01/2020 to 08/01/2031 | 547,724 | 629,460 | ||||||
10.00%, 03/01/2021 | 12,488 | 13,229 | ||||||
9.00%, 06/01/2021 to 06/01/2022 | 86,597 | 92,064 | ||||||
8.00%, 12/01/2021 to 09/01/2036 | 1,791,229 | 2,026,174 | ||||||
7.50%, 09/01/2022 to 06/01/2035 | 1,345,650 | 1,569,291 | ||||||
5.50%, 12/01/2022 | 483,942 | 510,038 | ||||||
3.50%, 08/01/2026 | 1,066,431 | 1,141,189 | ||||||
3.00%, 05/01/2027 | 1,734,042 | 1,842,684 | ||||||
7.05%, 05/20/2027 | 128,573 | 144,577 | ||||||
6.03%, 10/20/2030 | 913,469 | 1,076,912 | ||||||
Pass Through Ctfs., ARM, | 6,174,441 | 6,525,850 | ||||||
2.90%, 07/01/2036(a) | 5,061,466 | 5,356,069 | ||||||
2.33%, 10/01/2036(a) | 3,214,078 | 3,391,156 | ||||||
2.74%, 10/01/2036(a) | 210,587 | 223,379 | ||||||
2.89%, 11/01/2037(a) | 2,667,216 | 2,769,994 | ||||||
2.93%, 01/01/2038(a) | 123,300 | 131,068 | ||||||
2.87%, 07/01/2038(a) | 1,251,949 | 1,327,556 | ||||||
2.43%, 06/01/2043(a) | 4,121,402 | 4,333,397 | ||||||
2.91%, 02/01/2045(a) | 2,687,079 | 2,785,630 | ||||||
2.78%, 08/01/2045(a) | 2,483,353 | 2,575,662 | ||||||
3.12%, 09/01/2045(a) | 2,886,936 | 3,003,836 | ||||||
67,423,614 | ||||||||
Federal National Mortgage Association (FNMA)–11.91% | ||||||||
Pass Through Ctfs., | 3,662,333 | 4,146,828 | ||||||
7.00%, 09/01/2016 to 06/01/2036 | 5,556,635 | 6,146,990 | ||||||
7.50%, 04/01/2017 to 08/01/2037 | 5,763,460 | 6,776,645 | ||||||
6.00%, 09/01/2017 to 10/01/2038 | 2,838,290 | 3,250,144 | ||||||
5.00%, 11/01/2017 to 12/01/2033 | 446,195 | 470,273 | ||||||
8.50%, 11/01/2017 to 08/01/2037 | 1,333,386 | 1,562,721 | ||||||
8.00%, 12/01/2017 to 10/01/2037 | 4,148,828 | 5,032,287 | ||||||
4.50%, 04/01/2019 to 08/01/2041 | 9,009,318 | 9,805,598 | ||||||
5.50%, 03/01/2021 to 05/01/2035 | 2,136,820 | 2,464,044 | ||||||
6.75%, 07/01/2024 | 439,728 | 506,334 | ||||||
6.95%, 10/01/2025 | 20,506 | 21,113 | ||||||
3.50%, 03/01/2027 to 08/01/2027 | 12,100,416 | 12,853,287 | ||||||
3.00%, 05/01/2027 to 08/01/2027 | 5,312,538 | 5,606,913 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Principal Amount | Value | |||||||
Federal National Mortgage Association (FNMA)–(continued) | ||||||||
Pass Through Ctfs., ARM, | $ | 2,867,300 | $ | 3,043,836 | ||||
2.67%, 05/01/2035(a) | 487,935 | 516,034 | ||||||
2.73%, 03/01/2038(a) | 142,320 | 150,572 | ||||||
2.78%, 02/01/2042(a) | 2,068,797 | 2,156,342 | ||||||
2.29%, 06/01/2043(a) | 3,398,566 | 3,503,926 | ||||||
2.26%, 08/01/2043(a) | 3,205,829 | 3,297,035 | ||||||
2.27%, 05/01/2044(a) | 2,366,989 | 2,433,685 | ||||||
73,744,607 | ||||||||
Government National Mortgage Association (GNMA)–3.73% | ||||||||
Pass Through Ctfs., | 4,452,539 | 5,028,364 | ||||||
7.50%, 03/15/2017 to 10/15/2035 | 2,802,630 | 3,272,807 | ||||||
7.00%, 04/15/2017 to 12/15/2036 | 1,107,894 | 1,233,734 | ||||||
8.00%, 05/15/2017 to 01/15/2037 | 1,535,110 | 1,850,163 | ||||||
8.50%, 12/15/2017 to 01/15/2037 | 163,939 | 172,867 | ||||||
10.00%, 06/15/2019 | 5,352 | 5,603 | ||||||
6.00%, 09/15/2020 to 08/15/2033 | 698,989 | 787,043 | ||||||
5.00%, 02/15/2025 | 196,682 | 219,031 | ||||||
6.95%, 08/20/2025 to 08/20/2027 | 315,250 | 324,277 | ||||||
6.38%, 10/20/2027 to 04/20/2028 | 353,958 | 389,773 | ||||||
6.10%, 12/20/2033 | 4,772,156 | 5,686,380 | ||||||
3.50%, 10/20/2042 | 3,931,117 | 4,111,153 | ||||||
23,081,195 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities |
| 277,817,161 | ||||||
U.S. Treasury Securities–28.21% |
| |||||||
U.S. Treasury Bills–0.32% | ||||||||
0.45%, 11/17/2016(c)(d) | 2,000,000 | 1,998,069 | ||||||
U.S. Treasury Notes–19.45% | ||||||||
0.88%, 01/31/2018 | 900,000 | 904,325 | ||||||
1.13%, 06/15/2018 | 2,900,000 | 2,929,792 | ||||||
1.00%, 08/15/2018 | 5,800,000 | 5,847,577 | ||||||
1.50%, 12/31/2018 | 5,500,000 | 5,614,834 | ||||||
1.00%, 03/15/2019 | 11,500,000 | 11,599,279 | ||||||
1.63%, 06/30/2019 | 4,000,000 | 4,107,892 | ||||||
1.63%, 07/31/2019 | 2,700,000 | 2,773,564 | ||||||
1.75%, 09/30/2019 | 2,500,000 | 2,578,808 | ||||||
1.38%, 08/31/2020 | 11,000,000 | 11,204,963 | ||||||
2.00%, 09/30/2020 | 6,000,000 | 6,269,064 | ||||||
1.75%, 12/31/2020 | 8,000,000 | 8,276,872 | ||||||
1.38%, 01/31/2021 | 3,000,000 | 3,053,790 | ||||||
1.25%, 03/31/2021 | 4,500,000 | 4,553,437 | ||||||
1.38%, 05/31/2021 | 4,000,000 | 4,073,124 | ||||||
2.13%, 06/30/2021 | 4,500,000 | 4,741,785 | ||||||
2.13%, 08/15/2021 | 2,700,000 | 2,846,497 | ||||||
2.00%, 10/31/2021 | 2,500,000 | 2,619,678 | ||||||
2.00%, 11/15/2021 | 3,300,000 | 3,460,941 | ||||||
2.13%, 06/30/2022 | 3,000,000 | 3,164,649 |
Principal Amount | Value | |||||||
U.S. Treasury Notes–(continued) | ||||||||
2.00%, 07/31/2022 | $ | 7,000,000 | $ | 7,332,360 | ||||
1.63%, 11/15/2022 | 2,000,000 | 2,048,124 | ||||||
2.13%, 12/31/2022 | 7,000,000 | 7,381,717 | ||||||
1.50%, 02/28/2023 | 5,800,000 | 5,887,226 | ||||||
1.63%, 04/30/2023 | 4,000,000 | 4,091,248 | ||||||
1.63%, 05/31/2023 | 3,000,000 | 3,068,436 | ||||||
120,429,982 | ||||||||
U.S. Treasury Inflation-Indexed Notes–3.14% | ||||||||
0.13%, 04/15/2020 | 9,244,847 | (e) | 9,462,784 | |||||
0.63%, 01/15/2026 | 9,454,502 | (e) | 9,965,452 | |||||
19,428,236 | ||||||||
U.S. Treasury Bonds–4.85% | ||||||||
8.75%, 05/15/2020 | 1,200,000 | 1,559,929 | ||||||
7.88%, 02/15/2021 | 1,100,000 | 1,443,450 | ||||||
5.38%, 02/15/2031 | 3,800,000 | 5,638,771 | ||||||
3.38%, 05/15/2044 | 6,000,000 | 7,402,266 | ||||||
3.00%, 05/15/2045 | 3,000,000 | 3,452,052 | ||||||
2.88%, 08/15/2045 | 750,000 | 842,431 | ||||||
3.00%, 11/15/2045 | 3,000,000 | 3,452,577 | ||||||
2.50%, 05/15/2046 | 6,000,000 | 6,259,686 | ||||||
30,051,162 | ||||||||
U.S. Treasury Inflation-Indexed Bonds–0.45% | ||||||||
0.75%, 02/15/2045 | 2,793,698 | (e) | 2,814,304 | |||||
Total U.S. Treasury Securities | 174,721,753 | |||||||
Non-U.S. Government Sponsored Agency Securities–17.00% |
| |||||||
Collateralized Mortgage Obligations–13.50% | ||||||||
Banc of America Commercial Mortgage Trust, Series 2015-UBS7, Class XA, IO Variable Rate Pass Through Ctfs., 0.93%, 09/15/2048(a) | 16,910,869 | 1,059,978 | ||||||
Barclays Bank Commercial Mortgage Securities Trust, Series 2015-RRI, Class D, Floating Rate Pass Through Ctfs., 3.34%, 05/15/2032(a)(b) | 2,460,000 | 2,355,790 | ||||||
Bear Stearns ARM Trust, | 1,056,513 | 1,047,009 | ||||||
Chase Mortgage Trust, Series 2016-1, Class M3, Pass Through Ctfs., 3.75%, 04/25/2045(b) | 3,313,615 | 3,286,389 | ||||||
Commercial Mortgage Trust, | 5,900,000 | 5,900,632 | ||||||
Series 2015-CR23, Class CMB, Variable Rate Pass Through Ctfs., 3.68%, 05/10/2048(a)(b) | 4,740,000 | 4,756,586 | ||||||
Series 2015-CR24, Class B, Variable Rate Pass Through Ctfs., 4.37%, 08/10/2055(a) | 6,200,000 | 6,738,435 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Principal Amount | Value | |||||||
Collateralized Mortgage Obligations–(continued) | ||||||||
Credit Suisse Mortgage Capital Trust, Series 2015-TOWN, Class B, Floating Rate Pass Through Ctfs., 2.34%, 03/15/2017(a)(b) | $ | 7,100,000 | $ | 6,945,695 | ||||
La Hipotecaria El Salvadorian Mortgage Trust (El Salvador), Series 2013-1A, Class A, Pass Through Ctfs., 3.50%, 10/25/2041 (Acquired 04/22/2013; Cost $9,483,739)(b) | 9,163,033 | 9,707,088 | ||||||
La Hipotecaria Panamanian Mortgage Trust (El Salvador), Series 2010-1GA, Class A, Floating Rate Pass Through Ctfs., 2.25%, 09/08/2039 (Acquired 11/05/2010; Cost $16,191,412)(a)(b) | 15,672,268 | 16,299,159 | ||||||
LSTAR Commercial Mortgage Trust, | 5,515,247 | 5,568,559 | ||||||
Morgan Stanley Capital I Trust, | 3,000,000 | 2,970,068 | ||||||
Towd Point Mortgage Trust, | 4,551,708 | 4,636,005 | ||||||
Wells Fargo Commercial Mortgage Trust, | 5,900,000 | 6,159,477 | ||||||
Series 2015-C29, Class C, Variable Rate Pass Through Ctfs., 4.22%, 06/15/2048(a) | 6,224,000 | 6,175,070 | ||||||
83,605,940 | ||||||||
Bonds & Notes–3.50% | ||||||||
Israel Government Agency for International Development (AID) Bond, Unsec. Gtd. Global Bonds, 5.13%, 11/01/2024 | 3,800,000 | 4,770,258 | ||||||
Private Export Funding Corp., | 1,540,000 | 1,774,294 | ||||||
Series DD, Sec. Gtd. Notes, 2.13%, 07/15/2016 | 5,000,000 | 5,001,720 | ||||||
Series FF, Sec. Gtd. Notes, 1.38%, 02/15/2017 | 5,000,000 | 5,019,822 | ||||||
Series HH, Sr. Sec. Gtd. Notes, 1.45%, 08/15/2019 | 5,000,000 | 5,086,600 | ||||||
21,652,694 | ||||||||
Total Non-U.S. Government Sponsored Agency Securities (Cost $102,923,231) |
| 105,258,634 |
Principal Amount | Value | |||||||
U.S. Government Sponsored Agency |
| |||||||
Federal Agricultural Mortgage Corp. (FAMC)–2.99% | ||||||||
Sr. Unsec. Medium-Term Notes, 2.00%, 07/27/2016 | $ | 4,000,000 | $ | 4,005,056 | ||||
Series 2007-1, Sec. Gtd. Notes, 5.13%, 04/19/2017(b) | 14,000,000 | 14,504,994 | ||||||
18,510,050 | ||||||||
Federal Farm Credit Bank (FFCB)–0.47% | ||||||||
Unsec. Medium-Term Notes, 5.75%, 12/07/2028 | 2,100,000 | 2,901,375 | ||||||
Federal Home Loan Bank (FHLB)–1.09% | ||||||||
Unsec. Bonds, 3.38%, 06/12/2020 | 6,220,000 | 6,763,659 | ||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.86% | ||||||||
Unsec. Global Notes, 2.38%, 01/13/2022 | 5,000,000 | 5,300,555 | ||||||
Financing Corp. (FICO)–0.52% | ||||||||
Sec. Bonds, 9.80%, 04/06/2018 | 700,000 | 812,224 | ||||||
Series E, Sec. Bonds, 9.65%, 11/02/2018 | 1,985,000 | 2,393,034 | ||||||
3,205,258 | ||||||||
Tennessee Valley Authority (TVA)–2.56% | ||||||||
Sr. Unsec. Global Bonds, 4.88%, 12/15/2016 | 13,553,000 | 13,823,274 | ||||||
Sr. Unsec. Global Notes, 1.88%, 08/15/2022 | 2,000,000 | 2,051,218 | ||||||
15,874,492 | ||||||||
Total U.S. Government Sponsored Agency Securities |
| 52,555,389 | ||||||
Shares | ||||||||
Money Market Funds–1.51% |
| |||||||
Government & Agency Portfolio, Institutional Class, 0.30% (Cost $9,346,410)(f) | 9,346,410 | 9,346,410 | ||||||
Options Purchased-0.05% |
| |||||||
(Cost $295,000)(g) | 294,748 | |||||||
TOTAL INVESTMENTS–100.13% | 619,994,095 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.13)% |
| (810,064 | ) | |||||
NET ASSETS–100.00% | $ | 619,184,031 |
Investment Abbreviations:
ARM | – Adjustable Rate Mortgage | |
Ctfs. | – Certificates | |
Gtd. | – Guaranteed | |
IO | – Interest Only | |
REMICs | – Real Estate Mortgage Investment Conduits |
Sec. | – Secured | |
Sr. | – Senior | |
STRIPS | – Separately Traded Registered Interest and Principal Securities | |
Unsec. | – Unsecured |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Notes to Schedule of Investments:
(a) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on 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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016 (Unaudited)
Assets: |
| |||
Investments, at value (Cost $591,902,272) | $ | 610,647,685 | ||
Investments in affiliated money market funds, at value and cost | 9,346,410 | |||
Total investments, at value (Cost $601,248,682) | 619,994,095 | |||
Cash | 160,206 | |||
Receivable for: | ||||
Fund shares sold | 753,477 | |||
Dividends and interest | 2,092,819 | |||
Principal paydowns | 363,170 | |||
Investment for trustee deferred compensation and retirement plans | 218,183 | |||
Other assets | 4,559 | |||
Total assets | 623,586,509 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 2,617,421 | |||
Fund shares reacquired | 176,569 | |||
Collateral due to custodian | 290,000 | |||
Variation margin — futures contracts | 224,532 | |||
Accrued fees to affiliates | 846,706 | |||
Accrued trustees’ and officers’ fees and benefits | 824 | |||
Trustee deferred compensation and retirement plans | 246,426 | |||
Total liabilities | 4,402,478 | |||
Net assets applicable to shares outstanding | $ | 619,184,031 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 596,423,997 | ||
Undistributed net investment income | 16,911,178 | |||
Undistributed net realized gain (loss) | (16,391,811 | ) | ||
Net unrealized appreciation | 22,240,667 | |||
$ | 619,184,031 | |||
Net Assets: |
| |||
Series I | $ | 406,729,097 | ||
Series II | $ | 212,454,934 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 33,938,363 | |||
Series II | 17,903,868 | |||
Series I: | ||||
Net asset value per share | $ | 11.98 | ||
Series II: | ||||
Net asset value per share | $ | 11.87 |
Investment income: |
| |||
Interest | $ | 8,181,105 | ||
Dividends from affiliated money market funds | 7,970 | |||
Total investment income | 8,189,075 | |||
Expenses: | ||||
Advisory fees | 1,415,437 | |||
Administrative services fees | 795,326 | |||
Custodian fees | 16,266 | |||
Distribution fees — Series II | 253,920 | |||
Transfer agent fees | 16,803 | |||
Trustees’ and officers’ fees and benefits | 13,559 | |||
Reports to shareholders | 3,558 | |||
Professional services fees | 21,586 | |||
Other | 51,422 | |||
Total expenses | 2,587,877 | |||
Less: Fees waived | (3,097 | ) | ||
Net expenses | 2,584,780 | |||
Net investment income | 5,604,295 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (424,034 | ) | ||
Futures contracts | 5,263,334 | |||
4,839,300 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 10,078,155 | |||
Futures contracts | 3,215,053 | |||
13,293,208 | ||||
Net realized and unrealized gain | 18,132,508 | |||
Net increase in net assets resulting from operations | $ | 23,736,803 |
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 | ||||||||||||||||||||||||||||||||||||||||||||||||
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Government Securities Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the
independent Trustees. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Annuity Underlying Funds General U.S. Government Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of its performance universe for the one and five year periods and the fourth quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one year, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term
Invesco V.I. Government Securities Fund
“contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. Invesco Advisers noted that the Fund does not execute brokerage transactions through “soft dollar” arrangements to any significant degree.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
Invesco V.I. Government Securities Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2016 | |||
| ||||
Invesco V.I. Growth and Income Fund | ||||
| ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIGRI-SAR-1 | ||||
| ||||
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
| |||||
Series I Shares | 0.92 | % | |||
Series II Shares | 0.82 | ||||
S&P 500 Index▼ (Broad Market Index) | 3.84 | ||||
Russell 1000 Value Index▼ (Style-Specific Index) | 6.30 | ||||
Lipper VUF Large-Cap Value Funds Index¢ (Peer Group Index) | 4.26 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The S&P 500® Index is an unmanaged index considered representative of the US stock market. The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. The Lipper VUF Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (12/23/96) | 8.34 | % | ||||||||
10 Years | 6.00 | |||||||||
5 Years | 9.20 | |||||||||
1 Year | -4.12 | |||||||||
Series II Shares | ||||||||||
Inception (9/18/00) | 5.76 | % | ||||||||
10 Years | 5.74 | |||||||||
5 Years | 8.93 | |||||||||
1 Year | -4.35 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Growth and Income Portfolio, advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Growth and Income Fund (renamed Invesco V.I. Growth and Income Fund on April 29, 2013). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Growth and Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.79% and 1.04%, respectively.1,2 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.85% and 1.10%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Growth and Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2017. See current prospectus for more information. |
2 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2018. See current prospectus for more information. |
Invesco V.I. Growth and Income Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.56% |
| |||||||
Aerospace & Defense–1.28% | ||||||||
General Dynamics Corp. | 161,606 | $ | 22,502,020 | |||||
Agricultural Products–0.68% | ||||||||
Archer-Daniels-Midland Co. | 279,615 | 11,992,687 | ||||||
Application Software–1.00% | ||||||||
Citrix Systems, Inc.(b) | 219,783 | 17,602,421 | ||||||
Asset Management & Custody Banks–2.24% | ||||||||
Northern Trust Corp. | 280,360 | 18,576,654 | ||||||
State Street Corp. | 385,406 | 20,781,091 | ||||||
39,357,745 | ||||||||
Automobile Manufacturers–0.74% | ||||||||
General Motors Co. | 460,273 | 13,025,726 | ||||||
Biotechnology–1.04% | ||||||||
Amgen Inc. | 120,093 | 18,272,150 | ||||||
Broadcasting–0.31% | ||||||||
CBS Corp.–Class B | 98,596 | 5,367,566 | ||||||
Cable & Satellite–2.41% | ||||||||
Charter Communications, Inc.–Class A(b) | 62,540 | 14,299,145 | ||||||
Comcast Corp.–Class A | 429,456 | 27,996,237 | ||||||
42,295,382 | ||||||||
Communications Equipment–2.94% | ||||||||
Cisco Systems, Inc. | 1,047,273 | 30,046,262 | ||||||
Juniper Networks, Inc. | 961,056 | 21,614,150 | ||||||
51,660,412 | ||||||||
Construction Machinery & Heavy Trucks–1.02% | ||||||||
Caterpillar Inc. | 236,790 | 17,951,050 | ||||||
Data Processing & Outsourced Services–0.95% | ||||||||
PayPal Holdings, Inc.(b) | 458,681 | 16,746,443 | ||||||
Diversified Banks–12.01% | ||||||||
Bank of America Corp. | 3,515,335 | 46,648,495 | ||||||
Citigroup Inc. | 1,667,666 | 70,692,362 | ||||||
Comerica Inc. | 411,027 | 16,905,541 | ||||||
JPMorgan Chase & Co. | 1,234,307 | 76,699,837 | ||||||
210,946,235 | ||||||||
Drug Retail–1.52% | ||||||||
Walgreens Boots Alliance, Inc. | 320,705 | 26,705,105 | ||||||
Electric Utilities–1.63% | ||||||||
FirstEnergy Corp. | 319,055 | 11,138,210 | ||||||
PG&E Corp. | 273,822 | 17,502,702 | ||||||
28,640,912 |
Shares | Value | |||||||
Fertilizers & Agricultural Chemicals–1.13% | ||||||||
Agrium Inc. (Canada) | 37,262 | $ | 3,369,230 | |||||
Mosaic Co. (The) | 630,109 | 16,496,254 | ||||||
19,865,484 | ||||||||
Food Distributors–0.73% | ||||||||
Sysco Corp. | 251,922 | 12,782,522 | ||||||
General Merchandise Stores–1.36% | ||||||||
Target Corp. | 342,370 | 23,904,273 | ||||||
Health Care Equipment–2.75% | ||||||||
Baxter International Inc. | 455,871 | 20,614,487 | ||||||
Medtronic PLC | 318,367 | 27,624,704 | ||||||
48,239,191 | ||||||||
Health Care Services–0.78% | ||||||||
Express Scripts Holding Co.(b) | 179,657 | 13,618,001 | ||||||
Home Improvement Retail–0.59% | ||||||||
Kingfisher PLC (United Kingdom) | 2,416,414 | 10,431,274 | ||||||
Hotels, Resorts & Cruise Lines–1.91% | ||||||||
Carnival Corp. | 759,082 | 33,551,424 | ||||||
Industrial Conglomerates–2.42% | ||||||||
General Electric Co. | 1,350,564 | 42,515,755 | ||||||
Industrial Machinery–1.00% | ||||||||
Ingersoll-Rand PLC | 274,552 | 17,483,471 | ||||||
Insurance Brokers–3.11% | ||||||||
Aon PLC | 198,839 | 21,719,184 | ||||||
Marsh & McLennan Cos., Inc. | 247,229 | 16,925,297 | ||||||
Willis Towers Watson PLC | 129,331 | 16,077,137 | ||||||
54,721,618 | ||||||||
Integrated Oil & Gas–5.78% | ||||||||
Exxon Mobil Corp. | 205,000 | 19,216,700 | ||||||
Occidental Petroleum Corp. | 279,595 | 21,126,198 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 1,435,537 | 39,197,998 | ||||||
TOTAL S.A. (France) | 455,615 | 21,929,788 | ||||||
101,470,684 | ||||||||
Integrated Telecommunication Services–1.50% | ||||||||
Koninklijke KPN N.V. (Netherlands) | 1,319,523 | 4,785,237 | ||||||
Orange S.A. (France) | 283,561 | 4,630,856 | ||||||
Verizon Communications Inc. | 301,782 | 16,851,507 | ||||||
26,267,600 | ||||||||
Internet Software & Services–0.95% | ||||||||
eBay Inc.(b) | 716,318 | 16,769,004 | ||||||
Investment Banking & Brokerage–3.88% | ||||||||
Charles Schwab Corp. (The) | 607,483 | 15,375,395 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Shares | Value | |||||||
Investment Banking & Brokerage–(continued) | ||||||||
Goldman Sachs Group, Inc. (The) | 111,625 | $ | 16,585,242 | |||||
Morgan Stanley | 1,394,628 | 36,232,435 | ||||||
68,193,072 | ||||||||
Managed Health Care–1.69% | ||||||||
Anthem, Inc. | 100,674 | 13,222,523 | ||||||
UnitedHealth Group Inc. | 116,399 | 16,435,539 | ||||||
29,658,062 | ||||||||
Movies & Entertainment–0.83% | ||||||||
Time Warner Inc. | 198,221 | 14,577,172 | ||||||
Oil & Gas Equipment & Services–1.96% | ||||||||
Baker Hughes Inc. | 515,191 | 23,250,570 | ||||||
Weatherford International PLC(b) | 2,000,893 | 11,104,956 | ||||||
34,355,526 | ||||||||
Oil & Gas Exploration & Production–5.85% | ||||||||
Apache Corp. | 721,460 | 40,163,678 | ||||||
Canadian Natural Resources Ltd. (Canada) | 1,019,695 | 31,457,794 | ||||||
Devon Energy Corp. | 858,219 | 31,110,445 | ||||||
102,731,917 | ||||||||
Other Diversified Financial Services–0.71% | ||||||||
Voya Financial, Inc. | 504,278 | 12,485,923 | ||||||
Packaged Foods & Meats–1.31% | ||||||||
Mondelez International, Inc.–Class A | 506,758 | 23,062,557 | ||||||
Pharmaceuticals–7.14% | ||||||||
Eli Lilly and Co. | 249,060 | 19,613,475 | ||||||
Merck & Co., Inc. | 643,341 | 37,062,875 | ||||||
Novartis AG (Switzerland) | 236,488 | 19,457,385 | ||||||
Pfizer Inc. | 917,541 | 32,306,618 | ||||||
Sanofi (France) | 201,778 | 16,957,989 | ||||||
125,398,342 | ||||||||
Publishing–0.65% | ||||||||
Thomson Reuters Corp. | 283,756 | 11,479,375 | ||||||
Railroads–1.03% | ||||||||
CSX Corp. | 694,732 | 18,118,611 | ||||||
Regional Banks–6.00% | ||||||||
BB&T Corp. | 410,628 | 14,622,463 | ||||||
Citizens Financial Group Inc. | 1,361,487 | 27,202,510 |
Shares | Value | |||||||
Regional Banks–(continued) | ||||||||
Fifth Third Bancorp | 1,233,644 | $ | 21,699,798 | |||||
First Horizon National Corp. | 984,110 | 13,561,036 | ||||||
PNC Financial Services Group, Inc. (The) | 347,974 | 28,321,604 | ||||||
105,407,411 | ||||||||
Security & Alarm Services–1.21% | ||||||||
Tyco International PLC | 497,981 | 21,213,991 | ||||||
Semiconductor Equipment–1.42% | ||||||||
Applied Materials, Inc. | 1,039,409 | 24,914,634 | ||||||
Semiconductors–2.76% | ||||||||
Intel Corp. | 687,472 | 22,549,082 | ||||||
QUALCOMM, Inc. | 484,236 | 25,940,523 | ||||||
48,489,605 | ||||||||
Specialized Finance–0.73% | ||||||||
CME Group Inc.–Class A | 131,505 | 12,808,587 | ||||||
Systems Software–3.39% | ||||||||
Microsoft Corp. | 482,216 | 24,674,993 | ||||||
Oracle Corp. | 850,362 | 34,805,316 | ||||||
59,480,309 | ||||||||
Tobacco–1.33% | ||||||||
Philip Morris International Inc. | 230,135 | 23,409,332 | ||||||
Wireless Telecommunication Services–0.89% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 508,354 | 15,703,055 | ||||||
Total Common Stocks & Other Equity Interests |
| 1,696,173,636 | ||||||
Money Market Funds–3.14% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(c) | 27,548,102 | 27,548,102 | ||||||
Premier Portfolio–Institutional Class, 0.40%(c) | 27,548,102 | 27,548,102 | ||||||
Total Money Market Funds | 55,096,204 | |||||||
TOTAL INVESTMENTS–99.70% | 1,751,269,840 | |||||||
OTHER ASSETS LESS LIABILITIES–0.30% |
| 5,328,705 | ||||||
NET ASSETS–100.00% | $ | 1,756,598,545 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,580,304,479) | $ | 1,696,173,636 | ||
Investments in affiliated money market funds, at value and cost | 55,096,204 | |||
Total investments, at value (Cost $1,635,400,683) | 1,751,269,840 | |||
Cash | 82,120 | |||
Foreign currencies, at value (Cost $1,308,945) | 1,304,808 | |||
Receivable for: | ||||
Investments sold | 8,150,819 | |||
Fund shares sold | 60,055 | |||
Dividends | 3,131,923 | |||
Fund expenses absorbed | 17,436 | |||
Investment for trustee deferred compensation and retirement plans | 179,099 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 5,752,038 | |||
Total assets | 1,769,948,138 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 3,578,859 | |||
Fund shares reacquired | 5,842,366 | |||
Accrued fees to affiliates | 2,797,203 | |||
Accrued trustees’ and officers’ fees and benefits | 1,239 | |||
Accrued other operating expenses | 50,354 | |||
Trustee deferred compensation and retirement plans | 208,760 | |||
Unrealized depreciation on forward foreign currency contracts outstanding | 870,812 | |||
Total liabilities | 13,349,593 | |||
Net assets applicable to shares outstanding | $ | 1,756,598,545 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,420,484,915 | ||
Undistributed net investment income | 29,551,611 | |||
Undistributed net realized gain | 185,805,141 | |||
Net unrealized appreciation | 120,756,878 | |||
$ | 1,756,598,545 | |||
Net Assets: | ||||
Series I | $ | 147,538,678 | ||
Series II | $ | 1,609,059,867 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 7,458,859 | |||
Series II | 81,552,185 | |||
Series I: | ||||
Net asset value per share | $ | 19.78 | ||
Series II: | ||||
Net asset value per share | $ | 19.73 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $589,934) | $ | 19,941,152 | ||
Dividends from affiliated money market funds | 148,040 | |||
Total investment income | 20,089,192 | |||
Expenses: | ||||
Advisory fees | 4,399,297 | |||
Administrative services fees | 2,037,225 | |||
Custodian fees | 30,117 | |||
Distribution fees — Series II | 1,763,839 | |||
Transfer agent fees | 16,172 | |||
Trustees’ and officers’ fees and benefits | 19,730 | |||
Reports to shareholders | 3,308 | |||
Professional services fees | 25,247 | |||
Other | 18,250 | |||
Total expenses | 8,313,185 | |||
Less: Fees waived | (532,961 | ) | ||
Net expenses | 7,780,224 | |||
Net investment income | 12,308,968 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 12,375,944 | |||
Foreign currencies | 163,820 | |||
Forward foreign currency contracts | (1,573,959 | ) | ||
10,965,805 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (22,691,793 | ) | ||
Foreign currencies | 41,059 | |||
Forward foreign currency contracts | 3,575,657 | |||
(19,075,077 | ) | |||
Net realized and unrealized gain (loss) | (8,109,272 | ) | ||
Net increase in net assets resulting from operations | $ | 4,199,696 |
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:
CAD | – Canadian Dollar | |
CHF | – Swiss Franc |
EUR | – Euro | |
GBP | – British Pound Sterling |
USD | – U.S. Dollar |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Growth and Income Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the
independent Trustees. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office
support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Funds Large-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the second quintile of its performance universe for the one and three year periods and the third quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one and three year periods and below the performance of the Index for the five year period. The Trustees also
Invesco V.I. Growth and Income Fund
reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2017 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one mutual fund. The Board also noted how the Fund’s rate compared to the effective sub-adviser fee rate of two funds sub-advised by Invesco Advisers.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and
redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a similar scope of services.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other
independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered that the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and was advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
Invesco V.I. Growth and Income Fund
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Semiannual Report to Shareholders
| June 30, 2016 | |||
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Invesco V.I. High Yield Fund | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIHYI-SAR-1 | ||||
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
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Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
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Series I Shares | 5.73% | ||||
Series II Shares | 5.57 | ||||
Barclays U.S. Aggregate Index▼ (Broad Market Index) | 5.31 | ||||
Barclays U.S. Corporate High Yield 2% Issuer Cap Index▼ (Style-Specific Index) | 9.06 | ||||
Lipper VUF High Yield Bond Funds Classification Average¢ (Peer Group) | 6.52 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market. The Barclays U.S. Corporate High Yield 2% Issuer Cap Index is an unmanaged index considered representative of the US high-yield, fixed-rate corporate bond market. Index weights for each issuer are capped at 2%. The Lipper VUF High Yield Bond Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper High Yield Bond Funds classification. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
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Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (5/1/98) | 4.07 | % | ||||||||
10 Years | 6.40 | |||||||||
5 Years | 4.99 | |||||||||
1 Year | -0.14 | |||||||||
Series II Shares | ||||||||||
Inception (3/26/02) | 6.82 | % | ||||||||
10 Years | 6.15 | |||||||||
5 Years | 4.75 | |||||||||
1 Year
| -0.35 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.03% and 1.28%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. High Yield Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through
insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. High Yield Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Principal Amount | Value | |||||||
U.S. Dollar Denominated Bonds and Notes–93.44% |
| |||||||
Advertising–0.17% | ||||||||
Lamar Media Corp., Sr. Unsec. Gtd. Notes, 5.75%, 02/01/2026(b) | $ | 246,000 | $ | 257,070 | ||||
Aerospace & Defense–2.96% | ||||||||
Bombardier Inc. (Canada), | 290,000 | 301,238 | ||||||
7.75%, 03/15/2020(b) | 797,000 | 787,037 | ||||||
KLX Inc., Sr. Unsec. Gtd. Notes, 5.88%, 12/01/2022(b) | 749,000 | 737,765 | ||||||
Moog Inc., Sr. Unsec. Gtd. Notes, 5.25%, 12/01/2022(b) | 645,000 | 656,287 | ||||||
Orbital ATK Inc., Sr. Unsec. Gtd. Global Notes, 5.50%, 10/01/2023 | 380,000 | 399,000 | ||||||
TransDigm Inc., | 1,210,000 | 1,216,050 | ||||||
Sr. Unsec. Sub. Gtd. Notes, | 269,000 | 269,673 | ||||||
4,367,050 | ||||||||
Agricultural & Farm Machinery–0.42% | ||||||||
Titan International Inc., Sr. Sec. Gtd. First Lien Global Notes, 6.88%, 10/01/2020 | 715,000 | 615,794 | ||||||
Airlines–0.70% | ||||||||
Air Canada (Canada), | 300,000 | 318,000 | ||||||
Sr. Unsec. Gtd. Notes, | 690,000 | 719,325 | ||||||
1,037,325 | ||||||||
Alternative Carriers–1.06% | ||||||||
EarthLink Holdings Corp., Sr. Sec. Gtd. First Lien Global Notes, 7.38%, 06/01/2020 | 565,000 | 590,425 | ||||||
Level 3 Financing, Inc., | 480,000 | 480,000 | ||||||
Sr. Unsec. Gtd. Notes, | 498,000 | 490,530 | ||||||
1,560,955 | ||||||||
Aluminum–0.27% | ||||||||
Kaiser Aluminum Corp., Sr. Unsec. Gtd. Notes, 5.88%, 05/15/2024(b) | 384,000 | 395,520 | ||||||
Apparel Retail–1.11% | ||||||||
Hot Topic, Inc., Sr. Sec. Gtd. First Lien Notes, 9.25%, 06/15/2021(b) | 647,000 | 659,131 | ||||||
Men’s Wearhouse, Inc. (The), Sr. Unsec. Gtd. Global Notes, 7.00%, 07/01/2022 | 1,165,000 | 981,513 | ||||||
1,640,644 |
Principal Amount | Value | |||||||
Asset Management & Custody Banks–1.26% | ||||||||
CommScope Technologies Finance LLC, Sr. Unsec. Notes, 6.00%, 06/15/2025(b) | $ | 379,000 | $ | 392,265 | ||||
Prime Security Services Borrower, LLC/Prime Finance, Inc., Sec. Gtd. Second Lien Notes, 9.25%, 05/15/2023(b) | 1,110,000 | 1,182,150 | ||||||
RegionalCare Hospital Partners Holdings Inc., Sr. Sec. Gtd. First Lien Notes, 8.25%, 05/01/2023(b) | 279,000 | 287,370 | ||||||
1,861,785 | ||||||||
Auto Parts & Equipment–0.70% | ||||||||
CTP Transportation Products LLC/CTP Finance Inc., Sr. Sec. Notes, 8.25%, 12/15/2019(b) | 670,000 | 597,975 | ||||||
Dana Holding Corp., Sr. Unsec. Notes, | 133,000 | 136,990 | ||||||
5.50%, 12/15/2024 | 313,000 | 295,785 | ||||||
1,030,750 | ||||||||
Broadcasting–2.67% | ||||||||
IHeartCommunications, Inc., | 296,000 | 222,740 | ||||||
Series B, Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 03/15/2020 | 277,000 | 264,535 | ||||||
Series B, Sr. Unsec. Gtd. Global Notes, | 494,000 | 494,000 | ||||||
Netflix, Inc., Sr. Unsec. Global Notes, 5.75%, 03/01/2024 | 411,000 | 430,522 | ||||||
Sinclair Television Group Inc., | 514,000 | 526,850 | ||||||
Sr. Unsec. Notes, | 293,000 | 302,523 | ||||||
Sirius XM Radio Inc., Sr. Unsec. Notes, 5.38%, 07/15/2026(b) | 545,000 | 539,550 | ||||||
TEGNA, Inc., Sr. Unsec. Gtd. Notes, 5.50%, 09/15/2024(b) | 365,000 | 376,862 | ||||||
Tribune Media Co., Sr. Unsec. Gtd. Global Notes, 5.88%, 07/15/2022 | 785,000 | 785,000 | ||||||
3,942,582 | ||||||||
Building Products–3.12% | ||||||||
Allegion PLC, Sr. Unsec. Gtd. Notes, 5.88%, 09/15/2023 | 408,000 | 429,420 | ||||||
Builders FirstSource, Inc., | 849,000 | 895,695 | ||||||
Sr. Unsec. Gtd. Notes, | 435,000 | 477,412 | ||||||
Gibraltar Industries Inc., Sr. Unsec. Gtd. Sub. Global Notes, 6.25%, 02/01/2021 | 1,010,000 | 1,025,150 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Building Products–(continued) | ||||||||
Hardwoods Acquisition, Inc., Sr. Sec. Gtd. First Lien Notes, 7.50%, | $ | 148,000 | $ | 114,885 | ||||
HD Supply, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 04/15/2024(b) | 161,000 | 167,843 | ||||||
Norbord Inc. (Canada), Sr. Sec. Gtd. First Lien Notes, 6.25%, | 460,000 | 472,650 | ||||||
Standard Industries Inc., Sr. Unsec. Notes, | 747,000 | 761,940 | ||||||
6.00%, 10/15/2025(b) | 250,000 | 263,437 | ||||||
4,608,432 | ||||||||
Cable & Satellite–5.86% | ||||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Sr. Unsec. Notes, 5.75%, 02/15/2026(b) | 1,570,000 | 1,624,950 | ||||||
DISH DBS Corp., Sr. Unsec. Gtd. Global Notes, 5.88%, 11/15/2024 | 1,399,000 | 1,318,558 | ||||||
Hughes Satellite Systems Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/2021 | 517,000 | 559,006 | ||||||
Mediacom Broadband LLC/Corp., Sr. Unsec. Global Notes, | 130,000 | 133,250 | ||||||
6.38%, 04/01/2023 | 190,000 | 199,500 | ||||||
Neptune Finco Corp., Sr. Unsec. Notes, | 200,000 | 211,500 | ||||||
10.13%, 01/15/2023(b) | 255,000 | 285,600 | ||||||
Numericable-SFR S.A. (France), | 1,645,000 | 1,612,100 | ||||||
Sr. Sec. Gtd. First Lien Notes, | 264,000 | 261,030 | ||||||
Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH (Germany), Sr. Sec. Gtd. First Lien Bonds, 5.00%, 01/15/2025(b) | 1,000,000 | 985,000 | ||||||
Virgin Media Secured Finance PLC (United Kingdom), Sr. Sec. Gtd. First Lien Notes, 5.50%, 08/15/2026(b) | 299,000 | 293,020 | ||||||
VTR Finance B.V. (Chile), Sr. Sec. First Lien Notes, 6.88%, 01/15/2024(b) | 590,000 | 590,000 | ||||||
Ziggo Bond Finance B.V. (Netherlands), Sr. Unsec. Notes, 5.88%, | 600,000 | 579,000 | ||||||
8,652,514 | ||||||||
Casinos & Gaming–2.23% | ||||||||
Boyd Gaming Corp., | 940,000 | 1,005,800 | ||||||
Sr. Unsec. Gtd. Notes, | 213,000 | 224,183 | ||||||
MGM Growth Properties Operating Partnership LP/ MGP Escrow Co-Issuer Inc., Sr. Unsec. Gtd. Notes, 5.63%, 05/01/2024(b) | 233,000 | 246,397 |
Principal Amount | Value | |||||||
Casinos & Gaming–(continued) | ||||||||
MGM Resorts International, Sr. Unsec. Gtd. Notes, | $ | 475,000 | $ | 503,500 | ||||
7.75%, 03/15/2022 | 319,000 | 362,862 | ||||||
Mohegan Tribal Gaming Authority, Sr. Unsec. Gtd. Global Notes, 9.75%, 09/01/2021 | 460,000 | 492,200 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., | 77,000 | 77,963 | ||||||
Sr. Unsec. Gtd. Notes, | 385,000 | 374,412 | ||||||
3,287,317 | ||||||||
Commercial Printing–0.49% | ||||||||
Multi-Color Corp., Sr. Unsec. Gtd. Notes, 6.13%, 12/01/2022(b) | 698,000 | 717,195 | ||||||
Commodity Chemicals–0.74% | ||||||||
Consolidated Energy Finance S.A. (Trinidad), Sr. Unsec. Gtd. Notes, 6.75%, 10/15/2019(b) | 640,000 | 608,000 | ||||||
Koppers Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 12/01/2019 | 481,000 | 488,215 | ||||||
1,096,215 | ||||||||
Construction & Engineering–0.27% | ||||||||
AECOM, Sr. Unsec. Gtd. Global Notes, 5.75%, 10/15/2022 | 390,000 | 399,179 | ||||||
Construction Machinery & Heavy Trucks–3.03% | ||||||||
Allied Specialty Vehicles, Inc., Sr. Sec. Notes, 8.50%, 11/01/2019(b) | 695,000 | 715,850 | ||||||
Commercial Vehicle Group Inc., Sec. Gtd. Second Lien Global Notes, 7.88%, 04/15/2019 | 1,142,000 | 1,113,450 | ||||||
Meritor Inc., Sr. Unsec. Gtd. Notes, | 186,000 | 159,960 | ||||||
6.75%, 06/15/2021 | 497,000 | 469,665 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/2021 | 770,000 | 544,775 | ||||||
Oshkosh Corp., Sr. Unsec. Gtd. Global Notes, | 1,240,000 | 1,281,850 | ||||||
5.38%, 03/01/2025 | 179,000 | 184,817 | ||||||
4,470,367 | ||||||||
Consumer Finance–0.93% | ||||||||
Ally Financial Inc., Sr. Unsec. Global Notes, | 599,000 | 592,261 | ||||||
5.13%, 09/30/2024 | 766,000 | 784,193 | ||||||
1,376,454 | ||||||||
Data Processing & Outsourced Services–1.14% | ||||||||
First Data Corp., | 343,000 | 345,572 | ||||||
Sr. Unsec. Gtd. Notes, | 1,315,000 | 1,336,369 | ||||||
1,681,941 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Diversified Banks–1.10% | ||||||||
Dresdner Funding Trust I (Germany), REGS, Jr. Unsec. Sub. Euro Notes, 8.15%, 06/30/2031(b) | $ | 226,000 | $ | 264,420 | ||||
Royal Bank of Scotland Group PLC (The) (United Kingdom), Unsec. Sub. Global Bonds, | 940,000 | 981,172 | ||||||
5.13%, 05/28/2024 | 385,000 | 376,197 | ||||||
1,621,789 | ||||||||
Diversified Chemicals–0.75% | ||||||||
Chemours Co. (The), Sr. Unsec. Gtd. Global Notes, 6.63%, 05/15/2023 | 914,000 | 781,470 | ||||||
Compass Minerals International, Inc., Sr. Unsec. Gtd. Notes, 4.88%, 07/15/2024(b) | 350,000 | 331,625 | ||||||
1,113,095 | ||||||||
Diversified Metals & Mining–1.73% | ||||||||
FMG Resources (August 2006) Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, 6.88%, 04/01/2022(b) | 458,000 | 430,520 | ||||||
Freeport-McMoRan Inc., Sr. Unsec. Gtd. Global Notes, 3.55%, 03/01/2022 | 515,000 | 455,775 | ||||||
Lundin Mining Corp. (Canada), Sr. Sec. Gtd. First Lien Notes, | 67,000 | 68,340 | ||||||
7.88%, 11/01/2022(b) | 401,000 | 415,035 | ||||||
Teck Resources Ltd. (Canada), Sr. Unsec. Gtd. Notes, | 875,000 | 768,906 | ||||||
8.00%, 06/01/2021(b) | 409,000 | 422,293 | ||||||
2,560,869 | ||||||||
Electrical Components & Equipment–0.97% | ||||||||
EnerSys, Sr. Unsec. Gtd. Notes, 5.00%, 04/30/2023(b) | 798,000 | 793,012 | ||||||
Sensata Technologies B.V., Sr. Unsec. Gtd. Notes, | 270,000 | 270,675 | ||||||
5.00%, 10/01/2025(b) | 370,000 | 371,388 | ||||||
1,435,075 | ||||||||
Environmental & Facilities Services–1.11% | ||||||||
Advanced Disposal Services, Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 10/01/2020 | 1,061,000 | 1,079,568 | ||||||
GFL Environmental Inc. (Canada), Sr. Unsec. Notes, 9.88%, 02/01/2021(b) | 520,000 | 562,900 | ||||||
1,642,468 | ||||||||
Food Distributors–0.46% | ||||||||
US Foods, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 06/15/2024(b) | 653,000 | 672,590 | ||||||
Food Retail–0.77% | ||||||||
1011778 BC ULC/ New Red Finance, Inc. (Canada), Sec. Gtd. Second Lien Notes, 6.00%, 04/01/2022(b) | 1,095,000 | 1,140,169 |
Principal Amount | Value | |||||||
Forest Products–0.00% | ||||||||
Sino-Forest Corp. (Hong Kong), Sr. Unsec. Gtd. Notes, 6.25%, | $ | 40,000 | $ | 200 | ||||
Gas Utilities–1.85% | ||||||||
AmeriGas Finance LLC/Corp., | 283,000 | 283,000 | ||||||
5.88%, 08/20/2026 | 395,000 | 396,481 | ||||||
Sr. Unsec. Gtd. Global Notes, | 355,000 | 377,188 | ||||||
Ferrellgas L.P./Ferrellgas Finance Corp., | 484,000 | 445,280 | ||||||
Sr. Unsec. Gtd. Notes, | 558,000 | 498,015 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Global Notes, 5.50%, 06/01/2024 | 750,000 | 740,625 | ||||||
2,740,589 | ||||||||
General Merchandise Stores–0.31% | ||||||||
Dollar Tree, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 03/01/2023(b) | 434,000 | 464,380 | ||||||
Health Care Facilities–4.89% | ||||||||
Acadia Healthcare Co., Inc., Sr. Unsec. Gtd. Notes, 6.50%, 03/01/2024(b) | 200,000 | 207,000 | ||||||
Community Health Systems, Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 02/01/2022 | 757,202 | 666,338 | ||||||
HCA Holdings, Inc., Sr. Unsec. Notes, 6.25%, 02/15/2021 | 94,000 | 101,285 | ||||||
HCA, Inc., | 421,000 | 458,101 | ||||||
Sr. Sec. Gtd. First Lien Notes, | 698,000 | 733,336 | ||||||
Sr. Unsec. Gtd. Global Notes, | 334,000 | 381,595 | ||||||
Sr. Unsec. Gtd. Notes, | 640,000 | 660,800 | ||||||
5.88%, 02/15/2026 | 310,000 | 324,725 | ||||||
HealthSouth Corp., Sr. Unsec. Gtd. Global Notes, 5.75%, 09/15/2025 | 395,000 | 396,975 | ||||||
LifePoint Health, Inc., Sr. Unsec. Gtd. Notes, 5.38%, 05/01/2024(b) | 405,000 | 409,050 | ||||||
Surgical Care Affiliates, Inc., Sr. Unsec. Gtd. Notes, 6.00%, 04/01/2023(b) | 965,000 | 998,775 | ||||||
Tenet Healthcare Corp., Sr. Unsec. Global Notes, | 360,000 | 357,300 | ||||||
6.75%, 06/15/2023 | 556,000 | 536,540 | ||||||
8.00%, 08/01/2020 | 308,000 | 316,470 | ||||||
8.13%, 04/01/2022 | 665,000 | 681,625 | ||||||
7,229,915 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Health Care Services–1.68% | ||||||||
DaVita HealthCare Partners Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 05/01/2025 | $ | 815,000 | $ | 816,019 | ||||
MEDNAX, Inc., Sr. Unsec. Gtd. Notes, 5.25%, 12/01/2023(b) | 765,000 | 774,562 | ||||||
MPH Acquisition Holdings LLC, Sr. Unsec. Notes, 7.13%, 06/01/2024(b) | 851,000 | 897,805 | ||||||
2,488,386 | ||||||||
Home Improvement Retail–0.54% | ||||||||
Hillman Group Inc. (The), Sr. Unsec. Notes, 6.38%, 07/15/2022(b) | 880,000 | 796,400 | ||||||
Homebuilding–2.77% | ||||||||
Ashton Woods USA LLC/Ashton Woods Finance Co., Sr. Unsec. Notes, 6.88%, 02/15/2021(b) | 907,000 | 817,434 | ||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/2021 | 887,000 | 758,385 | ||||||
CalAtlantic Group Inc., Sr. Unsec. Gtd. Notes, 5.38%, 10/01/2022 | 554,000 | 566,465 | ||||||
K. Hovnanian Enterprises Inc., | 92,000 | 79,120 | ||||||
Sr. Unsec. Gtd. Notes, | 800,000 | 558,000 | ||||||
KB Home, Sr. Unsec. Gtd. Notes, 7.50%, 09/15/2022 | 105,000 | 108,675 | ||||||
Meritage Homes Corp., Sr. Unsec. Gtd. Global Notes, | 405,000 | 408,544 | ||||||
7.15%, 04/15/2020 | 270,000 | 291,262 | ||||||
Taylor Morrison Communities Inc./ Monarch Communities Inc., Sr. Unsec. Gtd. Notes, 5.88%, 04/15/2023(b) | 498,000 | 501,112 | ||||||
4,088,997 | ||||||||
Household Products–1.88% | ||||||||
Reynolds Group Issuer Inc./LLC (New Zealand), | 357,000 | 369,941 | ||||||
Sr. Sec. Gtd. First Lien Notes, | 200,000 | 204,000 | ||||||
Sr. Unsec. Gtd. Global Notes, | 988,000 | 1,033,695 | ||||||
Sr. Unsec. Gtd. Notes, | 61,000 | 63,059 | ||||||
Spectrum Brands, Inc., Sr. Unsec. Gtd. Global Notes, 5.75%, 07/15/2025 | 350,000 | 366,625 | ||||||
Springs Industries, Inc., Sr. Sec. Global Notes, 6.25%, 06/01/2021 | 729,000 | 736,290 | ||||||
2,773,610 | ||||||||
Independent Power Producers & Energy Traders–2.00% | ||||||||
AES Corp. (The), Sr. Unsec. Notes, | 1,603,000 | 1,615,022 | ||||||
6.00%, 05/15/2026 | 48,000 | 49,260 |
Principal Amount | Value | |||||||
Independent Power Producers & Energy Traders–(continued) | ||||||||
Calpine Corp., Sr. Unsec. Global Notes, | $ | 357,000 | $ | 349,860 | ||||
5.50%, 02/01/2024 | 867,000 | 842,074 | ||||||
Red Oak Power LLC, Series A, Sr. Sec. First Lien Bonds, 8.54%, 11/30/2019 | 99,953 | 100,203 | ||||||
2,956,419 | ||||||||
Industrial Conglomerates–0.44% | ||||||||
Unifrax I LLC/Unifrax Holding Co., Sr. Unsec. Gtd. Notes, 7.50%, 02/15/2019 (Acquired 1/31/2013-7/28/2014; Cost $754,288)(b) | 742,000 | 649,250 | ||||||
Industrial Machinery–0.38% | ||||||||
Optimas OE Solutions Holding, LLC/Optimas OE Solutions, Inc., Sr. Sec. Notes, 8.63%, 06/01/2021(b) | 530,000 | 377,625 | ||||||
Shape Technologies Group Inc., Sr. Sec. Gtd. Notes, 7.63%, 02/01/2020(b) | 181,000 | 179,869 | ||||||
557,494 | ||||||||
Integrated Telecommunication Services–2.99% | ||||||||
CenturyLink, Inc., Series Y, Sr. Unsec. Global Notes, 7.50%, 04/01/2024 | 978,000 | 987,780 | ||||||
Communications Sales & Leasing, Inc., Sr. Sec. Gtd. First Lien Notes, 6.00%, 04/15/2023(b) | 65,000 | 66,300 | ||||||
Frontier Communications Corp., Sr. Unsec. Global Notes, | 150,000 | 125,250 | ||||||
8.88%, 09/15/2020(b) | 276,000 | 296,010 | ||||||
10.50%, 09/15/2022 | 810,000 | 860,625 | ||||||
11.00%, 09/15/2025 | 150,000 | 156,375 | ||||||
GCI, Inc., Sr. Unsec. Global Notes, 6.88%, 04/15/2025 | 470,000 | 479,400 | ||||||
GTH Finance B.V. (Netherlands), Sr. Unsec. Gtd. Notes, 7.25%, | 429,000 | 448,305 | ||||||
Telecom Italia S.p.A. (Italy), Sr. Unsec. Notes, 5.30%, 05/30/2024(b) | 985,000 | 989,925 | ||||||
4,409,970 | ||||||||
Internet Software & Services–1.17% | ||||||||
CyrusOne L.P./CyrusOne Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 11/15/2022 | 930,000 | 971,850 | ||||||
Equinix, Inc., Sr. Unsec. Notes, 5.88%, 01/15/2026 | 486,000 | 507,870 | ||||||
Match Group, Inc., Sr. Unsec. Notes, 6.38%, 06/01/2024(b) | 238,000 | 246,925 | ||||||
1,726,645 | ||||||||
Leisure Facilities–0.03% | ||||||||
Cedar Fair L.P./Canada’s Wonderland Co./Magnum Management Corp., Sr. Unsec. Gtd. Global Notes, 5.38%, 06/01/2024 | 50,000 | 51,750 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Leisure Products–0.57% | ||||||||
Vista Outdoor Inc., Sr. Unsec. Gtd. Notes, 5.88%, 10/01/2023(b) | $ | 806,000 | $ | 844,285 | ||||
Managed Health Care–0.18% | ||||||||
Centene Corp., Sr. Unsec. Notes, 4.75%, 05/15/2022 | 258,000 | 265,095 | ||||||
Marine–0.67% | ||||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. First Lien Mortgage Notes, 8.13%, 11/15/2021 (Acquired 10/29/2013-7/16/2015; Cost $1,259,095)(b) | 1,258,000 | 990,675 | ||||||
Metal & Glass Containers–1.28% | ||||||||
Ardagh Packaging Finance PLC / Ardagh Holdings USA Inc (Ireland), Sr. Unsec. Gtd. Notes, 7.25%, 05/15/2024(b) | 310,000 | 318,525 | ||||||
Berry Plastics Corp., | 90,000 | 93,488 | ||||||
Sr. Sec. Gtd. Second Lien Notes, | 678,000 | 695,797 | ||||||
Coveris Holding Corp., Sr. Unsec. Gtd. Notes, 10.00%, 06/01/2018(b) | 542,000 | 543,355 | ||||||
Coveris Holdings S.A. (Luxembourg), Sr. Unsec. Gtd. Notes, 7.88%, 11/01/2019(b) | 249,000 | 243,398 | ||||||
1,894,563 | ||||||||
Movies & Entertainment–0.33% | ||||||||
Pinnacle Entertainment, Inc., Sr. Unsec. Bonds, 5.63%, 05/01/2024(b) | 480,000 | 481,200 | ||||||
Oil & Gas Drilling–0.15% | ||||||||
Precision Drilling Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 5.25%, 11/15/2024 | 264,000 | 217,800 | ||||||
Oil & Gas Equipment & Services–0.19% | ||||||||
SESI, L.L.C., Sr. Unsec. Gtd. Global Notes, 7.13%, 12/15/2021 | 288,000 | 278,640 | ||||||
Oil & Gas Exploration & Production–7.08% | ||||||||
Antero Resources Corp., Sr. Unsec. Gtd. Global Notes, | 665,000 | 653,362 | ||||||
6.00%, 12/01/2020 | 684,000 | 690,840 | ||||||
Concho Resources Inc., Sr. Unsec. Gtd. Global Notes, | 232,000 | 234,900 | ||||||
5.50%, 04/01/2023 | 1,413,000 | 1,423,597 | ||||||
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes, 7.13%, 04/01/2021 | 683,000 | 708,612 | ||||||
Denbury Resources Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 05/01/2022 | 323,000 | 219,640 | ||||||
Diamondback Energy, Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 10/01/2021 | 719,000 | 762,140 | ||||||
Newfield Exploration Co., Sr. Unsec. Global Notes, 5.63%, 07/01/2024 | 1,205,000 | 1,211,025 |
Principal Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Oasis Petroleum Inc., | $ | 529,000 | $ | 481,390 | ||||
Sr. Unsec. Gtd. Notes, | 165,000 | 151,388 | ||||||
Parsley Energy LLC/Parsley Finance Corp., Sr. Unsec. Notes, 7.50%, 02/15/2022(b) | 509,000 | 534,450 | ||||||
PDC Energy, Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 10/15/2022 | 23,000 | 24,035 | ||||||
Range Resources Corp., | 690,000 | 650,325 | ||||||
Sr. Unsec. Gtd. Sub. Notes, | 183,000 | 173,393 | ||||||
Rice Energy Inc., Sr. Unsec. Gtd. Global Notes, 6.25%, 05/01/2022 | 103,000 | 102,743 | ||||||
RSP Permian, Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/01/2022 | 833,000 | 862,155 | ||||||
SM Energy Co., Sr. Unsec. Global Notes, | 161,000 | 148,724 | ||||||
6.50%, 01/01/2023 | 281,000 | 261,330 | ||||||
Whiting Petroleum Corp., Sr. Unsec. Gtd. Global Notes, 6.25%, 04/01/2023 | 456,000 | 411,540 | ||||||
WPX Energy Inc., Sr. Unsec. Global Notes, 6.00%, 01/15/2022 | 807,000 | 754,545 | ||||||
10,460,134 | ||||||||
Oil & Gas Refining & Marketing–0.63% | ||||||||
MPLX LP, Sr. Unsec. Gtd. Notes, 5.50%, 02/15/2023(b) | 913,000 | 926,695 | ||||||
Oil & Gas Storage & Transportation–3.12% | ||||||||
Energy Transfer Equity, L.P., Sr. Sec. First Lien Notes, 5.88%, 01/15/2024 | 27,000 | 26,460 | ||||||
Sabine Pass Liquefaction, LLC, Sr. Sec. First Lien Global Notes, | 200,000 | 201,000 | ||||||
5.63%, 03/01/2025 | 801,000 | 801,000 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., | 950,000 | 904,875 | ||||||
Sr. Unsec. Gtd. Global Notes, | 247,000 | 252,557 | ||||||
Teekay Corp. (Bermuda), Sr. Unsec. Global Notes, 8.50%, 01/15/2020 | 316,000 | 264,650 | ||||||
Tesoro Corp., Sr. Unsec. Gtd. Notes, 5.38%, 10/01/2022 | 400,000 | 406,500 | ||||||
Tesoro Logistics L.P./Tesoro Logistics Finance Corp., Sr. Unsec. Gtd. Global Notes, | 653,000 | 682,385 | ||||||
6.38%, 05/01/2024 | 632,000 | 663,600 | ||||||
Williams Partners L.P., Sr. Unsec. Notes, 4.00%, 11/15/2021 | 411,000 | 401,496 | ||||||
4,604,523 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Other Diversified Financial Services–0.35% | ||||||||
Lincoln Finance Ltd. (Netherlands), Sr. Sec. Gtd. Notes, 7.38%, 04/15/2021(b) | $ | 492,000 | $ | 511,096 | ||||
Packaged Foods & Meats–2.00% | ||||||||
FAGE Dairy Industry S.A./FAGE USA Dairy Industry, Inc. (Greece), Sr. Unsec. Gtd. Notes, 9.88%, | 720,000 | 742,500 | ||||||
JBS Investments GmbH (Brazil), | 300,000 | 312,000 | ||||||
REGS, Sr. Unsec. Gtd. Euro Notes, | 230,000 | 237,981 | ||||||
Pinnacle Foods Finance LLC / Pinnacle Foods Finance Corp., Sr. Unsec. Gtd. Notes, 5.88%, 01/15/2024(b) | 209,000 | 219,972 | ||||||
Smithfield Foods Inc., Sr. Unsec. Notes, 6.63%, 08/15/2022 | 552,000 | 578,220 | ||||||
TreeHouse Foods, Inc., Sr. Unsec. Gtd. Notes, 6.00%, 02/15/2024(b) | 814,000 | 866,910 | ||||||
2,957,583 | ||||||||
Paper Packaging–0.39% | ||||||||
Graphic Packaging International Inc., Sr. Unsec. Gtd. Notes, 4.88%, 11/15/2022 | 550,000 | 574,750 | ||||||
Paper Products–0.48% | ||||||||
Clearwater Paper Corp., Sr. Unsec. Gtd. Global Notes, 4.50%, 02/01/2023 | 394,000 | 384,150 | ||||||
PH Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 5.38%, 10/15/2020 | 326,000 | 332,520 | ||||||
716,670 | ||||||||
Pharmaceuticals–1.70% | ||||||||
Concordia International Corp. (Canada), | 833,000 | 710,132 | ||||||
9.50%, 10/21/2022(b) | 200,000 | 188,500 | ||||||
Endo Finance LLC/ Endo Ltd./Endo Finco Inc., Sr. Unsec. Gtd. Notes, 6.00%, 07/15/2023(b) | 240,000 | 212,400 | ||||||
Mallinckrodt International Finance S.A./Mallinckrodt CB LLC, Sr. Unsec. Gtd. Notes, 5.63%, 10/15/2023(b) | 185,000 | 173,900 | ||||||
Quintiles Transnational Corp., Sr. Unsec. Gtd. Notes, 4.88%, 05/15/2023(b) | 137,000 | 139,740 | ||||||
Valeant Pharmaceuticals International, Inc., | 388,000 | 312,340 | ||||||
5.63%, 12/01/2021(b) | 16,000 | 13,280 | ||||||
5.88%, 05/15/2023(b) | 200,000 | 162,500 | ||||||
6.75%, 08/15/2018(b) | 335,000 | 325,788 | ||||||
REGS, Sr. Unsec. Gtd. Euro Notes, | 335,000 | 269,675 | ||||||
2,508,255 | ||||||||
Restaurants–0.44% | ||||||||
Carrols Restaurant Group, Inc., Sec. Gtd. Second Lien Global Notes, 8.00%, 05/01/2022 | 596,000 | 649,640 |
Principal Amount | Value | |||||||
Semiconductors–0.87% | ||||||||
Micron Technology, Inc., Sr. Unsec. Notes, | $ | 500,000 | $ | 430,000 | ||||
5.25%, 01/15/2024(b) | 390,000 | 333,450 | ||||||
NXP B.V./NXP Funding LLC (Netherlands), Sr. Unsec. Gtd. Notes, 5.75%, 03/15/2023(b) | 500,000 | 523,125 | ||||||
1,286,575 | ||||||||
Specialized Consumer Services–0.77% | ||||||||
ServiceMaster Co., LLC (The), Sr. Unsec. Notes, 7.45%, 08/15/2027 | 1,086,000 | 1,132,155 | ||||||
Specialized Finance–4.01% | ||||||||
Aircastle Ltd., Sr. Unsec. Notes, | 596,000 | 609,410 | ||||||
5.50%, 02/15/2022 | 720,000 | 756,000 | ||||||
CIT Group Inc., Sr. Unsec. Global Notes, | 481,000 | 491,823 | ||||||
5.00%, 08/01/2023 | 760,000 | 773,300 | ||||||
Fly Leasing Ltd. (Ireland), Sr. Unsec. Global Notes, 6.75%, 12/15/2020 | 821,000 | 827,157 | ||||||
International Lease Finance Corp., | 1,162,000 | 1,254,597 | ||||||
Sr. Unsec. Notes, | 347,000 | 406,641 | ||||||
MSCI Inc., Sr. Unsec. Gtd. Notes, | 640,000 | 654,400 | ||||||
5.75%, 08/15/2025(b) | 140,000 | 146,825 | ||||||
5,920,153 | ||||||||
Specialized REIT’s–0.35% | ||||||||
GLP Capital L.P./GLP Financing II, Inc., Sr. Unsec. Gtd. Notes, 5.38%, 04/15/2026 | 495,000 | 514,800 | ||||||
Specialty Chemicals–2.31% | ||||||||
Ashland Inc., Sr. Unsec. Gtd. Global Notes, 4.75%, 08/15/2022 | 610,000 | 614,575 | ||||||
GCP Applied Technologies Inc., Sr. Unsec. Gtd. Notes, 9.50%, 02/01/2023(b) | 516,000 | 577,920 | ||||||
Kraton Polymers LLC/Kraton Polymers Capital Corp., Sr. Unsec. Gtd. Notes, 10.50%, 04/15/2023(b) | 839,000 | 901,925 | ||||||
PolyOne Corp., Sr. Unsec. Global Notes, 5.25%, 03/15/2023 | 880,000 | 891,000 | ||||||
PQ Corp., Sr. Sec. Gtd. First Lien Notes, 6.75%, 11/15/2022(b) | 415,000 | 433,675 | ||||||
3,419,095 | ||||||||
Specialty Stores–0.26% | ||||||||
Sally Holdings LLC/Sally Capital Inc., Sr. Unsec. Gtd. Global Notes, 5.63%, 12/01/2025 | 365,000 | 383,706 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Steel–0.56% | ||||||||
ArcelorMittal (Luxembourg), | $ | 156,000 | $ | 155,805 | ||||
Sr. Unsec. Global Notes, | 75,000 | 79,313 | ||||||
United States Steel Corp., Sr. Sec. First Lien Notes, 8.38%, 07/01/2021(b) | 564,000 | 596,430 | ||||||
831,548 | ||||||||
Technology Hardware, Storage & Peripherals–1.06% | ||||||||
Diamond 1 Finance Corp./Diamond 2 Finance Corp., | 187,000 | 196,350 | ||||||
Sr. Unsec. Notes, | 373,000 | 383,258 | ||||||
Western Digital Corp., Sr. Sec. Gtd. Notes, 7.38%, 04/01/2023(b) | 930,000 | 992,484 | ||||||
1,572,092 | ||||||||
Trading Companies & Distributors–1.26% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance Inc., Sr. Unsec. Gtd. Notes, | 415,000 | 397,362 | ||||||
6.38%, 04/01/2024(b) | 620,000 | 616,900 | ||||||
United Rentals North America Inc., | 41,000 | 40,539 | ||||||
Sr. Unsec. Gtd. Notes, | 775,000 | 809,875 | ||||||
1,864,676 | ||||||||
Trucking–0.53% | ||||||||
OPE KAG Finance Sub Inc., Sr. Unsec. Notes, 7.88%, 07/31/2023(b) | 795,000 | 789,038 | ||||||
Wireless Telecommunication Services–4.95% | ||||||||
Altice Luxembourg S.A. (Luxembourg), | 800,000 | 811,000 | ||||||
REGS, Sr. Unsec. Gtd. Euro Notes, | 500,000 | 506,875 | ||||||
Digicel Group Ltd. (Jamaica), Sr. Unsec. Notes, 8.25%, 09/30/2020(b) | 400,000 | 335,000 | ||||||
Digicel Ltd. (Jamaica), Sr. Unsec. Gtd. Notes, 6.75%, 03/01/2023(b) | 500,000 | 427,500 | ||||||
SBA Communications Corp., Sr. Unsec. Global Notes, 4.88%, 07/15/2022 | 675,000 | 673,312 | ||||||
Sprint Communications Inc., Sr. Unsec. Gtd. Notes, 9.00%, 11/15/2018(b) | 530,000 | 564,450 | ||||||
T-Mobile USA, Inc., | 968,000 | 1,026,080 | ||||||
6.84%, 04/28/2023 | 87,000 | 92,329 | ||||||
Sr. Unsec. Gtd. Global Notes, | 1,132,000 | 1,188,600 | ||||||
6.63%, 04/01/2023 | 706,000 | 753,655 | ||||||
Sr. Unsec. Gtd. Notes, | 154,000 | 160,545 |
Principal Amount | Value | |||||||
Wireless Telecommunication Services–(continued) | ||||||||
Wind Acquisition Finance S.A. (Italy), | $ | 595,000 | $ | 572,688 | ||||
REGS, Sr. Sec. Gtd. First Lien Euro Notes, 6.50%, 04/30/2020(b) | 200,000 | 206,500 | ||||||
7,318,534 | ||||||||
Total U.S. Dollar Denominated Bonds and Notes |
| 138,033,125 | ||||||
Non-U.S. Dollar Denominated Bonds & |
| |||||||
Building Products–0.12% | ||||||||
LSF9 Balta Issuer S.A. (Luxembourg), REGS, Sr. Sec. Gtd. Euro Bonds, 7.75%, 09/15/2022(b) | EUR | 150,000 | 176,269 | |||||
Cable & Satellite–0.57% | ||||||||
Virgin Media Secured Finance PLC (United Kingdom), | GBP | 150,000 | 187,730 | |||||
REGS, Sr. Sec. Gtd. First Lien Medium-Term Euro Notes, | GBP | 500,000 | 653,194 | |||||
840,924 | ||||||||
Casinos & Gaming–0.17% | ||||||||
Gala Electric Casinos PLC (United Kingdom), REGS, Sec. Gtd. Second Lien Euro Notes, 11.50%, | GBP | 190,909 | 262,756 | |||||
Diversified Support Services–0.13% | ||||||||
AA Bond Co. Ltd. (United Kingdom), Sec. Ltd. Second Lien Notes, 5.50%, 07/31/2022(b) | GBP | 150,000 | 191,215 | |||||
Food Retail–0.12% | ||||||||
Labeyrie Fine Foods S.A.S. (France), Sr. Sec. Gtd. First Lien Notes, 5.63%, 03/15/2021(b) | EUR | 150,000 | 174,088 | |||||
Health Care Services–0.25% | ||||||||
Synlab Bondco PLC (United Kingdom), REGS, Sr. Sec. Gtd. First Lien Euro Notes, 6.25%, 07/01/2022(b) | EUR | 155,000 | 182,299 | |||||
Synlab Unsecured Bondco PLC (United Kingdom), REGS, Sr. Unsec. Euro Bonds, 8.25%, | EUR | 160,000 | 181,567 | |||||
363,866 | ||||||||
Hotels, Resorts & Cruise Lines–0.30% | ||||||||
Thomas Cook Finance PLC (United Kingdom), Sr. Unsec. Gtd. Bonds, 6.75%, 06/15/2021(b) | EUR | 231,000 | 238,365 | |||||
Thomas Cook Group PLC (United Kingdom), Sr. Unsec. Gtd. Medium-Term Euro Notes, 7.75%, 06/22/2017 | GBP | 150,000 | 205,668 | |||||
444,033 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Leisure Facilities–0.31% | ||||||||
Cirsa Funding Luxembourg S.A. (Spain), | EUR | 200,000 | $ | 228,040 | ||||
REGS, Sr. Unsec. Gtd. Euro Notes, | EUR | 200,000 | 224,320 | |||||
452,360 | ||||||||
Metal & Glass Containers–0.23% | ||||||||
Verallia Packaging SASU (France), Sr. Sec. Gtd. Notes, 5.13%, 08/01/2022(b) | EUR | 300,000 | 342,851 | |||||
Movies & Entertainment–0.34% | ||||||||
Entertainment One Ltd. (Canada), Sr. Sec. Gtd. First Lien Bonds, 6.88%, 12/15/2022(b) | GBP | 380,000 | 510,972 | |||||
Other Diversified Financial Services–0.45% | ||||||||
eircom Finance DAC (Ireland), Sr. Sec. Gtd. Bonds, 4.50%, 05/31/2022(b) | EUR | 600,000 | 660,605 | |||||
Packaged Foods & Meats–0.36% | ||||||||
Moy Park (Bondco) PLC (United Kingdom), Sr. Unsec. Gtd. Notes, 6.25%, 05/29/2021(b) | GBP | 400,000 | 535,203 | |||||
Total Non-U.S. Dollar Denominated Bonds & Notes |
| 4,955,142 |
Shares | Value | |||||||
Common Stocks & Other Equity Interests–0.04%(a) |
| |||||||
Automobile Manufacturers–0.00% | ||||||||
Motors Liquidation Co. GUC Trust | 1 | $ | 11 | |||||
Broadcasting–0.00% | ||||||||
Adelphia Recovery Trust–Series ACC-1(f) | 318,570 | 669 | ||||||
Adelphia Recovery Trust–Series Arahova(f) | 109,170 | 1,092 | ||||||
1,761 | ||||||||
Diversified Support Services–0.00% | ||||||||
ACC Claims Holdings, LLC(g) | 269,616 | 1,685 | ||||||
Integrated Telecommunication Services–0.04% | ||||||||
Largo Ltd.–Class A (Luxembourg) (Acquired 1/28/2010-7/15/2010; Cost $331,048)(b)(h) | 17,563 | 5,067 | ||||||
Largo Ltd.–Class B (Luxembourg) (Acquired 12/9/2010; Cost $209,647)(b)(h) | 158,069 | 45,600 | ||||||
50,667 | ||||||||
Total Common Stocks & Other Equity Interests |
| 54,124 | ||||||
TOTAL INVESTMENTS–96.83% | 143,042,391 | |||||||
OTHER ASSETS LESS LIABILITIES–3.17% |
| 4,682,345 | ||||||
NET ASSETS–100.00% | $ | 147,724,736 |
Investment Abbreviations:
EUR | – Euro | |
GBP | – British Pound | |
Gtd. | – Guaranteed |
REGS | – Regulation S | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at 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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $151,048,010) | $ | 143,042,391 | ||
Cash | 917,624 | |||
Foreign currencies, at value (Cost $76,664) | 76,552 | |||
Receivable for: | ||||
Investments sold | 1,548,885 | |||
Fund shares sold | 788,940 | |||
Dividends and interest | 2,379,438 | |||
Investment for trustee deferred compensation and retirement plans | 74,836 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 329,369 | |||
Other assets | 887 | |||
Total assets | 149,158,922 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 992,378 | |||
Fund shares reacquired | 63,189 | |||
Accrued fees to affiliates | 214,551 | |||
Accrued trustees’ and officers’ fees and benefits | 653 | |||
Accrued other operating expenses | 22,221 | |||
Trustee deferred compensation and retirement plans | 79,135 | |||
Unrealized depreciation on forward foreign currency contracts outstanding | 62,059 | |||
Total liabilities | 1,434,186 | |||
Net assets applicable to shares outstanding | $ | 147,724,736 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 163,248,240 | ||
Undistributed net investment income | 11,018,921 | |||
Undistributed net realized gain (loss) | (18,799,556 | ) | ||
Net unrealized appreciation (depreciation) | (7,742,869 | ) | ||
$ | 147,724,736 | |||
Net Assets: |
| |||
Series I | $ | 75,103,656 | ||
Series II | $ | 72,621,080 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 14,027,834 | |||
Series II | 13,671,082 | |||
Series I: | ||||
Net asset value and offering price per share | $ | 5.35 | ||
Series II: | ||||
Net asset value per share | $ | 5.31 |
Investment income: |
| |||
Interest (net of foreign withholding taxes of $470) | $ | 4,747,402 | ||
Dividends | 66,837 | |||
Dividends from affiliated money market funds | 9,542 | |||
Total investment income | 4,823,781 | |||
Expenses: | ||||
Advisory fees | 466,968 | |||
Administrative services fees | 195,328 | |||
Custodian fees | 14,765 | |||
Distribution fees — Series II | 88,311 | |||
Transfer agent fees | 16,005 | |||
Trustees’ and officers’ fees and benefits | 10,685 | |||
Reports to shareholders | 2,836 | |||
Professional services fees | 49,302 | |||
Other | 10,514 | |||
Total expenses | 854,714 | |||
Less: Fees waived | (2,568 | ) | ||
Net expenses | 852,146 | |||
Net investment income | 3,971,635 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (5,381,633 | ) | ||
Foreign currencies | (2,615 | ) | ||
Forward foreign currency contracts | 64,644 | |||
Futures contracts | (251,715 | ) | ||
Swap agreements | (168,162 | ) | ||
(5,739,481 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 9,819,002 | |||
Foreign currencies | 1,948 | |||
Forward foreign currency contracts | 220,802 | |||
Futures contracts | (34,435 | ) | ||
Swap agreements | 81,941 | |||
10,089,258 | ||||
Net realized and unrealized gain | 4,349,777 | |||
Net increase in net assets resulting from operations | $ | 8,321,412 |
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 | ||||||||||||||||||||
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 | $ | 1,057.30 | $ | 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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. High Yield Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s
evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Annuity Underlying Funds High Yield Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of its performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one and five year periods and above the Index for the three year period. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. High Yield Fund
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one mutual fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a similar scope of services.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. Invesco Advisers noted that the Fund does not execute brokerage transactions through “soft dollar” arrangements to any significant degree.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
Invesco V.I. High Yield Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2016 | |||
| ||||
Invesco V.I. International Growth Fund | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIIGR-SAR-1 | ||||
| ||||
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | |||||
Series I Shares | -0.66% | ||||
Series II Shares | -0.76 | ||||
MSCI All Country World ex-U.S. Index▼ (Broad Market Index) | -1.02 | ||||
Custom Invesco International Growth Index▼ (Style-Specific Index) | 0.13 | ||||
Lipper VUF International Large-Cap Growth Funds Index¿ (Peer Group Index) | -1.98 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Invesco, FactSet Research Systems Inc.; ¿Lipper Inc. | |||||
The MSCI All Country World ex-U.S. Index is an index considered representative of developed and emerging market stock markets, excluding the US. The index is computed using the net return, which withholds applicable taxes for non-resident investors. The Custom Invesco International Growth Index is an index composed of the MSCI EAFE Growth Index through February 28, 2013, and the MSCI All Country World ex-U.S. Growth Index thereafter. The Lipper VUF International Large-Cap Growth Funds Index is an unmanaged index considered representative of international large-cap growth variable insurance underlying funds tracked by Lipper. The MSCI EAFE® Growth Index is an unmanaged index considered representative of growth stocks of Europe, Australasia and the Far East. The index is computed using the net return, which withholds applicable taxes for non-resident investors. The MSCI All Country World ex-U.S. Growth Index is an index considered representative of growth stocks of developed and emerging market stock markets, excluding the US. The index is computed using the net return, which withholds applicable taxes for non-resident investors. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.01% and 1.26%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.02% and 1.27%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (5/5/93) | 6.93 | % | ||||||||
10 Years | 4.37 | |||||||||
5 Years | 3.20 | |||||||||
1 Year | -6.13 | |||||||||
Series II Shares | ||||||||||
Inception (9/19/01) | 7.04 | % | ||||||||
10 Years | 4.11 | |||||||||
5 Years | 2.94 | |||||||||
1 Year
| -6.37 |
Invesco V.I. International Growth Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2018. See current prospectus for more information. |
Invesco V.I. International Growth Fund |
Schedule of Investments
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–93.41% |
| |||||||
Australia–4.07% | ||||||||
Amcor Ltd. | 3,346,773 | $ | 37,431,883 | |||||
Brambles Ltd. | 1,523,138 | 14,134,362 | ||||||
CSL Ltd. | 231,739 | 19,486,384 | ||||||
71,052,629 | ||||||||
Brazil–2.07% | ||||||||
BM&FBOVESPA S.A. | 6,441,934 | 36,096,007 | ||||||
Canada–7.94% | ||||||||
Canadian National Railway Co. | 271,609 | 16,037,344 | ||||||
Cenovus Energy Inc. | 1,043,052 | 14,426,175 | ||||||
CGI Group Inc.–Class A(a) | 948,981 | 40,535,785 | ||||||
Fairfax Financial Holdings Ltd. | 42,195 | 22,724,002 | ||||||
Great-West Lifeco Inc. | 536,243 | 14,144,315 | ||||||
Suncor Energy, Inc. | 1,109,504 | 30,776,381 | ||||||
138,644,002 | ||||||||
China–3.61% | ||||||||
Baidu, Inc.–ADR(a) | 171,169 | 28,268,560 | ||||||
Kweichow Moutai Co., Ltd.–Class A | 788,049 | 34,661,440 | ||||||
62,930,000 | ||||||||
Denmark–2.79% | ||||||||
Carlsberg A/S–Class B | 357,180 | 33,893,237 | ||||||
Novo Nordisk A/S–Class B | 275,338 | 14,805,433 | ||||||
48,698,670 | ||||||||
France–3.42% | ||||||||
Pernod Ricard S.A. | 38,650 | 4,304,341 | ||||||
Publicis Groupe S.A. | 532,466 | 36,067,060 | ||||||
Schneider Electric S.E. | 327,082 | 19,353,606 | ||||||
59,725,007 | ||||||||
Germany–8.49% | ||||||||
Allianz S.E. | 213,874 | 30,465,580 | ||||||
Deutsche Boerse AG | 466,438 | 38,183,540 | ||||||
Deutsche Post AG | 611,203 | 17,072,685 | ||||||
ProSiebenSat.1 Media SE | 572,336 | 24,986,936 | ||||||
SAP S.E. | 502,672 | 37,566,764 | ||||||
148,275,505 | ||||||||
Hong Kong–3.26% | ||||||||
CK Hutchison Holdings Ltd. | 3,474,768 | 38,238,012 | ||||||
Galaxy Entertainment Group Ltd. | 6,249,000 | 18,618,042 | ||||||
56,856,054 | ||||||||
Israel–2.51% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 872,446 | 43,822,963 | ||||||
Japan–7.78% | ||||||||
Denso Corp. | 267,900 | 9,412,510 |
Shares | Value | |||||||
Japan–(continued) | ||||||||
FANUC Corp. | 90,200 | $ | 14,601,762 | |||||
Japan Tobacco, Inc. | 799,400 | 32,027,546 | ||||||
Keyence Corp. | 24,100 | 16,255,882 | ||||||
Komatsu Ltd. | 897,237 | 15,588,245 | ||||||
Toyota Motor Corp. | 243,700 | 12,185,406 | ||||||
Yahoo Japan Corp. | 8,119,800 | 35,761,983 | ||||||
135,833,334 | ||||||||
Mexico–2.62% | ||||||||
Fomento Economico Mexicano, S.A.B. de C.V.–ADR | 175,717 | 16,252,065 | ||||||
Grupo Televisa S.A.B.–ADR | 1,133,647 | 29,520,168 | ||||||
45,772,233 | ||||||||
Netherlands–0.11% | ||||||||
Wolters Kluwer N.V. | 46,857 | 1,914,488 | ||||||
Singapore–3.50% | ||||||||
Broadcom Ltd. | 253,066 | 39,326,457 | ||||||
United Overseas Bank Ltd. | 1,578,100 | 21,791,633 | ||||||
61,118,090 | ||||||||
South Korea–0.72% | ||||||||
Samsung Electronics Co., Ltd. | 10,110 | 12,586,068 | ||||||
Spain–1.30% | ||||||||
Amadeus IT Holding S.A.–Class A | 517,754 | 22,677,939 | ||||||
Sweden–4.51% | ||||||||
Getinge AB–Class B | 955,344 | 19,620,027 | ||||||
Investor AB–Class B | 901,468 | 30,155,906 | ||||||
Sandvik AB | 969,251 | 9,660,353 | ||||||
Telefonaktiebolaget LM Ericsson–Class B | 2,518,150 | 19,247,230 | ||||||
78,683,516 | ||||||||
Switzerland–7.15% | ||||||||
Cie Financiere Richemont S.A. | 254,736 | 14,946,391 | ||||||
Julius Baer Group Ltd. | 550,065 | 22,108,580 | ||||||
Novartis AG | 151,024 | 12,425,713 | ||||||
Roche Holding AG | 150,309 | 39,692,269 | ||||||
Syngenta AG | 33,497 | 12,877,433 | ||||||
UBS Group AG | 1,757,854 | 22,747,671 | ||||||
124,798,057 | ||||||||
Taiwan–2.38% | ||||||||
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR | 1,581,862 | 41,492,240 | ||||||
Thailand–1.41% | ||||||||
Kasikornbank PCL–NVDR | 5,079,800 | 24,685,670 | ||||||
Turkey–1.10% | ||||||||
Akbank T.A.S. | 6,618,956 | 19,188,464 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Shares | Value | |||||||
United Kingdom–22.67% | ||||||||
Aberdeen Asset Management PLC | 3,341,293 | $ | 12,913,307 | |||||
British American Tobacco PLC | 715,985 | 46,592,990 | ||||||
Compass Group PLC | 1,894,627 | 36,117,336 | ||||||
Informa PLC | 1,961,622 | 19,212,262 | ||||||
Kingfisher PLC | 4,873,459 | 21,037,946 | ||||||
Lloyds Banking Group PLC | 23,982,251 | 17,636,217 | ||||||
Next PLC | 315,197 | 21,088,714 | ||||||
RELX PLC | 2,827,657 | 52,105,398 | ||||||
Royal Dutch Shell PLC–Class B | 870,056 | 23,927,697 | ||||||
Sky PLC | 4,565,802 | 51,827,060 | ||||||
Smith & Nephew PLC | 1,602,047 | 27,171,827 | ||||||
Unilever N.V. | 530,862 | 24,743,827 | ||||||
WPP PLC | 1,987,301 | 41,264,862 | ||||||
395,639,443 | ||||||||
Total Common Stocks & Other Equity Interests |
| 1,630,490,379 |
Shares | Value | |||||||
Money Market Funds–6.61% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(b) | 57,677,926 | $ | 57,677,926 | |||||
Premier Portfolio–Institutional Class, 0.40%(b) | 57,677,925 | 57,677,925 | ||||||
Total Money Market Funds |
| 115,355,851 | ||||||
TOTAL INVESTMENTS–100.02% |
| 1,745,846,230 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.02)% |
| (421,391 | ) | |||||
NET ASSETS–100.00% |
| $ | 1,745,424,839 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,313,237,713) | $ | 1,630,490,379 | ||
Investments in affiliated money market funds, at value and cost | 115,355,851 | |||
Total investments, at value (Cost $1,428,593,564) | 1,745,846,230 | |||
Foreign currencies, at value (Cost $2,087,533) | 2,072,090 | |||
Receivable for: | ||||
Investments sold | 2,005,766 | |||
Fund shares sold | 1,680,508 | |||
Dividends | 5,770,382 | |||
Investment for trustee deferred compensation and retirement plans | 229,111 | |||
Other assets | 771 | |||
Total assets | 1,757,604,858 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 4,673,564 | |||
Fund shares reacquired | 3,974,740 | |||
Accrued foreign taxes | 260,056 | |||
Accrued fees to affiliates | 2,846,288 | |||
Accrued trustees’ and officers’ fees and benefits | 1,295 | |||
Accrued other operating expenses | 162,474 | |||
Trustee deferred compensation and retirement plans | 261,602 | |||
Total liabilities | 12,180,019 | |||
Net assets applicable to shares outstanding | $ | 1,745,424,839 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,468,705,459 | ||
Undistributed net investment income | 29,898,390 | |||
Undistributed net realized gain (loss) | (70,265,187 | ) | ||
Net unrealized appreciation | 317,086,177 | |||
$ | 1,745,424,839 | |||
Net Assets: | ||||
Series I | $ | 559,672,228 | ||
Series II | $ | 1,185,752,611 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 16,820,113 | |||
Series II | 36,157,438 | |||
Series I: | ||||
Net asset value per share | $ | 33.27 | ||
Series II: | ||||
Net asset value per share | $ | 32.79 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $2,505,440) | $ | 28,393,742 | ||
Dividends from affiliated money market funds | 468,839 | |||
Total investment income | 28,862,581 | |||
Expenses: | ||||
Advisory fees | 6,098,649 | |||
Administrative services fees | 2,268,352 | |||
Custodian fees | 324,112 | |||
Distribution fees — Series II | 1,439,495 | |||
Transfer agent fees | 68,241 | |||
Trustees’ and officers’ fees and benefits | 20,792 | |||
Reports to shareholders | 1,484 | |||
Professional services fees | 52,800 | |||
Other | 18,913 | |||
Total expenses | 10,292,838 | |||
Less: Fees waived | (87,294 | ) | ||
Net expenses | 10,205,544 | |||
Net investment income | 18,657,037 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (net of foreign taxes on holdings of $260,056) | (2,933,207 | ) | ||
Foreign currencies | 559,606 | |||
(2,373,601 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (31,269,696 | ) | ||
Foreign currencies | (35,121 | ) | ||
(31,304,817 | ) | |||
Net realized and unrealized gain (loss) | (33,678,418 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (15,021,381 | ) |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. International Growth Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the
independent Trustees. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office
support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Fund International Large-Cap Growth Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of its performance universe for the one year period, the first quintile for the three year period and the second quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one and three year periods and above the performance of the Index for the five year period. Invesco Advisers
Invesco V.I. International Growth Fund
noted that the investment process had led to overweight to securities in certain global areas and underweight in other areas, which affected the one year performance. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was below the rate of one such mutual fund. The Board also noted how the Fund’s rate compared to the effective sub-adviser fee rate of other funds sub-advised by Invesco Advisers.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice
of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a similar scope of services.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the
organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
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
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | |||||
Series I Shares | -0.70% | ||||
Series II Shares | -0.80 | ||||
Russell 1000 Value Index▼ (Broad Market Index) | 6.30 | ||||
Barclays U.S. Government/Credit Index▼ (Style-Specific Index) | 6.23 | ||||
Lipper VUF Mixed-Asset Target Allocation Growth Funds Index¢ (Peer Group Index) | 2.31 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. The Barclays U.S. Government/Credit Index includes treasuries and agencies that represent the government portion of the index, and includes publicly issued US corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. The Lipper VUF Mixed-Asset Target Allocation Growth Funds Index is an unmanaged index considered representative of mixed-asset target allocation growth variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (12/30/94) | 6.99 | % | ||||||||
10 Years | 6.16 | |||||||||
5 Years | 7.19 | |||||||||
1 Year | -3.75 | |||||||||
Series II Shares | ||||||||||
Inception (4/30/04) | 8.64 | % | ||||||||
10 Years | 5.90 | |||||||||
5 Years | 6.93 | |||||||||
1 Year
| -3.97 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.10% and 1.35%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.11% and 1.36%, respectively. The expense ratios presented above may vary from the expense
ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Managed Volatility Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2018. See current prospectus for more information. |
Invesco V.I. Managed Volatility Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–64.46% |
| |||||||
Aerospace & Defense–0.86% | ||||||||
General Dynamics Corp. | 2,999 | $ | 417,581 | |||||
Agricultural Products–0.51% | ||||||||
Archer-Daniels-Midland Co. | 5,767 | 247,347 | ||||||
Application Software–0.65% | ||||||||
Citrix Systems, Inc.(b) | 3,938 | 315,394 | ||||||
Asset Management & Custody Banks–1.48% | ||||||||
Northern Trust Corp. | 5,002 | 331,433 | ||||||
State Street Corp. | 7,221 | 389,356 | ||||||
720,789 | ||||||||
Automobile Manufacturers–0.50% | ||||||||
General Motors Co. | 8,553 | 242,050 | ||||||
Biotechnology–0.69% | ||||||||
Amgen Inc. | 2,202 | 335,034 | ||||||
Broadcasting–0.19% | ||||||||
CBS Corp.–Class B | 1,730 | 94,181 | ||||||
Cable & Satellite–1.59% | ||||||||
Charter Communications, Inc.–Class A(b) | 1,150 | 262,936 | ||||||
Comcast Corp.–Class A | 7,807 | 508,938 | ||||||
771,874 | ||||||||
Communications Equipment–1.92% | ||||||||
Cisco Systems, Inc. | 19,058 | 546,774 | ||||||
Juniper Networks, Inc. | 17,242 | 387,773 | ||||||
934,547 | ||||||||
Construction Machinery & Heavy Trucks–0.69% | ||||||||
Caterpillar Inc. | 4,457 | 337,885 | ||||||
Data Processing & Outsourced Services–0.68% | ||||||||
PayPal Holdings, Inc.(b) | 9,004 | 328,736 | ||||||
Diversified Banks–8.17% | ||||||||
Bank of America Corp.(c) | 64,742 | 859,126 | ||||||
Citigroup Inc. | 31,738 | 1,345,374 | ||||||
Comerica Inc. | 7,170 | 294,902 | ||||||
JPMorgan Chase & Co. | 23,761 | 1,476,509 | ||||||
3,975,911 | ||||||||
Drug Retail–1.10% | ||||||||
Walgreens Boots Alliance, Inc. | 6,409 | 533,677 | ||||||
Electric Utilities–1.09% | ||||||||
FirstEnergy Corp. | 6,401 | 223,459 | ||||||
PG&E Corp. | 4,782 | 305,665 | ||||||
529,124 |
Shares | Value | |||||||
Fertilizers & Agricultural Chemicals–0.78% | ||||||||
Agrium Inc. (Canada) | 702 | $ | 63,475 | |||||
Mosaic Co. (The) | 12,056 | 315,626 | ||||||
379,101 | ||||||||
Food Distributors–0.49% | ||||||||
Sysco Corp. | 4,688 | 237,869 | ||||||
General Merchandise Stores–0.91% | ||||||||
Target Corp. | 6,330 | 441,961 | ||||||
Health Care Equipment–1.87% | ||||||||
Baxter International Inc. | 8,457 | 382,426 | ||||||
Medtronic PLC | 6,085 | 527,995 | ||||||
910,421 | ||||||||
Health Care Services–0.52% | ||||||||
Express Scripts Holding Co.(b) | 3,342 | 253,324 | ||||||
Home Improvement Retail–0.39% | ||||||||
Kingfisher PLC (United Kingdom) | 43,572 | 188,093 | ||||||
Hotels, Resorts & Cruise Lines–1.24% | ||||||||
Carnival Corp. | 13,702 | 605,628 | ||||||
Industrial Conglomerates–1.65% | ||||||||
General Electric Co.(c) | 25,505 | 802,897 | ||||||
Industrial Machinery–0.67% | ||||||||
Ingersoll-Rand PLC | 5,133 | 326,870 | ||||||
Insurance Brokers–2.12% | ||||||||
Aon PLC | 3,696 | 403,714 | ||||||
Marsh & McLennan Cos., Inc. | 4,579 | 313,478 | ||||||
Willis Towers Watson PLC | 2,519 | 313,137 | ||||||
1,030,329 | ||||||||
Integrated Oil & Gas–3.65% | ||||||||
Exxon Mobil Corp. | 3,667 | 343,745 | ||||||
Occidental Petroleum Corp. | 4,684 | 353,923 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 25,328 | 691,593 | ||||||
TOTAL S.A. (France) | 8,030 | 386,502 | ||||||
1,775,763 | ||||||||
Integrated Telecommunication Services–0.99% | ||||||||
Koninklijke KPN N.V. (Netherlands) | 24,310 | 88,160 | ||||||
Orange S.A. (France) | 5,452 | 89,037 | ||||||
Verizon Communications Inc. | 5,467 | 305,277 | ||||||
482,474 | ||||||||
Internet Software & Services–0.64% | ||||||||
eBay Inc.(b) | 13,374 | 313,085 | ||||||
Investment Banking & Brokerage–2.62% | ||||||||
Charles Schwab Corp. (The) | 10,940 | 276,891 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Shares | Value | |||||||
Investment Banking & Brokerage–(continued) | ||||||||
Goldman Sachs Group, Inc. (The) | 2,106 | $ | 312,910 | |||||
Morgan Stanley | 26,406 | 686,028 | ||||||
1,275,829 | ||||||||
Managed Health Care–1.09% | ||||||||
Anthem, Inc. | 1,906 | 250,334 | ||||||
UnitedHealth Group Inc. | 1,981 | 279,717 | ||||||
530,051 | ||||||||
Movies & Entertainment–0.54% | ||||||||
Time Warner Inc. | 3,570 | 262,538 | ||||||
Oil & Gas Equipment & Services–1.23% | ||||||||
Baker Hughes Inc. | 8,988 | 405,628 | ||||||
Weatherford International PLC(b) | 34,872 | 193,540 | ||||||
599,168 | ||||||||
Oil & Gas Exploration & Production–3.73% | ||||||||
Apache Corp. | 13,126 | 730,724 | ||||||
Canadian Natural Resources Ltd. (Canada) | 16,254 | 501,441 | ||||||
Devon Energy Corp. | 16,059 | 582,139 | ||||||
1,814,304 | ||||||||
Other Diversified Financial Services–0.46% | ||||||||
Voya Financial, Inc. | 9,103 | 225,390 | ||||||
Packaged Foods & Meats–0.90% | ||||||||
Mondelez International, Inc.–Class A | 9,646 | 438,990 | ||||||
Pharmaceuticals–4.74% | ||||||||
Eli Lilly and Co. | 4,533 | 356,974 | ||||||
Merck & Co., Inc.(c) | 11,707 | 674,440 | ||||||
Novartis AG (Switzerland) | 4,245 | 349,264 | ||||||
Pfizer Inc. | 16,885 | 594,521 | ||||||
Sanofi (France) | 3,955 | 332,389 | ||||||
2,307,588 | ||||||||
Publishing–0.47% | ||||||||
Thomson Reuters Corp. | 5,614 | 227,115 | ||||||
Railroads–0.69% | ||||||||
CSX Corp. | 12,966 | 338,153 | ||||||
Regional Banks–4.08% | ||||||||
BB&T Corp. | 7,578 | 269,853 | ||||||
Citizens Financial Group Inc. | 25,830 | 516,083 | ||||||
Fifth Third Bancorp | 22,405 | 394,104 | ||||||
First Horizon National Corp. | 19,166 | 264,107 | ||||||
PNC Financial Services Group, Inc. (The) | 6,643 | 540,674 | ||||||
1,984,821 | ||||||||
Security & Alarm Services–0.82% | ||||||||
Tyco International PLC | 9,338 | 397,799 | ||||||
Semiconductor Equipment–0.91% | ||||||||
Applied Materials, Inc. | 18,541 | 444,428 |
Shares | Value | |||||||
Semiconductors–1.88% | ||||||||
Intel Corp. | 12,970 | $ | 425,416 | |||||
QUALCOMM, Inc. | 9,102 | 487,594 | ||||||
913,010 | ||||||||
Specialized Finance–0.47% | ||||||||
CME Group Inc.–Class A | 2,339 | 227,819 | ||||||
Systems Software–2.30% | ||||||||
Microsoft Corp. | 8,603 | 440,215 | ||||||
Oracle Corp. | 16,560 | 677,801 | ||||||
1,118,016 | ||||||||
Tobacco–0.87% | ||||||||
Philip Morris International Inc. | 4,185 | 425,698 | ||||||
Wireless Telecommunication Services–0.62% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 9,775 | 301,950 | ||||||
Total Common Stocks & Other Equity Interests |
| 31,364,612 | ||||||
Principal Amount | ||||||||
Bonds and Notes–25.49% |
| |||||||
Aerospace & Defense–0.22% | ||||||||
Boeing Capital Corp., Sr. Unsec. Notes, 2.13%, 08/15/2016 | $ | 35,000 | 35,031 | |||||
Lockheed Martin Corp., Sr. Unsec. Global Notes, 2.13%, 09/15/2016 | 35,000 | 35,095 | ||||||
Northrop Grumman Corp., Sr. Unsec. Global Notes, 3.85%, 04/15/2045 | 10,000 | 10,450 | ||||||
Precision Castparts Corp., Sr. Unsec. Global Notes, 1.25%, 01/15/2018 | 25,000 | 25,123 | ||||||
105,699 | ||||||||
Airlines–0.17% | ||||||||
American Airlines Pass Through Trust, Series 2014-1, Class A, Sr. Sec. First Lien Pass Through Ctfs., 3.70%, 04/01/2028 | 22,835 | 23,791 | ||||||
Continental Airlines Pass Through Trust, Series 2009-1, Sr. Sec. First Lien Pass Through Ctfs., 9.00%, 07/08/2016 | 16,273 | 16,273 | ||||||
United Airlines Pass Through Trust, Series 2014-2, Class A, Sr. Sec. First Lien Pass Through Ctfs., 3.75%, 09/03/2026 | 29,127 | 30,784 | ||||||
Virgin Australia Pass Through Trust (Australia), Series 2013-1, Class A, Sec. Gtd. Pass Through Ctfs., 5.00%, 10/23/2023(d) | 13,409 | 13,849 | ||||||
84,697 | ||||||||
Apparel Retail–0.04% | ||||||||
Ross Stores, Inc., Sr. Unsec. Notes, 3.38%, 09/15/2024 | 19,000 | 19,937 | ||||||
Application Software–0.66% | ||||||||
Citrix Systems, Inc., Sr. Unsec. Conv. Bonds, 0.50%, 04/15/2019 | 248,000 | 277,140 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Application Software–(continued) | ||||||||
Nuance Communications, Inc., Sr. Unsec. Conv. Notes, 1.00%, 12/15/2022(d)(e) | $ | 51,000 | $ | 45,071 | ||||
322,211 | ||||||||
Asset Management & Custody Banks–0.60% | ||||||||
Apollo Management Holdings L.P., Sr. Unsec. Gtd. Notes, | 40,000 | 41,235 | ||||||
4.40%, 05/27/2026(d) | 2,000 | 2,092 | ||||||
Blackstone Holdings Finance Co. LLC, Sr. Unsec. Gtd. Notes, 5.00%, 06/15/2044(d) | 150,000 | 163,429 | ||||||
KKR Group Finance Co. III LLC, Sr. Unsec. Gtd. Bonds, | 85,000 | 86,230 | ||||||
292,986 | ||||||||
Automobile Manufacturers–0.59% | ||||||||
BMW US Capital, LLC (Germany), Sr. Unsec. Gtd. Notes, | 29,000 | 29,249 | ||||||
Ford Motor Credit Co. LLC, Sr. Unsec. Global Notes, 4.13%, 08/04/2025 | 200,000 | 215,350 | ||||||
General Motors Co., Sr. Unsec. Global Notes, 6.60%, 04/01/2036 | 16,000 | 18,560 | ||||||
General Motors Financial Co., Inc., Sr. Unsec. Gtd. Global Notes, | 21,000 | 22,759 | ||||||
285,918 | ||||||||
Automotive Retail–0.03% | ||||||||
AutoZone, Inc., Sr. Unsec. Global Notes, | 14,000 | 14,387 | ||||||
Biotechnology–0.88% | ||||||||
AbbVie Inc., Sr. Unsec. Global Notes, | 90,000 | 90,606 | ||||||
4.50%, 05/14/2035 | 38,000 | 39,808 | ||||||
BioMarin Pharmaceutical Inc., Sr. Unsec. Sub. Conv. Notes, 1.50%, 10/15/2020 | 107,000 | 124,254 | ||||||
Celgene Corp., Sr. Unsec. Global Notes, | 100,000 | 103,362 | ||||||
5.00%, 08/15/2045 | 9,000 | 9,970 | ||||||
Gilead Sciences, Inc., Sr. Unsec. Global Notes, | 30,000 | 30,257 | ||||||
4.40%, 12/01/2021 | 25,000 | 28,253 | ||||||
426,510 | ||||||||
Brewers–0.40% | ||||||||
Anheuser-Busch InBev Finance, Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, | 30,000 | 31,117 | ||||||
3.30%, 02/01/2023 | 25,000 | 26,313 | ||||||
4.70%, 02/01/2036 | 45,000 | 50,577 | ||||||
4.90%, 02/01/2046 | 47,000 | 55,353 | ||||||
Molson Coors Brewing Co., Sr. Unsec. Gtd. Global Notes, | 13,000 | 13,039 | ||||||
4.20%, 07/15/2046 | 16,000 | 16,181 | ||||||
192,580 |
Principal Amount | Value | |||||||
Broadcasting–0.61% | ||||||||
Liberty Media Corp., Sr. Unsec. Conv. Notes, 1.38%, 10/15/2023 | $ | 299,000 | $ | 298,439 | ||||
Cable & Satellite–0.84% | ||||||||
Charter Communications Operating, LLC/Charter Communications Operating Capital Corp., Sr. Sec. First Lien Notes, 4.46%, 07/23/2022(d) | 60,000 | 64,592 | ||||||
Comcast Corp., Sr. Unsec. Gtd. Global Notes, 5.70%, 05/15/2018 | 150,000 | 162,951 | ||||||
Cox Communications, Inc., Sr. Unsec. Notes, 8.38%, 03/01/2039(d) | 150,000 | 180,496 | ||||||
408,039 | ||||||||
Catalog Retail–0.27% | ||||||||
Liberty Interactive LLC, Sr. Unsec. Conv. Global Deb., 0.75%, 03/30/2023(e) | 75,000 | 84,015 | ||||||
QVC, Inc., Sr. Sec. Gtd. First Lien Global Notes, 5.45%, 08/15/2034 | 50,000 | 46,166 | ||||||
130,181 | ||||||||
Communications Equipment–0.50% | ||||||||
Ciena Corp., Sr. Unsec. Conv. Notes, 4.00%, 12/15/2020(d) | 75,000 | 94,031 | ||||||
Viavi Solutions Inc., Sr. Unsec. Conv. Deb., 0.63%, 08/15/2018(e) | 153,000 | 149,845 | ||||||
243,876 | ||||||||
Construction & Engineering–0.04% | ||||||||
Valmont Industries, Inc., Sr. Unsec. Gtd. Global Notes, 5.25%, 10/01/2054 | 22,000 | 19,905 | ||||||
Construction Machinery & Heavy Trucks–0.14% | ||||||||
Caterpillar Financial Services Corp., Sr. Unsec. Notes, 1.75%, 03/24/2017 | 70,000 | 70,412 | ||||||
Consumer Finance–0.04% | ||||||||
American Express Co., Unsec. Sub. Global Notes, 3.63%, 12/05/2024 | 18,000 | 18,527 | ||||||
Data Processing & Outsourced Services–0.07% | ||||||||
Visa Inc., Sr. Unsec. Global Notes, 4.15%, 12/14/2035 | 30,000 | 34,065 | ||||||
Diversified Banks–1.72% | ||||||||
Bank of America Corp., Sr. Unsec. Medium-Term Global Notes, 3.50%, 04/19/2026 | 25,000 | 25,902 | ||||||
BNP Paribas S.A. (France), Unsec. Gtd. Sub. Medium-Term Notes, 4.25%, 10/15/2024 | 200,000 | 204,333 | ||||||
Citigroup Inc., Unsec. Sub. Notes, 4.00%, 08/05/2024 | 60,000 | 62,202 | ||||||
4.75%, 05/18/2046 | 15,000 | 15,029 | ||||||
JPMorgan Chase & Co., | 15,000 | 15,373 | ||||||
Unsec. Sub. Global Notes, | 15,000 | 15,823 | ||||||
Series V, Jr. Unsec. Sub. Global Notes, | 150,000 | 144,188 | ||||||
Series Z, Jr. Unsec. Sub. Global Notes, | 40,000 | 40,100 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
U.S. Bancorp, Unsec. Sub. Medium-Term Notes, 3.10%, 04/27/2026 | $ | 10,000 | $ | 10,430 | ||||
Wells Fargo & Co., | 30,000 | 32,045 | ||||||
Sr. Unsec. Notes, 3.90%, 05/01/2045 | 60,000 | 63,125 | ||||||
Unsec. Sub. Medium-Term Notes, | 95,000 | 101,918 | ||||||
4.65%, 11/04/2044 | 100,000 | 105,994 | ||||||
836,462 | ||||||||
Diversified Chemicals–0.09% | ||||||||
Eastman Chemical Co., Sr. Unsec. Global Notes, 2.70%, 01/15/2020 | 43,000 | 44,245 | ||||||
Diversified Real Estate Activities–0.05% | ||||||||
Brookfield Asset Management Inc. (Canada), Sr. Unsec. Notes, 4.00%, 01/15/2025 | 25,000 | 25,471 | ||||||
Drug Retail–0.19% | ||||||||
CVS Health Corp., Sr. Unsec. Global Bonds, 3.38%, 08/12/2024 | 20,000 | 21,336 | ||||||
Walgreens Boots Alliance Inc., Sr. Unsec. | 32,000 | 33,594 | ||||||
3.10%, 06/01/2023 | 11,000 | 11,199 | ||||||
4.50%, 11/18/2034 | 24,000 | 25,217 | ||||||
91,346 | ||||||||
Electric Utilities–0.13% | ||||||||
Commonwealth Edison Co., Series 104, | 65,000 | 65,364 | ||||||
Environmental & Facilities Services–0.05% | ||||||||
Waste Management, Inc., Sr. Unsec. Gtd. Global Notes, 3.90%, 03/01/2035 | 25,000 | 26,453 | ||||||
Fertilizers & Agricultural Chemicals–0.03% | ||||||||
Monsanto Co., Sr. Unsec. Global Notes, 2.13%, 07/15/2019 | 15,000 | 15,219 | ||||||
Food Retail–0.18% | ||||||||
Kraft Heinz Foods Co. (The), | 30,000 | 30,289 | ||||||
Sr. Unsec. Gtd. Notes, 1.60%, 06/30/2017(d) | 56,000 | 56,219 | ||||||
86,508 | ||||||||
General Merchandise Stores–0.25% | ||||||||
Dollar General Corp., Sr. Unsec. Global Notes, 3.25%, 04/15/2023 | 20,000 | 20,614 | ||||||
Target Corp., Sr. Unsec. Notes, 5.88%, 07/15/2016 | 100,000 | 100,123 | ||||||
120,737 |
Principal Amount | Value | |||||||
Health Care Equipment–1.45% | ||||||||
Becton, Dickinson and Co., | $ | 15,000 | $ | 15,037 | ||||
3.88%, 05/15/2024 | 165,000 | 179,618 | ||||||
4.88%, 05/15/2044 | 170,000 | 196,926 | ||||||
Sr. Unsec. Notes, | 17,000 | 17,489 | ||||||
Medtronic, Inc., Sr. Unsec. Gtd. Global Notes, | 58,000 | 61,901 | ||||||
4.38%, 03/15/2035 | 20,000 | 22,669 | ||||||
NuVasive, Inc., Sr. Unsec. Conv. Notes, 2.25%, 03/15/2021(d) | 75,000 | 89,156 | ||||||
Wright Medical Group N.V., Sr. Unsec. Conv. Notes, 2.25%, 11/15/2021(d) | 36,000 | 37,215 | ||||||
Wright Medical Group, Inc., Sr. Unsec. Conv. Bonds, 2.00%, 02/15/2020 | 93,000 | 85,444 | ||||||
705,455 | ||||||||
Health Care Facilities–0.85% | ||||||||
Brookdale Senior Living Inc., Sr. Unsec. Conv. Notes, 2.75%, 06/15/2018 | 161,000 | 157,881 | ||||||
HealthSouth Corp., Sr. Unsec. Sub. Conv. Notes, 2.00%, 12/01/2020(e) | 217,000 | 254,297 | ||||||
412,178 | ||||||||
Health Care REIT’s–0.05% | ||||||||
HCP, Inc., Sr. Unsec. Global Notes, | 25,000 | 25,497 | ||||||
Health Care Services–0.18% | ||||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Global Notes, 2.25%, 06/15/2019 | 30,000 | 30,498 | ||||||
Laboratory Corp. of America Holdings, Sr. Unsec. Notes, | 33,000 | 34,181 | ||||||
4.70%, 02/01/2045 | 22,000 | 23,690 | ||||||
88,369 | ||||||||
Home Improvement Retail–0.06% | ||||||||
Home Depot, Inc. (The), Sr. Unsec. Global Notes, 2.00%, 04/01/2021 | 27,000 | 27,730 | ||||||
Housewares & Specialties–0.02% | ||||||||
Newell Brands Inc., Sr. Unsec. Global Notes, 5.50%, 04/01/2046 | 9,000 | 10,694 | ||||||
Hypermarkets & Super Centers–0.22% | ||||||||
Wal-Mart Stores, Inc., Sr. Unsec. Notes, 5.52%, 06/01/2017(g) | 100,000 | 104,562 | ||||||
Integrated Oil & Gas–0.31% | ||||||||
Chevron Corp., Sr. Unsec. Global Notes, 1.37%, 03/02/2018 | 77,000 | 77,802 | ||||||
Occidental Petroleum Corp., Sr. Unsec. Global Notes, 3.40%, 04/15/2026 | 15,000 | 15,857 | ||||||
Shell International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Notes, 4.00%, 05/10/2046 | 37,000 | 37,986 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Integrated Oil & Gas–(continued) | ||||||||
Suncor Energy Inc. (Canada), Sr. Unsec. Notes, 3.60%, 12/01/2024 | $ | 18,000 | $ | 18,824 | ||||
150,469 | ||||||||
Integrated Telecommunication Services–1.22% | ||||||||
AT&T Inc., Sr. Unsec. Global Notes, | 28,000 | 28,761 | ||||||
3.40%, 05/15/2025 | 15,000 | 15,346 | ||||||
4.50%, 05/15/2035 | 25,000 | 25,628 | ||||||
5.15%, 03/15/2042 | 150,000 | 162,497 | ||||||
4.80%, 06/15/2044 | 40,000 | 41,354 | ||||||
Telefonica Emisiones S.A.U. (Spain), Sr. Unsec. Gtd. Global Notes, 7.05%, 06/20/2036 | 150,000 | 193,474 | ||||||
Verizon Communications Inc., Sr. Unsec. Global Notes, 4.40%, 11/01/2034 | 120,000 | 124,540 | ||||||
591,600 | ||||||||
Internet Retail–0.02% | ||||||||
Amazon.com, Inc., Sr. Unsec. Global Notes, 4.80%, 12/05/2034 | 9,000 | 10,607 | ||||||
Investment Banking & Brokerage–0.94% | ||||||||
Goldman Sachs Group, Inc. (The), Unsec. Sub. Notes, 4.25%, 10/21/2025 | 27,000 | 27,921 | ||||||
Jefferies Group LLC, Sr. Unsec. Conv. Deb., 3.88%, 11/01/2017(e) | 150,000 | 152,438 | ||||||
Lazard Group LLC, Sr. Unsec. Global Notes, 3.75%, 02/13/2025 | 62,000 | 61,841 | ||||||
Morgan Stanley, Sr. Unsec. Medium-Term Global Notes, | 175,000 | 178,159 | ||||||
4.00%, 07/23/2025 | 35,000 | 37,554 | ||||||
457,913 | ||||||||
Life & Health Insurance–0.16% | ||||||||
Nationwide Financial Services Inc., Sr. Unsec. Notes, 5.30%, 11/18/2044(d) | 50,000 | 54,774 | ||||||
Reliance Standard Life Global Funding II, Sr. Sec. Notes, 3.05%, 01/20/2021(d) | 20,000 | 20,690 | ||||||
75,464 | ||||||||
Managed Health Care–0.03% | ||||||||
Aetna, Inc., Sr. Unsec. Global Notes, 4.38%, 06/15/2046 | 14,000 | 14,616 | ||||||
Movies & Entertainment–0.12% | ||||||||
Live Nation Entertainment, Inc., Sr. Unsec. Conv. Bonds, 2.50%, 05/15/2019 | 57,000 | 57,427 | ||||||
Multi-Line Insurance–0.63% | ||||||||
American Financial Group, Inc., Sr. Unsec. Notes, 9.88%, 06/15/2019 | 150,000 | 181,281 | ||||||
American International Group, Inc., Sr. Unsec. Global Notes, 2.30%, 07/16/2019 | 20,000 | 20,374 | ||||||
4.38%, 01/15/2055 | 40,000 | 37,410 | ||||||
Farmers Exchange Capital III, Unsec. Sub. Notes, 5.45%, 10/15/2054(d) | 70,000 | 67,841 | ||||||
306,906 |
Principal Amount | Value | |||||||
Multi-Utilities–0.39% | ||||||||
Enable Midstream Partners, LP, Sr. Unsec. Gtd. Global Notes, 2.40%, 05/15/2019 | $ | 200,000 | $ | 187,750 | ||||
Office REIT’s–0.31% | ||||||||
Highwoods Realty L.P., Sr. Unsec. Notes, 3.20%, 06/15/2021 | 150,000 | 151,659 | ||||||
Oil & Gas Equipment & Services–0.39% | ||||||||
Helix Energy Solutions Group, Inc., Sr. Unsec. Conv. Notes, 3.25%, 03/15/2018(e) | 84,000 | 74,865 | ||||||
Weatherford International Ltd., Sr. Unsec. Gtd. Conv. Notes, 5.88%, 07/01/2021 | 106,000 | 115,474 | ||||||
190,339 | ||||||||
Oil & Gas Exploration & Production–0.41% | ||||||||
Anadarko Petroleum Corp., Sr. Unsec. Notes, 4.85%, 03/15/2021 | 11,000 | 11,687 | ||||||
6.60%, 03/15/2046 | 18,000 | 21,797 | ||||||
Cobalt International Energy Inc., Sr. Unsec. Conv. Notes, 2.63%, 12/01/2019 | 120,000 | 45,600 | ||||||
ConocoPhillips Co., Sr. Unsec. Gtd. Global Notes, | 46,000 | 47,130 | ||||||
4.15%, 11/15/2034 | 49,000 | 49,226 | ||||||
Devon Energy Corp., Sr. Unsec. Global Notes, 2.25%, 12/15/2018 | 25,000 | 24,906 | ||||||
200,346 | ||||||||
Oil & Gas Storage & Transportation–0.12% | ||||||||
Energy Transfer Partners, L.P., Sr. Unsec. Notes, 4.90%, 03/15/2035 | 19,000 | 17,192 | ||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Notes, 2.55%, 10/15/2019 | 20,000 | 20,643 | ||||||
Kinder Morgan Inc., Sr. Unsec. Gtd. Notes, 5.30%, 12/01/2034 | 23,000 | 22,660 | ||||||
60,495 | ||||||||
Other Diversified Financial Services–0.17% | ||||||||
Athene Global Funding, Sec. Notes, 2.88%, 10/23/2018(d) | 31,000 | 30,761 | ||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 2.35%, 10/15/2019(d) | 50,000 | 50,984 | ||||||
81,745 | ||||||||
Packaged Foods & Meats–0.13% | ||||||||
General Mills, Inc., Sr. Unsec. Global Notes, 2.20%, 10/21/2019 | 45,000 | 46,141 | ||||||
Mead Johnson Nutrition Co., Sr. Unsec. Global Notes, 4.13%, 11/15/2025 | 3,000 | 3,279 | ||||||
Tyson Foods, Inc., Sr. Unsec. Gtd. Global Bonds, 4.88%, 08/15/2034 | 11,000 | 12,225 | ||||||
61,645 | ||||||||
Pharmaceuticals–1.33% | ||||||||
Actavis Funding SCS, Sr. Unsec. Gtd. Global Notes, | 49,000 | 49,207 | ||||||
4.85%, 06/15/2044 | 150,000 | 158,864 | ||||||
Bayer US Finance LLC (Germany), Sr. Unsec. Gtd. Notes, 3.00%, 10/08/2021(d) | 200,000 | 208,998 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
GlaxoSmithKline Capital PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 1.50%, 05/08/2017 | $ | 85,000 | $ | 85,465 | ||||
Jazz Investments I Ltd., Sr. Unsec. Gtd. Conv. Bonds, 1.88%, 08/15/2021 | 76,000 | 81,747 | ||||||
Medicines Co. (The), Sr. Unsec. Conv. Notes, 2.75%, 07/15/2023(d) | 21,000 | 20,239 | ||||||
Mylan N.V., Sr. Unsec. Gtd. Notes, 3.15%, 06/15/2021(d) | 17,000 | 17,188 | ||||||
5.25%, 06/15/2046(d) | 25,000 | 26,068 | ||||||
647,776 | ||||||||
Property & Casualty Insurance–0.38% | ||||||||
Liberty Mutual Group Inc., Sr. Unsec. Gtd. Bonds, 4.85%, 08/01/2044(d) | 115,000 | 117,626 | ||||||
Old Republic International Corp., Sr. Unsec. Conv. Notes, 3.75%, 03/15/2018 | 52,000 | 66,690 | ||||||
184,316 | ||||||||
Railroads–0.06% | ||||||||
Union Pacific Corp., Sr. Unsec. Notes, 4.15%, 01/15/2045 | 25,000 | 27,593 | ||||||
Renewable Electricity–0.33% | ||||||||
Oglethorpe Power Corp., Sr. Sec. First Mortgage Bonds, 4.55%, 06/01/2044 | 150,000 | 162,790 | ||||||
Research & Consulting Services–0.02% | ||||||||
Verisk Analytics, Inc., Sr. Unsec. Global Notes, 5.50%, 06/15/2045 | 10,000 | 10,318 | ||||||
Retail REIT’s–0.31% | ||||||||
Realty Income Corp., Sr. Unsec. Notes, 2.00%, 01/31/2018 | 150,000 | 151,363 | ||||||
Semiconductor Equipment–0.55% | ||||||||
Lam Research Corp., Series B, Sr. Unsec. Conv. Notes, 1.25%, 05/15/2018 | 183,000 | 266,951 | ||||||
Semiconductors–1.67% | ||||||||
Intel Corp., Sr. Unsec. Global Notes, 1.35%, 12/15/2017 | 30,000 | 30,189 | ||||||
Microchip Technology Inc., Sr. Unsec. Sub. Conv. Bonds, 1.63%, 02/15/2025 | 87,000 | 96,733 | ||||||
Micron Technology Inc., Series G, Sr. Unsec. Conv. Global Bonds, 3.00%, 11/15/2028(e) | 224,000 | 172,200 | ||||||
NVIDIA Corp., Sr. Unsec. Conv. Bonds, 1.00%, 12/01/2018(d) | 158,000 | 368,930 | ||||||
ON Semiconductor Corp., Sr. Unsec. Gtd. Conv. Bonds, 1.00%, 12/01/2020 | 161,000 | 144,699 | ||||||
812,751 | ||||||||
Soft Drinks–0.06% | ||||||||
Coca-Cola Co. (The), Sr. Unsec. Global Notes, 1.80%, 09/01/2016 | 30,000 | 30,054 | ||||||
Specialized Finance–0.74% | ||||||||
Air Lease Corp., Sr. Unsec. Global Notes, | 45,000 | 45,056 | ||||||
4.25%, 09/15/2024 | 35,000 | 35,809 |
Principal Amount | Value | |||||||
Specialized Finance–(continued) | ||||||||
Aviation Capital Group Corp., | $ | 35,000 | $ | 35,052 | ||||
4.88%, 10/01/2025(d) | 40,000 | 39,456 | ||||||
Moody’s Corp., Sr. Unsec. Global Notes, 4.88%, 02/15/2024 | 150,000 | 170,972 | ||||||
National Rural Utilities Cooperative Finance Corp. (The), Sr. Unsec. Medium-Term Notes, 0.95%, 04/24/2017 | 35,000 | 35,013 | ||||||
361,358 | ||||||||
Specialized REIT’s–0.50% | ||||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. First Lien Notes, 4.88%, 08/15/2020(d) | 178,000 | 194,911 | ||||||
Sovran Acquisition LP, Sr. Unsec. Gtd. Global Notes, 3.50%, 07/01/2026 | 50,000 | 50,589 | ||||||
245,500 | ||||||||
Systems Software–0.73% | ||||||||
FireEye, Inc., | 48,000 | 43,770 | ||||||
Series B, Sr. Unsec. Conv. Bonds, 1.63%, 06/01/2022(e) | 48,000 | 42,570 | ||||||
Microsoft Corp., Sr. Unsec. Global Notes, 3.50%, 02/12/2035 | 37,000 | 38,106 | ||||||
NetSuite Inc., Sr. Unsec. Conv. Notes, 0.25%, 06/01/2018 | 149,000 | 146,672 | ||||||
Oracle Corp., Sr. Unsec. Global Notes, 1.90%, 09/15/2021 | 50,000 | 50,202 | ||||||
4.30%, 07/08/2034 | 30,000 | 31,948 | ||||||
353,268 | ||||||||
Technology Distributors–0.06% | ||||||||
Avnet, Inc., Sr. Unsec. Global Notes, 4.63%, 04/15/2026 | 30,000 | 31,231 | ||||||
Technology Hardware, Storage & Peripherals–0.94% | ||||||||
Apple Inc., Sr. Unsec. Global Notes, 2.15%, 02/09/2022 | 39,000 | 39,791 | ||||||
Diamond 1 Finance Corp./Diamond 2 Finance Corp., Sr. Sec. First Lien Notes, 5.45%, 06/15/2023(d) | 26,000 | 26,908 | ||||||
8.35%, 07/15/2046(d) | 9,000 | 9,703 | ||||||
Hewlett Packard Enterprise Co., Sr. Unsec. Notes, 2.85%, 10/05/2018(d) | 65,000 | 66,512 | ||||||
SanDisk Corp., Sr. Unsec. Gtd. Conv. Bonds, 0.50%, 10/15/2020 | 219,000 | 236,798 | ||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. Global Bonds, | 65,000 | 51,553 | ||||||
5.75%, 12/01/2034 | 37,000 | 26,177 | ||||||
457,442 | ||||||||
Thrifts & Mortgage Finance–0.65% | ||||||||
MGIC Investment Corp., Sr. Unsec. Conv. Notes, | 157,000 | 162,887 | ||||||
2.00%, 04/01/2020 | 42,000 | 46,830 | ||||||
Radian Group Inc., Sr. Unsec. Conv. Notes, 3.00%, 11/15/2017 | 67,000 | 73,449 | ||||||
2.25%, 03/01/2019 | 28,000 | 32,113 | ||||||
315,279 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Tobacco–0.14% | ||||||||
Philip Morris International Inc., | $ | 11,000 | $ | 11,048 | ||||
Sr. Unsec. Global Notes, | 55,000 | 55,331 | ||||||
66,379 | ||||||||
Wireless Telecommunication Services–0.05% | ||||||||
Vodafone Group PLC (United Kingdom), Sr. Unsec. Global Notes, 1.63%, 03/20/2017 | 25,000 | 25,080 | ||||||
Total Bonds and Notes |
| 12,403,089 | ||||||
U.S. Treasury Securities–6.92% |
| |||||||
U.S. Treasury Notes–6.87% | ||||||||
0.50%, 04/30/2017 | 500,000 | 500,048 | ||||||
0.63%, 06/30/2018 | 2,335,000 | 2,336,506 | ||||||
0.88%, 06/15/2019 | 235,000 | 236,175 | ||||||
1.13%, 06/30/2021 | 67,900 | 68,267 | ||||||
1.38%, 06/30/2023 | 21,000 | 21,117 | ||||||
1.63%, 05/15/2026 | 178,700 | 180,997 | ||||||
3,343,110 |
Principal Amount | Value | |||||||
U.S. Treasury Bonds–0.05% | ||||||||
2.50%, 02/15/2046 | $ | 21,400 | $ | 22,304 | ||||
Total U.S. Treasury Securities |
| 3,365,414 | ||||||
Shares | ||||||||
Preferred Stocks–0.19% |
| |||||||
Asset Management & Custody Banks–0.19% | ||||||||
AMG Capital Trust II, $2.58 Jr. Unsec. Gtd. Sub. Conv. Pfd. | 1,700 | 93,288 | ||||||
Money Market Funds–3.10% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(h) | 755,145 | 755,145 | ||||||
Premier Portfolio–Institutional Class, 0.40%(h) | 755,145 | 755,145 | ||||||
Total Money Market Funds |
| 1,510,290 | ||||||
TOTAL INVESTMENTS–100.16% |
| 48,736,693 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.16)% |
| (78,549 | ) | |||||
NET ASSETS–100.00% |
| $ | 48,658,144 |
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) | 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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: | ||||
Investments, at value (Cost $46,548,776) | $ | 47,226,403 | ||
Investments in affiliated money market funds, at value and cost | 1,510,290 | |||
Total investments, at value (Cost $48,059,066) | 48,736,693 | |||
Cash | 22,798 | |||
Receivable for: | ||||
Investments sold | 190,161 | |||
Fund shares sold | 1,465 | |||
Dividends and interest | 147,918 | |||
Investment for trustee deferred compensation and retirement plans | 64,429 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 107,517 | |||
Other assets | 251 | |||
Total assets | 49,271,232 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 165,171 | |||
Fund shares reacquired | 30,075 | |||
Variation margin — futures | 241,363 | |||
Accrued fees to affiliates | 59,183 | |||
Accrued trustees’ and officers’ fees and benefits | 616 | |||
Accrued other operating expenses | 31,580 | |||
Trustee deferred compensation and retirement plans | 68,881 | |||
Unrealized depreciation on forward foreign currency contracts outstanding | 16,219 | |||
Total liabilities | 613,088 | |||
Net assets applicable to shares outstanding | $ | 48,658,144 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 47,261,666 | ||
Undistributed net investment income | 1,095,746 | |||
Undistributed net realized gain | 129,715 | |||
Net unrealized appreciation | 171,017 | |||
$ | 48,658,144 | |||
Net Assets: | ||||
Series I | $ | 47,272,327 | ||
Series II | $ | 1,385,817 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 4,183,015 | |||
Series II | 124,100 | |||
Series I: | ||||
Net asset value per share | $ | 11.30 | ||
Series II: | ||||
Net asset value per share | $ | 11.17 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $11,972) | $ | 418,082 | ||
Dividends from affiliated money market funds | 4,840 | |||
Interest | 193,312 | |||
Total investment income | 616,234 | |||
Expenses: | ||||
Advisory fees | 148,016 | |||
Administrative services fees | 81,320 | |||
Custodian fees | 12,443 | |||
Distribution fees — Series II | 1,758 | |||
Transfer agent fees | 12,173 | |||
Trustees’ and officers’ fees and benefits | 10,143 | |||
Reports to shareholders | 2,680 | |||
Professional services fees | 25,217 | |||
Other | 8,029 | |||
Total expenses | 301,779 | |||
Less: Fees waived | (1,740 | ) | ||
Net expenses | 300,039 | |||
Net investment income | 316,195 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (491,306 | ) | ||
Foreign currencies | 1,523 | |||
Forward foreign currency contracts | (33,088 | ) | ||
Futures contracts | (559,738 | ) | ||
(1,082,609 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 810,107 | |||
Foreign currencies | 802 | |||
Forward foreign currency contracts | 62,408 | |||
Futures contracts | (597,662 | ) | ||
275,655 | ||||
Net realized and unrealized gain (loss) | (806,954 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (490,759 | ) |
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:
CAD | – Canadian Dollar | |
CHF | – Swiss Franc | |
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Managed Volatility Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s
evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office
support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Funds Mixed-Asset Target Allocation Growth Index. The Board noted that performance of Series I shares of the Fund was in the second quintile of the Broadridge performance universe for the one year period and the first quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the Index for the three and five year periods. The Trustees also reviewed more
Invesco V.I. Managed Volatility Fund
recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisors to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board noted that the Fund does not benefit from economies of scale through contractual breakpoints, but does share directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of
profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory
fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered that the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and was advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
Invesco V.I. Managed Volatility Fund
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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
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | |||||
Series I Shares | 4.29% | ||||
Series II Shares | 4.20 | ||||
S&P 500 Index▼ (Broad Market Index) | 3.84 | ||||
Russell Midcap Index▼ (Style-Specific Index) | 5.50 | ||||
Lipper VUF Mid-Cap Core Funds Index¢ (Peer Group Index) | 5.46 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The S&P 500® Index is an unmanaged index considered representative of the US stock market. The Russell Midcap® Index is an unmanaged index considered representative of mid-cap stocks. The Russell Midcap Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. The Lipper VUF Mid-Cap Core Funds Index is an unmanaged index considered representative of mid-cap core variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (9/10/01) | 6.93 | % | ||||||||
10 Years | 5.93 | |||||||||
5 Years | 5.63 | |||||||||
1 Year | -3.48 | |||||||||
Series II Shares | ||||||||||
Inception (9/10/01) | 6.67 | % | ||||||||
10 Years | 5.67 | |||||||||
5 Years | 5.35 | |||||||||
1 Year
| -3.67 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.03% and 1.28%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.05% and 1.30%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of
this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Mid Cap Core Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses
currently or in the past, returns would have been lower. See current prospectus for more information.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2018. See current prospectus for more information. |
Invesco V.I. Mid Cap Core Equity Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–91.62% |
| |||||||
Advertising–1.10% | ||||||||
Publicis Groupe S.A. (France) | 51,303 | $ | 3,475,054 | |||||
Apparel, Accessories & Luxury Goods–2.69% | ||||||||
Hanesbrands, Inc. | 148,983 | 3,743,943 | ||||||
PVH Corp. | 50,481 | 4,756,824 | ||||||
8,500,767 | ||||||||
Application Software–1.20% | ||||||||
Synopsys, Inc.(b) | 70,220 | 3,797,498 | ||||||
Asset Management & Custody Banks–1.83% | ||||||||
Northern Trust Corp. | 87,264 | 5,782,113 | ||||||
Auto Parts & Equipment–0.87% | ||||||||
Dana Holding Corp. | 259,119 | 2,736,297 | ||||||
Automotive Retail–1.45% | ||||||||
Advance Auto Parts, Inc. | 28,290 | 4,572,513 | ||||||
Biotechnology–0.92% | ||||||||
United Therapeutics Corp.(b) | 27,548 | 2,917,884 | ||||||
Brewers–1.41% | ||||||||
Molson Coors Brewing Co.–Class B | 44,172 | 4,467,114 | ||||||
Computer & Electronics Retail–0.82% | ||||||||
GameStop Corp.–Class A | 97,761 | 2,598,487 | ||||||
Construction Machinery & Heavy Trucks–1.07% | ||||||||
Allison Transmission Holdings, Inc. | 119,693 | 3,378,933 | ||||||
Data Processing & Outsourced Services–2.24% | ||||||||
Jack Henry & Associates, Inc. | 81,053 | 7,073,495 | ||||||
Electronic Components–2.63% | ||||||||
Amphenol Corp.–Class A | 144,609 | 8,290,434 | ||||||
Electronic Equipment & Instruments–1.67% | ||||||||
FLIR Systems, Inc. | 170,442 | 5,275,180 | ||||||
Environmental & Facilities Services–1.82% | ||||||||
Republic Services, Inc. | 112,300 | 5,762,113 | ||||||
Health Care Distributors–1.57% | ||||||||
Cardinal Health, Inc. | 63,675 | 4,967,287 | ||||||
Health Care Equipment–1.81% | ||||||||
ResMed Inc. | 48,687 | 3,078,479 | ||||||
Wright Medical Group N.V.(b) | 151,037 | 2,623,513 | ||||||
5,701,992 | ||||||||
Health Care Facilities–0.61% | ||||||||
Tenet Healthcare Corp.(b) | 69,661 | 1,925,430 | ||||||
Homebuilding–1.78% | ||||||||
D.R. Horton, Inc. | 178,392 | 5,615,780 |
Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–1.42% | ||||||||
Norwegian Cruise Line Holdings Ltd.(b) | 112,434 | $ | 4,479,371 | |||||
Household Appliances–1.54% | ||||||||
Whirlpool Corp. | 29,176 | 4,861,889 | ||||||
Industrial Machinery–8.37% | ||||||||
Flowserve Corp. | 74,039 | 3,344,342 | ||||||
Kennametal Inc. | 183,660 | 4,060,723 | ||||||
Nordson Corp. | 50,048 | 4,184,513 | ||||||
Parker-Hannifin Corp. | 40,805 | 4,408,980 | ||||||
Stanley Black & Decker Inc. | 30,997 | 3,447,486 | ||||||
Timken Co. (The) | 116,913 | 3,584,553 | ||||||
Xylem, Inc. | 76,434 | 3,412,778 | ||||||
26,443,375 | ||||||||
Insurance Brokers–2.93% | ||||||||
Brown & Brown, Inc. | 247,235 | 9,263,895 | ||||||
IT Consulting & Other Services–1.38% | ||||||||
EPAM Systems, Inc.(b) | 67,518 | 4,342,083 | ||||||
Life & Health Insurance–4.14% | ||||||||
St. James’s Place PLC (United Kingdom) | 501,157 | 5,368,393 | ||||||
Torchmark Corp. | 124,804 | 7,715,383 | ||||||
13,083,776 | ||||||||
Life Sciences Tools & Services–1.64% | ||||||||
Agilent Technologies, Inc. | 116,560 | 5,170,602 | ||||||
Marine–0.74% | ||||||||
Kirby Corp.(b) | 37,465 | 2,337,441 | ||||||
Multi-Utilities–4.03% | ||||||||
CMS Energy Corp. | 138,295 | 6,342,209 | ||||||
WEC Energy Group, Inc. | 97,944 | 6,395,743 | ||||||
12,737,952 | ||||||||
Office REIT’s–1.90% | ||||||||
Boston Properties, Inc. | 45,539 | 6,006,594 | ||||||
Oil & Gas Equipment & Services–1.62% | ||||||||
Core Laboratories N.V. | 41,386 | 5,127,311 | ||||||
Oil & Gas Exploration & Production–2.77% | ||||||||
Concho Resources Inc.(b) | 35,273 | 4,207,011 | ||||||
Vermilion Energy, Inc. (Canada) | 142,174 | 4,526,944 | ||||||
8,733,955 | ||||||||
Packaged Foods & Meats–2.76% | ||||||||
JM Smucker Co. (The) | 32,316 | 4,925,282 | ||||||
Mead Johnson Nutrition Co. | 41,743 | 3,788,177 | ||||||
8,713,459 | ||||||||
Paper Packaging–1.70% | ||||||||
Packaging Corp. of America | 80,297 | 5,374,278 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Shares | Value | |||||||
Pharmaceuticals–0.64% | ||||||||
Endo International PLC(b) | 130,140 | $ | 2,028,883 | |||||
Property & Casualty Insurance–4.06% | ||||||||
Arch Capital Group Ltd. (Bermuda)(b) | 76,973 | 5,542,056 | ||||||
Progressive Corp. (The) | 217,794 | 7,296,099 | ||||||
12,838,155 | ||||||||
Regional Banks–3.26% | ||||||||
First Republic Bank | 147,331 | 10,311,697 | ||||||
Restaurants–0.71% | ||||||||
Bloomin’ Brands, Inc. | 126,174 | 2,254,729 | ||||||
Retail REIT’s–2.12% | ||||||||
General Growth Properties, Inc. | 224,221 | 6,686,270 | ||||||
Semiconductor Equipment–1.35% | ||||||||
Teradyne, Inc. | 216,713 | 4,267,079 | ||||||
Semiconductors–3.92% | ||||||||
Linear Technology Corp. | 146,958 | 6,837,956 | ||||||
Xilinx, Inc. | 119,939 | 5,532,786 | ||||||
12,370,742 | ||||||||
Specialized Finance–2.81% | ||||||||
Moody’s Corp. | 94,771 | 8,880,990 |
Shares | Value | |||||||
Specialty Chemicals–5.78% | ||||||||
Albemarle Corp. | 93,037 | $ | 7,378,764 | |||||
International Flavors & Fragrances Inc. | 51,197 | 6,454,406 | ||||||
Koninklijke DSM N.V. (Netherlands) | 76,622 | 4,438,826 | ||||||
18,271,996 | ||||||||
Specialty Stores–1.65% | ||||||||
Dick’s Sporting Goods, Inc. | 115,849 | 5,220,156 | ||||||
Trucking–0.89% | ||||||||
Hertz Global Holdings, Inc.(b) | 253,255 | 2,803,533 | ||||||
Total Common Stocks & Other Equity Interests |
| 289,448,582 | ||||||
Money Market Funds–8.42% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(c) | 13,297,554 | 13,297,554 | ||||||
Premier Portfolio–Institutional | 13,297,554 | 13,297,554 | ||||||
Total Money Market Funds |
| 26,595,108 | ||||||
TOTAL INVESTMENTS–100.04% |
| 316,043,690 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.04)% |
| (110,962 | ) | |||||
NET ASSETS–100.00% |
| $ | 315,932,728 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: | ||||
Investments, at value (Cost $230,076,620) | $ | 289,448,582 | ||
Investments in affiliated money market funds, at value and cost | 26,595,108 | |||
Total investments, at value (Cost $256,671,728) | 316,043,690 | |||
Foreign currencies, at value (Cost $21,882) | 21,725 | |||
Receivable for: | ||||
Fund shares sold | 83,866 | |||
Dividends | 419,160 | |||
Investment for trustee deferred compensation and retirement plans | 105,261 | |||
Other assets | 820 | |||
Total assets | 316,674,522 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 136,114 | |||
Accrued fees to affiliates | 463,395 | |||
Accrued trustees’ and officers’ fees and benefits | 722 | |||
Accrued other operating expenses | 22,017 | |||
Trustee deferred compensation and retirement plans | 119,546 | |||
Total liabilities | 741,794 | |||
Net assets applicable to shares outstanding | $ | 315,932,728 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 238,027,847 | ||
Undistributed net investment income | 1,035,635 | |||
Undistributed net realized gain | 17,497,922 | |||
Net unrealized appreciation | 59,371,324 | |||
$ | 315,932,728 | |||
Net Assets: | ||||
Series I | $ | 194,776,354 | ||
Series II | $ | 121,156,374 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 15,403,463 | |||
Series II | 9,759,901 | |||
Series I: | ||||
Net asset value per share | $ | 12.64 | ||
Series II: | ||||
Net asset value per share | $ | 12.41 |
Investment income: | ||||
Dividends (net of foreign withholding taxes of $53,964) | $ | 2,703,675 | ||
Dividends from affiliated money market funds | 62,602 | |||
Total investment income | 2,766,277 | |||
Expenses: | ||||
Advisory fees | 1,128,335 | |||
Administrative services fees | 425,774 | |||
Custodian fees | 9,639 | |||
Distribution fees — Series II | 147,696 | |||
Transfer agent fees | 28,930 | |||
Trustees’ and officers’ fees and benefits | 11,709 | |||
Reports to shareholders | 2,411 | |||
Professional services fees | 30,025 | |||
Other | 6,744 | |||
Total expenses | 1,791,263 | |||
Less: Fees waived | (25,497 | ) | ||
Net expenses | 1,765,766 | |||
Net investment income | 1,000,511 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (3,210,946 | ) | ||
Foreign currencies | (3,317 | ) | ||
(3,214,263 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 15,328,838 | |||
Foreign currencies | (664 | ) | ||
15,328,174 | ||||
Net realized and unrealized gain | 12,113,911 | |||
Net increase in net assets resulting from operations | $ | 13,114,422 |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Mid Cap Core Equity Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the
independent Trustees. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office
support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Funds Mid-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of its performance universe for the one year period and the fifth quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one year period and below the Index for the three and five year periods. Invesco Advisers noted that a new co-chief investment officer had been
Invesco V.I. Mid Cap Core Equity Fund
named to the portfolio management team. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one mutual fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco
Funds and to manage other client accounts tended to be more comparable, reflecting a similar scope of services.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed
and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered that the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and was advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
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
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | |||||
Series I Shares | -2.23% | ||||
Series II Shares | -2.44 | ||||
S&P 500 Index▼ (Broad Market Index) | 3.84 | ||||
Russell Midcap Growth Index▼ (Style-Specific Index) | 2.15 | ||||
Lipper VUF Mid-Cap Growth Funds Index¢ (Peer Group Index) | 0.09 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The S&P 500® Index is an unmanaged index considered representative of the US stock market. The Russell Midcap® Growth Index is an unmanaged index considered representative of mid-cap growth stocks. The Russell Midcap Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. The Lipper VUF Mid-Cap Growth Funds Index is an unmanaged index considered representative of mid-cap growth variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
10 Years | 6.58 | % | ||||||||
5 Years | 6.80 | |||||||||
1 Year | -8.49 | |||||||||
Series II Shares | ||||||||||
Inception (9/25/00) | 0.34 | % | ||||||||
10 Years | 6.45 | |||||||||
5 Years | 6.54 | |||||||||
1 Year | -8.74 |
Effective June 1, 2010, Class II shares of the predecessor fund, Van Kampen Life Investment Trust Mid Cap Growth Portfolio, advised by Van Kampen Asset Management were reorganized into Series II shares of Invesco Van Kampen V.I. Mid Cap Growth Fund (renamed Invesco V.I. Mid Cap Growth Fund on April 29, 2013). Returns shown above for Series II shares are blended returns of the predecessor fund and Invesco V.I. Mid Cap Growth Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series I shares incepted on June 1, 2010. Series I share performance shown prior to that date is that of the predecessor fund’s Class II shares and includes the 12b-1 fees applicable to the predecessor fund’s Class II shares.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses,
reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.07% and 1.32%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Mid Cap Growth Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined
by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. Mid Cap Growth Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.26% |
| |||||||
Airlines–0.84% | ||||||||
Southwest Airlines Co. | 50,819 | $ | 1,992,613 | |||||
Alternative Carriers–0.77% | ||||||||
Zayo Group Holdings, Inc.(b) | 65,892 | 1,840,364 | ||||||
Apparel Retail–2.60% | ||||||||
Burlington Stores, Inc.(b) | 77,202 | 5,150,146 | ||||||
Foot Locker, Inc. | 18,927 | 1,038,335 | ||||||
6,188,481 | ||||||||
Apparel, Accessories & Luxury Goods–0.51% | ||||||||
Under Armour, Inc.–Class A(b)(c) | 30,077 | 1,206,990 | ||||||
Application Software–4.81% | ||||||||
Cadence Design Systems, Inc.(b) | 166,565 | 4,047,529 | ||||||
Mobileye N.V.(b)(c) | 50,784 | 2,343,174 | ||||||
SS&C Technologies Holdings, Inc. | 56,160 | 1,576,973 | ||||||
Tyler Technologies, Inc.(b) | 20,924 | 3,488,240 | ||||||
11,455,916 | ||||||||
Asset Management & Custody Banks–0.88% | ||||||||
Affiliated Managers Group, Inc.(b) | 14,903 | 2,097,895 | ||||||
Auto Parts & Equipment–0.00% | ||||||||
Gentherm Inc.(b) | 189 | 6,473 | ||||||
Automobile Manufacturers–0.55% | ||||||||
Tesla Motors, Inc.(b) | 6,182 | 1,312,315 | ||||||
Automotive Retail–3.00% | ||||||||
Advance Auto Parts, Inc. | 18,147 | 2,933,099 | ||||||
O’Reilly Automotive, Inc.(b) | 15,508 | 4,204,219 | ||||||
7,137,318 | ||||||||
Biotechnology–2.70% | ||||||||
BioMarin Pharmaceutical Inc.(b) | 33,563 | 2,611,202 | ||||||
Medivation Inc.(b) | 63,461 | 3,826,698 | ||||||
6,437,900 | ||||||||
Building Products–7.30% | ||||||||
A.O. Smith Corp. | 47,997 | 4,229,016 | ||||||
Allegion PLC | 45,553 | 3,162,745 | ||||||
Lennox International Inc. | 22,573 | 3,218,910 | ||||||
Masco Corp. | 110,444 | 3,417,137 | ||||||
Owens Corning | 64,862 | 3,341,690 | ||||||
17,369,498 | ||||||||
Casinos & Gaming–0.75% | ||||||||
Wynn Resorts Ltd.(c) | 19,610 | 1,777,450 | ||||||
Communications Equipment–1.78% | ||||||||
F5 Networks, Inc.(b) | 14,356 | 1,634,287 | ||||||
Palo Alto Networks, Inc.(b) | 21,196 | 2,599,478 | ||||||
4,233,765 |
Shares | Value | |||||||
Construction Machinery & Heavy Trucks–0.43% | ||||||||
WABCO Holdings Inc.(b) | 11,229 | $ | 1,028,240 | |||||
Construction Materials–1.09% | ||||||||
Vulcan Materials Co. | 21,497 | 2,587,379 | ||||||
Consumer Electronics–0.67% | ||||||||
Harman International Industries, Inc. | 22,235 | 1,596,918 | ||||||
Data Processing & Outsourced Services–2.66% | ||||||||
Alliance Data Systems Corp.(b) | 14,270 | 2,795,778 | ||||||
Fidelity National Information Services, Inc. | 48,023 | 3,538,335 | ||||||
6,334,113 | ||||||||
Distillers & Vintners–2.16% | ||||||||
Constellation Brands, Inc.–Class A | 31,063 | 5,137,820 | ||||||
Diversified Support Services–1.62% | ||||||||
KAR Auction Services Inc. | 92,192 | 3,848,094 | ||||||
Electrical Components & Equipment–1.49% | ||||||||
Acuity Brands, Inc. | 14,280 | 3,540,869 | ||||||
Electronic Components–1.90% | ||||||||
Amphenol Corp.–Class A | 78,676 | 4,510,495 | ||||||
Footwear–1.53% | ||||||||
Skechers U.S.A., Inc.–Class A(b) | 122,647 | 3,645,069 | ||||||
General Merchandise Stores–1.05% | ||||||||
Dollar Tree, Inc.(b) | 26,399 | 2,487,842 | ||||||
Health Care Equipment–4.78% | ||||||||
Boston Scientific Corp.(b) | 173,757 | 4,060,701 | ||||||
DexCom Inc.(b) | 45,721 | 3,627,047 | ||||||
Hologic, Inc.(b) | 106,605 | 3,688,533 | ||||||
11,376,281 | ||||||||
Health Care Facilities–1.98% | ||||||||
VCA Inc.(b) | 69,599 | 4,705,588 | ||||||
Health Care Services–1.19% | ||||||||
Team Health Holdings, Inc.(b) | 69,664 | 2,833,235 | ||||||
Health Care Supplies–1.02% | ||||||||
Penumbra, Inc.(b) | 41,002 | 2,439,619 | ||||||
Home Entertainment Software–1.07% | ||||||||
Electronic Arts Inc.(b) | 33,695 | 2,552,733 | ||||||
Homebuilding–0.69% | ||||||||
D.R. Horton, Inc. | 52,251 | 1,644,861 | ||||||
Housewares & Specialties–1.24% | ||||||||
Newell Brands, Inc. | 60,794 | 2,952,765 | ||||||
Industrial Conglomerates–1.50% | ||||||||
Carlisle Cos. Inc. | 33,733 | 3,564,903 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Shares | Value | |||||||
Industrial Machinery–1.94% | ||||||||
Stanley Black & Decker Inc. | 41,433 | $ | 4,608,178 | |||||
Integrated Telecommunication Services–1.29% | ||||||||
SBA Communications Corp.–Class A(b) | 28,358 | 3,060,963 | ||||||
Internet Software & Services–1.55% | ||||||||
CoStar Group Inc.(b) | 16,835 | 3,681,141 | ||||||
Investment Banking & Brokerage–0.75% | ||||||||
E*TRADE Financial Corp.(b) | 75,826 | 1,781,153 | ||||||
IT Consulting & Other Services–1.06% | ||||||||
Gartner, Inc.(b) | 26,001 | 2,532,757 | ||||||
Leisure Products–1.57% | ||||||||
Brunswick Corp. | 82,482 | 3,738,084 | ||||||
Life Sciences Tools & Services–2.36% | ||||||||
INC Research Holdings, Inc.–Class A(b) | 46,346 | 1,767,173 | ||||||
VWR Corp.(b) | 133,510 | 3,858,439 | ||||||
5,625,612 | ||||||||
Managed Health Care–2.32% | ||||||||
Centene Corp.(b) | 77,468 | 5,528,891 | ||||||
Metal & Glass Containers–0.81% | ||||||||
Berry Plastics Group Inc.(b) | 49,660 | 1,929,291 | ||||||
Movies & Entertainment–1.37% | ||||||||
Cinemark Holdings, Inc. | 89,478 | 3,262,368 | ||||||
Oil & Gas Exploration & Production–1.69% | ||||||||
Diamondback Energy Inc.(b) | 24,849 | 2,266,477 | ||||||
Pioneer Natural Resources Co. | 11,643 | 1,760,538 | ||||||
4,027,015 | ||||||||
Oil & Gas Storage & Transportation–1.00% | ||||||||
Cheniere Energy, Inc.(b) | 35,396 | 1,329,120 | ||||||
Targa Resources Corp. | 25,085 | 1,057,082 | ||||||
2,386,202 | ||||||||
Packaged Foods & Meats–1.89% | ||||||||
WhiteWave Foods Co. (The)(b) | 95,687 | 4,491,548 | ||||||
Pharmaceuticals–0.42% | ||||||||
Pacira Pharmaceuticals, Inc.(b) | 29,551 | 996,755 | ||||||
Regional Banks–1.89% | ||||||||
Signature Bank(b) | 26,431 | 3,301,761 | ||||||
SVB Financial Group(b) | 12,509 | 1,190,356 | ||||||
4,492,117 | ||||||||
Restaurants–2.32% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 5,373 | 2,164,029 | ||||||
Domino’s Pizza, Inc. | 25,533 | 3,354,526 | ||||||
5,518,555 |
Shares | Value | |||||||
Semiconductors–2.96% | ||||||||
Cavium Inc.(b) | 30,415 | $ | 1,174,019 | |||||
NXP Semiconductors N.V. (Netherlands)(b) | 56,940 | 4,460,679 | ||||||
Qorvo, Inc.(b) | 25,687 | 1,419,464 | ||||||
7,054,162 | ||||||||
Soft Drinks–1.93% | ||||||||
Monster Beverage Corp.(b) | 28,557 | 4,589,395 | ||||||
Specialized Finance–4.63% | ||||||||
Intercontinental Exchange, Inc. | 24,246 | 6,206,006 | ||||||
S&P Global Inc. | 44,872 | 4,812,971 | ||||||
11,018,977 | ||||||||
Specialized REIT’s–1.84% | ||||||||
Equinix, Inc. | 11,287 | 4,376,309 | ||||||
Specialty Chemicals–1.71% | ||||||||
PPG Industries, Inc. | 39,015 | 4,063,412 | ||||||
Specialty Stores–3.69% | ||||||||
Signet Jewelers Ltd. | 22,555 | 1,858,758 | ||||||
Tractor Supply Co. | 47,963 | 4,373,266 | ||||||
Ulta Salon, Cosmetics & Fragrance, Inc.(b) | 10,484 | 2,554,322 | ||||||
8,786,346 | ||||||||
Systems Software–1.71% | ||||||||
ServiceNow, Inc.(b) | 61,423 | 4,078,487 | ||||||
Total Common Stocks & Other Equity Interests |
| 231,471,520 | ||||||
Money Market Funds–3.02% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(d) | 3,591,026 | 3,591,026 | ||||||
Premier Portfolio–Institutional Class, 0.40%(d) | 3,591,027 | 3,591,027 | ||||||
Total Money Market Funds | 7,182,053 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.28% |
| 238,653,573 | ||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–1.64% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44% | 3,912,270 | 3,912,270 | ||||||
TOTAL INVESTMENTS–101.92% |
| 242,565,843 | ||||||
OTHER ASSETS LESS LIABILITIES–(1.92)% |
| (4,576,229 | ) | |||||
NET ASSETS–100.00% | $ | 237,989,614 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: | ||||
Investments, at value (Cost $181,486,206)* | $ | 231,471,520 | ||
Investments in affiliated money market funds, at value and cost | 11,094,323 | |||
Total investments, at value (Cost $192,580,529) | 242,565,843 | |||
Cash | 5,466 | |||
Receivable for: | ||||
Fund shares sold | 139,842 | |||
Dividends | 50,169 | |||
Investment for trustee deferred compensation and retirement plans | 109,745 | |||
Other assets | 19,059 | |||
Total assets | 242,890,124 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 480,647 | |||
Collateral upon return of securities loaned | 3,912,270 | |||
Accrued fees to affiliates | 367,099 | |||
Accrued trustees’ and officers’ fees and benefits | 698 | |||
Accrued other operating expenses | 19,043 | |||
Trustee deferred compensation and retirement plans | 120,753 | |||
Total liabilities | 4,900,510 | |||
Net assets applicable to shares outstanding | $ | 237,989,614 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 169,571,213 | ||
Undistributed net investment income (loss) | (787,616 | ) | ||
Undistributed net realized gain | 19,220,703 | |||
Net unrealized appreciation | 49,985,314 | |||
$ | 237,989,614 | |||
Net Assets: | ||||
Series I | $ | 102,564,943 | ||
Series II | $ | 135,424,671 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 19,501,783 | |||
Series II | 26,028,340 | |||
Series I: | ||||
Net asset value per share | $ | 5.26 | ||
Series II: | ||||
Net asset value per share | $ | 5.20 |
* | At June 30, 2016, securities with an aggregate value of $3,988,653 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $484) | $ | 748,801 | ||
Dividends from affiliated money market funds (includes securities lending income of $13,078) | 21,838 | |||
Total investment income | 770,639 | |||
Expenses: | ||||
Advisory fees | 878,260 | |||
Administrative services fees | 312,103 | |||
Custodian fees | 5,497 | |||
Distribution fees — Series II | 173,219 | |||
Transfer agent fees | 28,580 | |||
Trustees’ and officers’ fees and benefits | 11,055 | |||
Reports to shareholders | 1,875 | |||
Professional services fees | 22,071 | |||
Other | 4,391 | |||
Total expenses | 1,437,051 | |||
Less: Fees waived | (3,203 | ) | ||
Net expenses | 1,433,848 | |||
Net investment income (loss) | (663,209 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from investment securities (includes net gains from securities sold to affiliates of $6,949) | (4,441,446 | ) | ||
Change in net unrealized appreciation (depreciation) of investment securities | (1,920,393 | ) | ||
Net realized and unrealized gain (loss) | (6,361,839 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (7,025,048 | ) |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Mid Cap Growth Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s
evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Fund Mid-Cap Growth Funds Index. The Board noted that performance of Series II shares of the Fund was in the third quintile of its performance universe for the one and three year periods and the fifth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series II shares of the Fund was above the performance of the Index for the one and three year periods and below the performance of the Index for the five year period. Invesco Advisers noted that the research effort for the Fund had been enhanced in 2013. The Trustees also reviewed
Invesco V.I. Mid Cap Growth Fund
more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series II shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one such mutual fund.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory
and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from
these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
Invesco V.I. Mid Cap Growth Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2016 | |||
| ||||
Invesco V.I. S&P 500 Index Fund | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. MS-VISPI-SAR-1 | ||||
| ||||
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | |||||
Series I Shares | 3.62% | ||||
Series II Shares | 3.52 | ||||
S&P 500 Index▼ (Broad Market/Style-Specific Index) | 3.84 | ||||
Lipper VUF S&P 500 Funds Index¢ (Peer Group Index) | 3.63 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The S&P 500® Index is an unmanaged index considered representative of the US stock market. The Lipper VUF S&P 500 Funds Index is an unmanaged index considered representative of S&P 500 variable insurance underlying funds tracked by Lipper. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (5/18/98) | 5.23 | % | ||||||||
10 Years | 7.15 | |||||||||
5 Years | 11.73 | |||||||||
1 Year | 3.57 | |||||||||
Series II Shares | ||||||||||
Inception (6/5/00) | 3.68 | % | ||||||||
10 Years | 6.88 | |||||||||
5 Years | 11.43 | |||||||||
1 Year | 3.26 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund, Morgan Stanley Variable Investment S&P 500 Index Portfolio advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. S&P 500 Index Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. S&P 500 Index Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.41% and 0.66%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. S&P 500 Index Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. S&P 500 Index Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.93% |
| |||||||
Advertising–0.16% | ||||||||
Interpublic Group of Cos., Inc. (The) | 1,909 | $ | 44,098 | |||||
Omnicom Group Inc. | 1,127 | 91,839 | ||||||
135,937 | ||||||||
Aerospace & Defense–2.59% | ||||||||
Boeing Co. (The) | 2,841 | 368,961 | ||||||
General Dynamics Corp. | 1,362 | 189,645 | ||||||
Honeywell International Inc. | 3,616 | 420,613 | ||||||
L-3 Communications Holdings, Inc. | 364 | 53,395 | ||||||
Lockheed Martin Corp. | 1,241 | 307,979 | ||||||
Northrop Grumman Corp. | 855 | 190,049 | ||||||
Raytheon Co. | 1,408 | 191,418 | ||||||
Rockwell Collins, Inc. | 617 | 52,531 | ||||||
Textron Inc. | 1,275 | 46,614 | ||||||
TransDigm Group, Inc.(b) | 250 | 65,923 | ||||||
United Technologies Corp. | 3,693 | 378,717 | ||||||
2,265,845 | ||||||||
Agricultural & Farm Machinery–0.13% | ||||||||
Deere & Co. | 1,416 | 114,753 | ||||||
Agricultural Products–0.14% | ||||||||
Archer-Daniels-Midland Co. | 2,788 | 119,577 | ||||||
Air Freight & Logistics–0.72% | ||||||||
C.H. Robinson Worldwide, Inc. | 689 | 51,158 | ||||||
Expeditors International of Washington, Inc. | 863 | 42,322 | ||||||
FedEx Corp. | 1,184 | 179,707 | ||||||
United Parcel Service, Inc.–Class B | 3,276 | 352,891 | ||||||
626,078 | ||||||||
Airlines–0.49% | ||||||||
Alaska Air Group, Inc. | 584 | 34,041 | ||||||
American Airlines Group Inc. | 2,743 | 77,654 | ||||||
Delta Air Lines, Inc. | 3,653 | 133,079 | ||||||
Southwest Airlines Co. | 3,030 | 118,806 | ||||||
United Continental Holdings Inc.(b) | 1,592 | 65,336 | ||||||
428,916 | ||||||||
Alternative Carriers–0.08% | ||||||||
Level 3 Communications, Inc.(b) | 1,393 | 71,726 | ||||||
Aluminum–0.07% | ||||||||
Alcoa Inc. | 6,234 | 57,789 | ||||||
Apparel Retail–0.57% | ||||||||
Foot Locker, Inc. | 659 | 36,153 | ||||||
Gap, Inc. (The) | 1,113 | 23,618 | ||||||
L Brands, Inc. | 1,200 | 80,556 | ||||||
Ross Stores, Inc. | 1,906 | 108,051 | ||||||
TJX Cos., Inc. (The) | 3,137 | 242,271 |
Shares | Value | |||||||
Apparel Retail–(continued) | ||||||||
Urban Outfitters, Inc.(b) | 401 | $ | 11,027 | |||||
501,676 | ||||||||
Apparel, Accessories & Luxury Goods–0.42% | ||||||||
Coach, Inc. | 1,338 | 54,510 | ||||||
Hanesbrands, Inc. | 1,791 | 45,008 | ||||||
Michael Kors Holdings Ltd.(b) | 854 | 42,256 | ||||||
PVH Corp. | 392 | 36,938 | ||||||
Ralph Lauren Corp. | 269 | 24,108 | ||||||
Under Armour, Inc.–Class A(b) | 868 | 34,833 | ||||||
Under Armour, Inc.–Class C(b) | 872 | 31,753 | ||||||
VF Corp. | 1,582 | 97,277 | ||||||
366,683 | ||||||||
Application Software–0.82% | ||||||||
Adobe Systems Inc.(b) | 2,373 | 227,309 | ||||||
Autodesk, Inc.(b) | 1,065 | 57,659 | ||||||
Citrix Systems, Inc.(b) | 741 | 59,347 | ||||||
Intuit Inc. | 1,213 | 135,383 | ||||||
salesforce.com, inc.(b) | 3,022 | 239,977 | ||||||
719,675 | ||||||||
Asset Management & Custody Banks–1.02% | ||||||||
Affiliated Managers Group, Inc.(b) | 254 | 35,755 | ||||||
Ameriprise Financial, Inc. | 786 | 70,622 | ||||||
Bank of New York Mellon Corp. (The) | 5,112 | 198,601 | ||||||
BlackRock, Inc. | 596 | 204,148 | ||||||
Franklin Resources, Inc. | 1,748 | 58,331 | ||||||
Invesco Ltd.(c) | 2,007 | 51,259 | ||||||
Legg Mason, Inc. | 518 | 15,276 | ||||||
Northern Trust Corp. | 1,017 | 67,386 | ||||||
State Street Corp. | 1,878 | 101,262 | ||||||
T. Rowe Price Group Inc. | 1,177 | 85,886 | ||||||
888,526 | ||||||||
Auto Parts & Equipment–0.28% | ||||||||
BorgWarner, Inc. | 1,032 | 30,465 | ||||||
Delphi Automotive PLC (United Kingdom) | 1,294 | 81,004 | ||||||
Johnson Controls, Inc. | 3,076 | 136,144 | ||||||
247,613 | ||||||||
Automobile Manufacturers–0.48% | ||||||||
Ford Motor Co. | 18,522 | 232,822 | ||||||
General Motors Co. | 6,650 | 188,195 | ||||||
421,017 | ||||||||
Automotive Retail–0.40% | ||||||||
Advance Auto Parts, Inc. | 352 | 56,894 | ||||||
AutoNation, Inc.(b) | 336 | 15,785 | ||||||
AutoZone, Inc.(b) | 140 | 111,138 | ||||||
CarMax, Inc.(b) | 919 | 45,058 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Automotive Retail–(continued) | ||||||||
O’Reilly Automotive, Inc.(b) | 456 | $ | 123,622 | |||||
352,497 | ||||||||
Biotechnology–2.87% | ||||||||
AbbVie Inc. | 7,676 | 475,221 | ||||||
Alexion Pharmaceuticals, Inc.(b) | 1,062 | 123,999 | ||||||
Amgen Inc. | 3,565 | 542,415 | ||||||
Biogen Inc.(b) | 1,038 | 251,009 | ||||||
Celgene Corp.(b) | 3,676 | 362,564 | ||||||
Gilead Sciences, Inc. | 6,321 | 527,298 | ||||||
Regeneron Pharmaceuticals, Inc.(b) | 369 | 128,866 | ||||||
Vertex Pharmaceuticals Inc.(b) | 1,173 | 100,901 | ||||||
2,512,273 | ||||||||
Brewers–0.10% | ||||||||
Molson Coors Brewing Co.–Class B | 873 | 88,287 | ||||||
Broadcasting–0.23% | ||||||||
CBS Corp.–Class B | 1,970 | 107,247 | ||||||
Discovery Communications, Inc.–Class A(b) | 713 | 17,989 | ||||||
Discovery Communications, Inc.–Class C(b) | 1,132 | 26,998 | ||||||
Scripps Networks Interactive Inc.–Class A | 450 | 28,022 | ||||||
TEGNA Inc. | 1,031 | 23,888 | ||||||
204,144 | ||||||||
Building Products–0.14% | ||||||||
Allegion PLC | 462 | 32,077 | ||||||
Fortune Brands Home & Security Inc. | 728 | 42,202 | ||||||
Masco Corp. | 1,578 | 48,823 | ||||||
123,102 | ||||||||
Cable & Satellite–0.86% | ||||||||
Comcast Corp.–Class A | 11,476 | 748,120 | ||||||
Casinos & Gaming–0.04% | ||||||||
Wynn Resorts Ltd. | 391 | 35,440 | ||||||
Commodity Chemicals–0.14% | ||||||||
LyondellBasell Industries N.V.–Class A | 1,619 | 120,486 | ||||||
Communications Equipment–0.98% | ||||||||
Cisco Systems, Inc. | 23,875 | 684,974 | ||||||
F5 Networks, Inc.(b) | 324 | 36,884 | ||||||
Harris Corp. | 600 | 50,064 | ||||||
Juniper Networks, Inc. | 1,700 | 38,233 | ||||||
Motorola Solutions, Inc. | 764 | 50,401 | ||||||
860,556 | ||||||||
Computer & Electronics Retail–0.05% | ||||||||
Best Buy Co., Inc. | 1,337 | 40,912 | ||||||
Construction & Engineering–0.09% | ||||||||
Fluor Corp. | 659 | 32,475 | ||||||
Jacobs Engineering Group, Inc.(b) | 590 | 29,388 | ||||||
Quanta Services, Inc.(b) | 715 | 16,531 | ||||||
78,394 |
Shares | Value | |||||||
Construction Machinery & Heavy Trucks–0.44% | ||||||||
Caterpillar Inc. | 2,770 | $ | 209,994 | |||||
Cummins Inc. | 751 | 84,442 | ||||||
PACCAR Inc. | 1,662 | 86,208 | ||||||
380,644 | ||||||||
Construction Materials–0.15% | ||||||||
Martin Marietta Materials, Inc. | 300 | 57,600 | ||||||
Vulcan Materials Co. | 631 | 75,947 | ||||||
133,547 | ||||||||
Consumer Electronics–0.05% | ||||||||
Garmin Ltd. | 555 | 23,543 | ||||||
Harman International Industries, Inc. | 333 | 23,916 | ||||||
47,459 | ||||||||
Consumer Finance–0.70% | ||||||||
American Express Co. | 3,836 | 233,075 | ||||||
Capital One Financial Corp. | 2,429 | 154,266 | ||||||
Discover Financial Services | 1,955 | 104,768 | ||||||
Navient Corp. | 1,584 | 18,929 | ||||||
Synchrony Financial (b) | 3,957 | 100,033 | ||||||
611,071 | ||||||||
Data Processing & Outsourced Services–2.30% | ||||||||
Alliance Data Systems Corp.(b) | 278 | 54,466 | ||||||
Automatic Data Processing, Inc. | 2,161 | 198,531 | ||||||
Fidelity National Information Services, Inc. | 1,316 | 96,963 | ||||||
Fiserv, Inc.(b) | 1,054 | 114,601 | ||||||
Global Payments Inc. | 742 | 52,964 | ||||||
MasterCard, Inc.–Class A | 4,602 | 405,252 | ||||||
Paychex, Inc. | 1,520 | 90,440 | ||||||
PayPal Holdings, Inc.(b) | 5,234 | 191,093 | ||||||
Total System Services, Inc. | 811 | 43,072 | ||||||
Visa Inc.–Class A | 9,041 | 670,571 | ||||||
Western Union Co. (The) | 2,355 | 45,169 | ||||||
Xerox Corp. | 4,491 | 42,620 | ||||||
2,005,742 | ||||||||
Department Stores–0.12% | ||||||||
Kohl’s Corp. | 889 | 33,711 | ||||||
Macy’s, Inc. | 1,462 | 49,138 | ||||||
Nordstrom, Inc. | 631 | 24,009 | ||||||
106,858 | ||||||||
Distillers & Vintners–0.21% | ||||||||
Brown-Forman Corp.–Class B | 476 | 47,486 | ||||||
Constellation Brands, Inc.–Class A | 836 | 138,274 | ||||||
185,760 | ||||||||
Distributors–0.14% | ||||||||
Genuine Parts Co. | 709 | 71,786 | ||||||
LKQ Corp.(b) | 1,477 | 46,821 | ||||||
118,607 | ||||||||
Diversified Banks–4.23% | ||||||||
Bank of America Corp. | 48,760 | 647,045 | ||||||
Citigroup Inc. | 13,931 | 590,535 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Diversified Banks–(continued) | ||||||||
Comerica Inc. | 830 | $ | 34,138 | |||||
JPMorgan Chase & Co. | 17,357 | 1,078,564 | ||||||
U.S. Bancorp | 7,702 | 310,622 | ||||||
Wells Fargo & Co. | 21,931 | 1,037,994 | ||||||
3,698,898 | ||||||||
Diversified Chemicals–0.67% | ||||||||
Dow Chemical Co. (The) | 5,329 | 264,904 | ||||||
E. I. du Pont de Nemours and Co. | 4,145 | 268,596 | ||||||
Eastman Chemical Co. | 712 | 48,345 | ||||||
581,845 | ||||||||
Diversified Metals & Mining–0.08% | ||||||||
Freeport-McMoRan Inc. | 5,935 | 66,116 | ||||||
Diversified Support Services–0.05% | ||||||||
Cintas Corp. | 410 | 40,233 | ||||||
Drug Retail–0.95% | ||||||||
CVS Health Corp. | 5,097 | 487,987 | ||||||
Walgreens Boots Alliance, Inc. | 4,101 | 341,490 | ||||||
829,477 | ||||||||
Electric Utilities–2.22% | ||||||||
Alliant Energy Corp. | 1,078 | 42,797 | ||||||
American Electric Power Co., Inc. | 2,331 | 163,380 | ||||||
Duke Energy Corp. | 3,269 | 280,447 | ||||||
Edison International | 1,545 | 120,000 | ||||||
Entergy Corp. | 847 | 68,903 | ||||||
Eversource Energy | 1,504 | 90,090 | ||||||
Exelon Corp. | 4,365 | 158,711 | ||||||
FirstEnergy Corp. | 2,042 | 71,286 | ||||||
NextEra Energy, Inc. | 2,189 | 285,446 | ||||||
PG&E Corp. | 2,353 | 150,404 | ||||||
Pinnacle West Capital Corp. | 534 | 43,286 | ||||||
PPL Corp. | 3,212 | 121,253 | ||||||
Southern Co. (The) | 4,446 | 238,439 | ||||||
Xcel Energy, Inc. | 2,410 | 107,920 | ||||||
1,942,362 | ||||||||
Electrical Components & Equipment–0.53% | ||||||||
Acuity Brands, Inc. | 210 | 52,072 | ||||||
AMETEK, Inc. | 1,107 | 51,177 | ||||||
Eaton Corp. PLC | 2,173 | 129,793 | ||||||
Emerson Electric Co. | 3,053 | 159,244 | ||||||
Rockwell Automation, Inc. | 617 | 70,844 | ||||||
463,130 | ||||||||
Electronic Components–0.22% | ||||||||
Amphenol Corp.–Class A | 1,460 | 83,702 | ||||||
Corning Inc. | 5,103 | 104,509 | ||||||
188,211 | ||||||||
Electronic Equipment & Instruments–0.02% | ||||||||
FLIR Systems, Inc. | 662 | 20,489 | ||||||
Electronic Manufacturing Services–0.11% | ||||||||
TE Connectivity Ltd. (Switzerland) | 1,696 | 96,859 |
Shares | Value | |||||||
Environmental & Facilities Services–0.26% | ||||||||
Republic Services, Inc. | 1,125 | $ | 57,724 | |||||
Stericycle, Inc.(b) | 402 | 41,856 | ||||||
Waste Management, Inc. | 1,960 | 129,889 | ||||||
229,469 | ||||||||
Fertilizers & Agricultural Chemicals–0.36% | ||||||||
CF Industries Holdings, Inc. | 1,105 | 26,630 | ||||||
FMC Corp. | 643 | 29,777 | ||||||
Monsanto Co. | 2,072 | 214,266 | ||||||
Mosaic Co. (The) | 1,659 | 43,433 | ||||||
314,106 | ||||||||
Food Distributors–0.14% | ||||||||
Sysco Corp. | 2,486 | 126,140 | ||||||
Food Retail–0.25% | ||||||||
Kroger Co. (The) | 4,526 | 166,512 | ||||||
Whole Foods Market, Inc. | 1,522 | 48,734 | ||||||
215,246 | ||||||||
Footwear–0.40% | ||||||||
NIKE, Inc.–Class B | 6,319 | 348,809 | ||||||
Gas Utilities–0.04% | ||||||||
AGL Resources Inc. | 579 | 38,197 | ||||||
General Merchandise Stores–0.49% | ||||||||
Dollar General Corp. | 1,346 | 126,524 | ||||||
Dollar Tree, Inc.(b) | 1,117 | 105,283 | ||||||
Target Corp. | 2,796 | 195,217 | ||||||
427,024 | ||||||||
Gold–0.11% | ||||||||
Newmont Mining Corp. | 2,517 | 98,465 | ||||||
Health Care Distributors–0.55% | ||||||||
AmerisourceBergen Corp. | 869 | 68,929 | ||||||
Cardinal Health, Inc. | 1,545 | 120,525 | ||||||
Henry Schein, Inc.(b) | 394 | 69,659 | ||||||
McKesson Corp. | 1,067 | 199,156 | ||||||
Patterson Cos. Inc. | 394 | 18,869 | ||||||
477,138 | ||||||||
Health Care Equipment–2.37% | ||||||||
Abbott Laboratories | 6,973 | 274,109 | ||||||
Baxter International Inc. | 2,620 | 118,476 | ||||||
Becton, Dickinson and Co. | 1,006 | 170,608 | ||||||
Boston Scientific Corp.(b) | 6,440 | 150,503 | ||||||
C.R. Bard, Inc. | 347 | 81,600 | ||||||
Edwards Lifesciences Corp.(b) | 1,004 | 100,129 | ||||||
Hologic, Inc.(b) | 1,174 | 40,620 | ||||||
Intuitive Surgical, Inc.(b) | 179 | 118,392 | ||||||
Medtronic PLC | 6,674 | 579,103 | ||||||
St. Jude Medical, Inc. | 1,348 | 105,144 | ||||||
Stryker Corp. | 1,490 | 178,547 | ||||||
Varian Medical Systems, Inc.(b) | 459 | 37,744 | ||||||
Zimmer Biomet Holdings, Inc. | 944 | 113,639 | ||||||
2,068,614 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Health Care Facilities–0.19% | ||||||||
HCA Holdings, Inc.(b) | 1,428 | $ | 109,970 | |||||
Universal Health Services, Inc.–Class B | 425 | 56,993 | ||||||
166,963 | ||||||||
Health Care REIT’s–0.37% | ||||||||
HCP, Inc. | 2,216 | 78,402 | ||||||
Ventas, Inc. | 1,604 | 116,803 | ||||||
Welltower Inc. | 1,693 | 128,956 | ||||||
324,161 | ||||||||
Health Care Services–0.46% | ||||||||
DaVita HealthCare Partners Inc.(b) | 773 | 59,768 | ||||||
Express Scripts Holding Co.(b) | 3,002 | 227,552 | ||||||
Laboratory Corp. of America Holdings(b) | 489 | 63,702 | ||||||
Quest Diagnostics Inc. | 670 | 54,545 | ||||||
405,567 | ||||||||
Health Care Supplies–0.08% | ||||||||
DENTSPLY SIRONA Inc. | 1,110 | 68,864 | ||||||
Health Care Technology–0.10% | ||||||||
Cerner Corp.(b) | 1,427 | 83,622 | ||||||
Home Entertainment Software–0.23% | ||||||||
Activision Blizzard, Inc. | 2,417 | 95,786 | ||||||
Electronic Arts Inc.(b) | 1,430 | 108,337 | ||||||
204,123 | ||||||||
Home Furnishings–0.10% | ||||||||
Leggett & Platt, Inc. | 653 | 33,375 | ||||||
Mohawk Industries, Inc.(b) | 305 | 57,877 | ||||||
91,252 | ||||||||
Home Improvement Retail–1.24% | ||||||||
Home Depot, Inc. (The) | 5,904 | 753,882 | ||||||
Lowe’s Cos., Inc. | 4,205 | 332,910 | ||||||
1,086,792 | ||||||||
Homebuilding–0.14% | ||||||||
D.R. Horton, Inc. | 1,586 | 49,927 | ||||||
Lennar Corp.–Class A | 886 | 40,845 | ||||||
PulteGroup Inc. | 1,490 | 29,040 | ||||||
119,812 | ||||||||
Homefurnishing Retail–0.04% | ||||||||
Bed Bath & Beyond Inc. | 747 | 32,285 | ||||||
Hotel and Resort REIT’s–0.07% | ||||||||
Host Hotels & Resorts Inc. | 3,592 | 58,226 | ||||||
Hotels, Resorts & Cruise Lines–0.35% | ||||||||
Carnival Corp. | 2,080 | 91,936 | ||||||
Marriott International Inc.–Class A | 916 | 60,878 | ||||||
Royal Caribbean Cruises Ltd. | 795 | 53,384 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 799 | 59,086 | ||||||
Wyndham Worldwide Corp. | 530 | 37,752 | ||||||
303,036 | ||||||||
Household Appliances–0.07% | ||||||||
Whirlpool Corp. | 359 | 59,824 |
Shares | Value | |||||||
Household Products–2.02% | ||||||||
Church & Dwight Co., Inc. | 608 | $ | 62,557 | |||||
Clorox Co. (The) | 612 | 84,695 | ||||||
Colgate-Palmolive Co. | 4,238 | 310,222 | ||||||
Kimberly-Clark Corp. | 1,708 | 234,816 | ||||||
Procter & Gamble Co. (The) | 12,635 | 1,069,805 | ||||||
1,762,095 | ||||||||
Housewares & Specialties–0.12% | ||||||||
Newell Brands, Inc. | 2,166 | 105,203 | ||||||
Human Resource & Employment Services–0.03% | ||||||||
Robert Half International, Inc. | 645 | 24,613 | ||||||
Hypermarkets & Super Centers–0.98% | ||||||||
Costco Wholesale Corp. | 2,078 | 326,329 | ||||||
Wal-Mart Stores, Inc. | 7,248 | 529,249 | ||||||
855,578 | ||||||||
Independent Power Producers & Energy Traders–0.07% | ||||||||
AES Corp. (The) | 3,114 | 38,863 | ||||||
NRG Energy, Inc. | 1,450 | 21,735 | ||||||
60,598 | ||||||||
Industrial Conglomerates–2.57% | ||||||||
3M Co. | 2,878 | 503,995 | ||||||
Danaher Corp. | 2,843 | 287,143 | ||||||
General Electric Co.(d) | 43,651 | 1,374,134 | ||||||
Roper Technologies, Inc. | 479 | 81,698 | ||||||
2,246,970 | ||||||||
Industrial Gases–0.32% | ||||||||
Air Products and Chemicals, Inc. | 922 | 130,961 | ||||||
Praxair, Inc. | 1,353 | 152,064 | ||||||
283,025 | ||||||||
Industrial Machinery–0.68% | ||||||||
Dover Corp. | 746 | 51,713 | ||||||
Flowserve Corp. | 617 | 27,870 | ||||||
Illinois Tool Works Inc. | 1,534 | 159,781 | ||||||
Ingersoll-Rand PLC | 1,221 | 77,753 | ||||||
Parker-Hannifin Corp. | 638 | 68,936 | ||||||
Pentair PLC (United Kingdom) | 856 | 49,896 | ||||||
Snap-on Inc. | 275 | 43,401 | ||||||
Stanley Black & Decker Inc. | 711 | 79,077 | ||||||
Xylem, Inc. | 860 | 38,399 | ||||||
596,826 | ||||||||
Industrial REIT’s–0.14% | ||||||||
Prologis, Inc. | 2,492 | 122,208 | ||||||
Insurance Brokers–0.49% | ||||||||
Aon PLC | 1,256 | 137,193 | ||||||
Arthur J. Gallagher & Co. | 854 | 40,650 | ||||||
Marsh & McLennan Cos., Inc. | 2,473 | 169,302 | ||||||
Willis Towers Watson PLC | 656 | 81,547 | ||||||
428,692 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Integrated Oil & Gas–3.50% | ||||||||
Chevron Corp. | 8,945 | $ | 937,704 | |||||
Exxon Mobil Corp. | 19,683 | 1,845,084 | ||||||
Occidental Petroleum Corp. | 3,624 | 273,830 | ||||||
3,056,618 | ||||||||
Integrated Telecommunication Services–2.80% | ||||||||
AT&T Inc.(d) | 29,222 | 1,262,683 | ||||||
CenturyLink Inc. | 2,622 | 76,064 | ||||||
Frontier Communications Corp. | 5,533 | 27,333 | ||||||
Verizon Communications Inc. | 19,349 | 1,080,448 | ||||||
2,446,528 | ||||||||
Internet Retail–2.16% | ||||||||
Amazon.com, Inc.(b) | 1,835 | 1,313,163 | ||||||
Expedia, Inc. | 555 | 58,997 | ||||||
Netflix Inc.(b) | 2,032 | 185,887 | ||||||
Priceline Group Inc. (The)(b) | 234 | 292,128 | ||||||
TripAdvisor Inc.(b) | 541 | 34,786 | ||||||
1,884,961 | ||||||||
Internet Software & Services–4.08% | ||||||||
Akamai Technologies, Inc.(b) | 832 | 46,534 | ||||||
Alphabet Inc.–Class A(b) | 1,393 | 980,017 | ||||||
Alphabet Inc.–Class C(b) | 1,401 | 969,632 | ||||||
eBay Inc.(b) | 5,016 | 117,425 | ||||||
Facebook Inc.–Class A(b) | 10,973 | 1,253,994 | ||||||
VeriSign, Inc.(b) | 462 | 39,945 | ||||||
Yahoo! Inc.(b) | 4,133 | 155,235 | ||||||
3,562,782 | ||||||||
Investment Banking & Brokerage–0.73% | ||||||||
Charles Schwab Corp. (The) | 5,694 | 144,115 | ||||||
E*TRADE Financial Corp.(b) | 1,357 | 31,876 | ||||||
Goldman Sachs Group, Inc. (The) | 1,832 | 272,198 | ||||||
Morgan Stanley | 7,171 | 186,303 | ||||||
634,492 | ||||||||
IT Consulting & Other Services–1.34% | ||||||||
Accenture PLC–Class A | 2,960 | 335,338 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 2,875 | 164,565 | ||||||
CSRA Inc. | 650 | 15,230 | ||||||
International Business Machines Corp. | 4,191 | 636,110 | ||||||
Teradata Corp.(b) | 629 | 15,769 | ||||||
1,167,012 | ||||||||
Leisure Products–0.11% | ||||||||
Hasbro, Inc. | 540 | 45,355 | ||||||
Mattel, Inc. | 1,639 | 51,284 | ||||||
96,639 | ||||||||
Life & Health Insurance–0.76% | ||||||||
Aflac, Inc. | 1,964 | 141,722 | ||||||
Lincoln National Corp. | 1,133 | 43,926 | ||||||
MetLife, Inc. | 5,214 | 207,674 | ||||||
Principal Financial Group, Inc. | 1,278 | 52,539 | ||||||
Prudential Financial, Inc. | 2,097 | 149,600 | ||||||
Torchmark Corp. | 531 | 32,827 |
Shares | Value | |||||||
Life & Health Insurance–(continued) | ||||||||
Unum Group | 1,127 | $ | 35,827 | |||||
664,115 | ||||||||
Life Sciences Tools & Services–0.60% | ||||||||
Agilent Technologies, Inc. | 1,554 | 68,935 | ||||||
Illumina, Inc.(b) | 697 | 97,845 | ||||||
PerkinElmer, Inc. | 516 | 27,049 | ||||||
Thermo Fisher Scientific, Inc. | 1,867 | 275,868 | ||||||
Waters Corp.(b) | 390 | 54,853 | ||||||
524,550 | ||||||||
Managed Health Care–1.54% | ||||||||
Aetna Inc. | 1,663 | 203,102 | ||||||
Anthem, Inc. | 1,247 | 163,781 | ||||||
Centene Corp.(b) | 818 | 58,381 | ||||||
Cigna Corp. | 1,216 | 155,636 | ||||||
Humana Inc. | 706 | 126,995 | ||||||
UnitedHealth Group Inc. | 4,512 | 637,094 | ||||||
1,344,989 | ||||||||
Metal & Glass Containers–0.08% | ||||||||
Ball Corp. | 824 | 59,567 | ||||||
Owens-Illinois, Inc.(b) | 791 | 14,246 | ||||||
73,813 | ||||||||
Motorcycle Manufacturers–0.05% | ||||||||
Harley-Davidson, Inc. | 877 | 39,728 | ||||||
Movies & Entertainment–1.41% | ||||||||
Time Warner Inc. | 3,732 | 274,451 | ||||||
Twenty-First Century Fox, Inc.–Class A | 5,198 | 140,606 | ||||||
Twenty-First Century Fox, Inc.–Class B | 2,045 | 55,726 | ||||||
Viacom Inc.–Class B | 1,644 | 68,177 | ||||||
Walt Disney Co. (The) | 7,084 | 692,957 | ||||||
1,231,917 | ||||||||
Multi-Line Insurance–0.51% | ||||||||
American International Group, Inc. | 5,311 | 280,899 | ||||||
Assurant, Inc. | 299 | 25,807 | ||||||
Hartford Financial Services Group, Inc. (The) | 1,866 | 82,813 | ||||||
Loews Corp. | 1,290 | 53,006 | ||||||
442,525 | ||||||||
Multi-Sector Holdings–1.51% | ||||||||
Berkshire Hathaway Inc.–Class B(b) | 8,894 | 1,287,762 | ||||||
Leucadia National Corp. | 1,624 | 28,144 | ||||||
1,315,906 | ||||||||
Multi-Utilities–1.21% | ||||||||
Ameren Corp. | 1,150 | 61,617 | ||||||
CenterPoint Energy, Inc. | 2,015 | 48,360 | ||||||
CMS Energy Corp. | 1,336 | 61,269 | ||||||
Consolidated Edison, Inc. | 1,442 | 115,995 | ||||||
Dominion Resources, Inc. | 2,924 | 227,867 | ||||||
DTE Energy Co. | 850 | 84,252 | ||||||
NiSource Inc. | 1,525 | 40,443 | ||||||
Public Service Enterprise Group Inc. | 2,400 | 111,864 | ||||||
SCANA Corp. | 677 | 51,222 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Multi-Utilities–(continued) | ||||||||
Sempra Energy | 1,124 | $ | 128,159 | |||||
TECO Energy, Inc. | 1,135 | 31,371 | ||||||
WEC Energy Group, Inc. | 1,497 | 97,754 | ||||||
1,060,173 | ||||||||
Office REIT’s–0.26% | ||||||||
Boston Properties, Inc. | 728 | 96,023 | ||||||
SL Green Realty Corp. | 481 | 51,212 | ||||||
Vornado Realty Trust | 841 | 84,201 | ||||||
231,436 | ||||||||
Office Services & Supplies–0.02% | ||||||||
Pitney Bowes Inc. | 917 | 16,323 | ||||||
Oil & Gas Drilling–0.07% | ||||||||
Diamond Offshore Drilling, Inc. | 305 | 7,421 | ||||||
Helmerich & Payne, Inc. | 511 | 34,303 | ||||||
Transocean Ltd. | 1,582 | 18,810 | ||||||
60,534 | ||||||||
Oil & Gas Equipment & Services–1.02% | ||||||||
Baker Hughes Inc. | 2,077 | 93,735 | ||||||
FMC Technologies, Inc.(b) | 1,073 | 28,617 | ||||||
Halliburton Co. | 4,062 | 183,968 | ||||||
National Oilwell Varco Inc. | 1,811 | 60,940 | ||||||
Schlumberger Ltd. | 6,595 | 521,533 | ||||||
888,793 | ||||||||
Oil & Gas Exploration & Production–1.72% | ||||||||
Anadarko Petroleum Corp. | 2,422 | 128,971 | ||||||
Apache Corp. | 1,795 | 99,928 | ||||||
Cabot Oil & Gas Corp. | 2,206 | 56,782 | ||||||
Chesapeake Energy Corp.(b) | 2,732 | 11,693 | ||||||
Cimarex Energy Co. | 456 | 54,410 | ||||||
Concho Resources Inc.(b) | 617 | 73,590 | ||||||
ConocoPhillips | 5,877 | 256,237 | ||||||
Devon Energy Corp. | 2,486 | 90,118 | ||||||
EOG Resources, Inc. | 2,611 | 217,810 | ||||||
EQT Corp. | 819 | 63,415 | ||||||
Hess Corp. | 1,250 | 75,125 | ||||||
Marathon Oil Corp. | 4,022 | 60,370 | ||||||
Murphy Oil Corp. | 795 | 25,241 | ||||||
Newfield Exploration Co.(b) | 932 | 41,176 | ||||||
Noble Energy, Inc. | 2,033 | 72,924 | ||||||
Pioneer Natural Resources Co. | 775 | 117,188 | ||||||
Range Resources Corp. | 817 | 35,245 | ||||||
Southwestern Energy Co.(b) | 1,792 | 22,543 | ||||||
1,502,766 | ||||||||
Oil & Gas Refining & Marketing–0.49% | ||||||||
Marathon Petroleum Corp. | 2,514 | 95,431 | ||||||
Phillips 66 | 2,219 | 176,056 | ||||||
Tesoro Corp. | 568 | 42,555 | ||||||
Valero Energy Corp. | 2,229 | 113,679 | ||||||
427,721 | ||||||||
Oil & Gas Storage & Transportation–0.51% | ||||||||
Columbia Pipeline Group, Inc. | 1,927 | 49,119 | ||||||
Kinder Morgan Inc. | 8,685 | 162,583 |
Shares | Value | |||||||
Oil & Gas Storage & Transportation–(continued) | ||||||||
ONEOK, Inc. | 996 | $ | 47,260 | |||||
Spectra Energy Corp. | 3,238 | 118,608 | ||||||
Williams Cos., Inc. (The) | 3,241 | 70,103 | ||||||
447,673 | ||||||||
Packaged Foods & Meats–1.70% | ||||||||
Campbell Soup Co. | 850 | 56,550 | ||||||
ConAgra Foods, Inc. | 2,070 | 98,967 | ||||||
General Mills, Inc.(d) | 2,820 | 201,122 | ||||||
Hershey Co. (The) | 666 | 75,584 | ||||||
Hormel Foods Corp. | 1,302 | 47,653 | ||||||
JM Smucker Co. (The) | 567 | 86,416 | ||||||
Kellogg Co. | 1,195 | 97,572 | ||||||
Kraft Heinz Co. (The) | 2,827 | 250,133 | ||||||
McCormick & Co., Inc. | 555 | 59,202 | ||||||
Mead Johnson Nutrition Co. | 885 | 80,314 | ||||||
Mondelez International, Inc.–Class A | 7,366 | 335,227 | ||||||
Tyson Foods, Inc.–Class A | 1,425 | 95,176 | ||||||
1,483,916 | ||||||||
Paper Packaging–0.23% | ||||||||
Avery Dennison Corp. | 422 | 31,545 | ||||||
International Paper Co. | 1,950 | 82,641 | ||||||
Sealed Air Corp. | 934 | 42,936 | ||||||
WestRock Co. | 1,198 | 46,566 | ||||||
203,688 | ||||||||
Personal Products–0.11% | ||||||||
Estee Lauder Cos. Inc. (The)–Class A | 1,055 | 96,026 | ||||||
Pharmaceuticals–5.76% | ||||||||
Allergan PLC(b) | 1,876 | 433,525 | ||||||
Bristol-Myers Squibb Co. | 7,923 | 582,737 | ||||||
Eli Lilly and Co. | 4,605 | 362,644 | ||||||
Endo International PLC(b) | 1,005 | 15,668 | ||||||
Johnson & Johnson | 13,056 | 1,583,693 | ||||||
Mallinckrodt PLC(b) | 529 | 32,152 | ||||||
Merck & Co., Inc. | 13,139 | 756,938 | ||||||
Mylan N.V.(b) | 2,026 | 87,604 | ||||||
Perrigo Co. PLC | 678 | 61,474 | ||||||
Pfizer Inc. | 28,789 | 1,013,661 | ||||||
Zoetis Inc. | 2,166 | 102,798 | ||||||
5,032,894 | ||||||||
Property & Casualty Insurance–0.88% | ||||||||
Allstate Corp. (The) | 1,776 | 124,231 | ||||||
Chubb Ltd. | 2,203 | 287,954 | ||||||
Cincinnati Financial Corp. | 712 | 53,322 | ||||||
Progressive Corp. (The) | 2,766 | 92,661 | ||||||
Travelers Cos., Inc. (The) | 1,387 | 165,109 | ||||||
XL Group PLC | 1,378 | 45,901 | ||||||
769,178 | ||||||||
Publishing–0.03% | ||||||||
News Corp.–Class A | 1,820 | 20,657 | ||||||
News Corp.–Class B | 543 | 6,337 | ||||||
26,994 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Railroads–0.72% | ||||||||
CSX Corp. | 4,536 | $ | 118,299 | |||||
Kansas City Southern | 522 | 47,027 | ||||||
Norfolk Southern Corp. | 1,402 | 119,352 | ||||||
Union Pacific Corp. | 3,982 | 347,430 | ||||||
632,108 | ||||||||
Real Estate Services–0.04% | ||||||||
CBRE Group, Inc.–Class A(b) | 1,401 | 37,099 | ||||||
Regional Banks–0.92% | ||||||||
BB&T Corp. | 3,876 | 138,024 | ||||||
Citizens Financial Group Inc. | 2,510 | 50,150 | ||||||
Fifth Third Bancorp | 3,643 | 64,081 | ||||||
Huntington Bancshares Inc. | 3,834 | 34,276 | ||||||
KeyCorp | 3,997 | 44,167 | ||||||
M&T Bank Corp. | 753 | 89,027 | ||||||
People’s United Financial Inc. | 1,485 | 21,770 | ||||||
PNC Financial Services Group, Inc. (The) | 2,369 | 192,813 | ||||||
Regions Financial Corp. | 6,010 | 51,145 | ||||||
SunTrust Banks, Inc. | 2,377 | 97,647 | ||||||
Zions Bancorp. | 970 | 24,376 | ||||||
807,476 | ||||||||
Research & Consulting Services–0.28% | ||||||||
Dun & Bradstreet Corp. (The) | 177 | 21,566 | ||||||
Equifax Inc. | 571 | 73,316 | ||||||
Nielsen Holdings PLC | 1,711 | 88,921 | ||||||
Verisk Analytics, Inc.–Class A(b) | 744 | 60,323 | ||||||
244,126 | ||||||||
Residential REIT’s–0.44% | ||||||||
Apartment Investment & Management Co.–Class A | 754 | 33,297 | ||||||
AvalonBay Communities, Inc. | 650 | 117,253 | ||||||
Equity Residential | 1,734 | 119,438 | ||||||
Essex Property Trust, Inc. | 314 | 71,620 | ||||||
UDR, Inc. | 1,267 | 46,778 | ||||||
388,386 | ||||||||
Restaurants–1.31% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 137 | 55,178 | ||||||
Darden Restaurants, Inc. | 540 | 34,204 | ||||||
McDonald’s Corp. | 4,166 | 501,337 | ||||||
Starbucks Corp. | 6,953 | 397,155 | ||||||
Yum! Brands, Inc. | 1,933 | 160,284 | ||||||
1,148,158 | ||||||||
Retail REIT’s–0.75% | ||||||||
Federal Realty Investment Trust | 335 | 55,459 | ||||||
General Growth Properties, Inc. | 2,766 | 82,482 | ||||||
Kimco Realty Corp. | 1,991 | 62,478 | ||||||
Macerich Co. (The) | 598 | 51,063 | ||||||
Realty Income Corp. | 1,222 | 84,758 | ||||||
Simon Property Group, Inc. | 1,467 | 318,192 | ||||||
654,432 | ||||||||
Security & Alarm Services–0.10% | ||||||||
Tyco International PLC | 2,018 | 85,967 |
Shares | Value | |||||||
Semiconductor Equipment–0.28% | ||||||||
Applied Materials, Inc. | 5,169 | $ | 123,901 | |||||
KLA-Tencor Corp. | 749 | 54,864 | ||||||
Lam Research Corp. | 765 | 64,306 | ||||||
243,071 | ||||||||
Semiconductors–2.53% | ||||||||
Analog Devices, Inc. | 1,458 | 82,581 | ||||||
Broadcom Ltd. (Singapore) | 1,759 | 273,349 | ||||||
First Solar, Inc.(b) | 374 | 18,132 | ||||||
Intel Corp. | 22,414 | 735,179 | ||||||
Linear Technology Corp. | 1,153 | 53,649 | ||||||
Microchip Technology Inc. | 1,028 | 52,181 | ||||||
Micron Technology, Inc.(b) | 4,902 | 67,451 | ||||||
NVIDIA Corp. | 2,407 | 113,153 | ||||||
Qorvo, Inc.(b) | 617 | 34,095 | ||||||
QUALCOMM, Inc. | 6,972 | 373,490 | ||||||
Skyworks Solutions, Inc. | 902 | 57,079 | ||||||
Texas Instruments Inc. | 4,764 | 298,465 | ||||||
Xilinx, Inc. | 1,203 | 55,494 | ||||||
2,214,298 | ||||||||
Soft Drinks–2.01% | ||||||||
Coca-Cola Co. (The) | 18,482 | 837,789 | ||||||
Dr Pepper Snapple Group, Inc. | 881 | 85,131 | ||||||
Monster Beverage Corp.(b) | 667 | 107,193 | ||||||
PepsiCo, Inc. | 6,855 | 726,219 | ||||||
1,756,332 | ||||||||
Specialized Consumer Services–0.03% | ||||||||
H&R Block, Inc. | 1,061 | 24,403 | ||||||
Specialized Finance–0.62% | ||||||||
CME Group Inc.–Class A | 1,606 | 156,424 | ||||||
Intercontinental Exchange, Inc. | 564 | 144,362 | ||||||
Moody’s Corp. | 801 | 75,062 | ||||||
Nasdaq, Inc. | 552 | 35,698 | ||||||
S&P Global Inc. | 1,255 | 134,611 | ||||||
546,157 | ||||||||
Specialized REIT’s–1.12% | ||||||||
American Tower Corp. | 2,014 | 228,811 | ||||||
Crown Castle International Corp. | 1,598 | 162,085 | ||||||
Digital Realty Trust, Inc. | 695 | 75,748 | ||||||
Equinix, Inc. | 328 | 127,175 | ||||||
Extra Space Storage Inc. | 602 | 55,709 | ||||||
Iron Mountain Inc. | 1,133 | 45,127 | ||||||
Public Storage | 698 | 178,402 | ||||||
Weyerhaeuser Co. | 3,518 | 104,731 | ||||||
977,788 | ||||||||
Specialty Chemicals–0.55% | ||||||||
Albemarle Corp. | 533 | 42,272 | ||||||
Ecolab Inc. | 1,252 | 148,487 | ||||||
International Flavors & Fragrances Inc. | 377 | 47,529 | ||||||
PPG Industries, Inc. | 1,262 | 131,437 | ||||||
Sherwin-Williams Co. (The) | 372 | 109,245 | ||||||
478,970 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Specialty Stores–0.25% | ||||||||
Signet Jewelers Ltd. | 377 | $ | 31,069 | |||||
Staples, Inc. | 3,057 | 26,351 | ||||||
Tiffany & Co. | 530 | 32,139 | ||||||
Tractor Supply Co. | 632 | 57,626 | ||||||
Ulta Salon, Cosmetics & Fragrance, Inc.(b) | 295 | 71,874 | ||||||
219,059 | ||||||||
Steel–0.09% | ||||||||
Nucor Corp. | 1,508 | 74,510 | ||||||
Systems Software–3.07% | ||||||||
CA, Inc. | 1,426 | 46,816 | ||||||
Microsoft Corp. | 37,313 | 1,909,306 | ||||||
Oracle Corp. | 14,773 | 604,659 | ||||||
Red Hat, Inc.(b) | 860 | 62,436 | ||||||
Symantec Corp. | 2,941 | 60,408 | ||||||
2,683,625 | ||||||||
Technology Hardware, Storage & Peripherals–3.56% | ||||||||
Apple Inc. | 26,000 | 2,485,600 | ||||||
EMC Corp. | 9,271 | 251,893 | ||||||
Hewlett Packard Enterprise Co. | 7,887 | 144,096 | ||||||
HP Inc. | 8,119 | 101,893 | ||||||
NetApp, Inc. | 1,371 | 33,713 | ||||||
Seagate Technology PLC | 1,415 | 34,469 | ||||||
Western Digital Corp. | 1,352 | 63,896 | ||||||
3,115,560 | ||||||||
Tires & Rubber–0.04% | ||||||||
Goodyear Tire & Rubber Co. (The) | 1,261 | 32,357 |
Shares | Value | |||||||
Tobacco–1.83% | ||||||||
Altria Group, Inc. | 9,286 | $ | 640,363 | |||||
Philip Morris International Inc. | 7,363 | 748,964 | ||||||
Reynolds American Inc. | 3,928 | 211,837 | ||||||
1,601,164 | ||||||||
Trading Companies & Distributors–0.17% | ||||||||
Fastenal Co. | 1,390 | 61,702 | ||||||
United Rentals, Inc.(b) | 428 | 28,719 | ||||||
W.W. Grainger, Inc. | 266 | 60,448 | ||||||
150,869 | ||||||||
Trucking–0.06% | ||||||||
J.B. Hunt Transport Services, Inc. | 421 | 34,072 | ||||||
Ryder System, Inc. | 268 | 16,385 | ||||||
50,457 | ||||||||
Water Utilities–0.08% | ||||||||
American Water Works Co., Inc. | 842 | 71,157 | ||||||
Total Common Stocks & Other Equity Interests |
| 86,453,092 | ||||||
Money Market Funds–1.20% | ||||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(e) | 526,845 | 526,845 | ||||||
Premier Portfolio–Institutional Class, 0.40%(e) | 526,844 | 526,844 | ||||||
Total Money Market Funds | 1,053,689 | |||||||
TOTAL INVESTMENTS–100.13% |
| 87,506,781 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.13)% |
| (117,480 | ) | |||||
NET ASSETS–100.00% |
| $ | 87,389,301 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $33,515,029) | $ | 86,401,833 | ||
Investments in affiliates, at value (Cost $1,102,491) | 1,104,948 | |||
Total investments, at value (Cost $34,617,520) | 87,506,781 | |||
Receivable for: | ||||
Variation margin — futures | 11,700 | |||
Fund shares sold | 5,449 | |||
Dividends | 99,420 | |||
Investment for trustee deferred compensation and retirement plans | 28,434 | |||
Other assets | 8,326 | |||
Total assets | 87,660,110 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 96,056 | |||
Fund shares reacquired | 35,136 | |||
Accrued fees to affiliates | 81,879 | |||
Accrued trustees’ and officers’ fees and benefits | 631 | |||
Accrued other operating expenses | 21,149 | |||
Trustee deferred compensation and retirement plans | 35,958 | |||
Total liabilities | 270,809 | |||
Net assets applicable to shares outstanding | $ | 87,389,301 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 25,546,452 | ||
Undistributed net investment income | 2,070,883 | |||
Undistributed net realized gain | 6,876,901 | |||
Net unrealized appreciation | 52,895,065 | |||
$ | 87,389,301 | |||
Net Assets: | ||||
Series I | $ | 34,381,346 | ||
Series II | $ | 53,007,955 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 2,001,812 | |||
Series II | 3,105,840 | |||
Series I: | ||||
Net asset value per share | $ | 17.18 | ||
Series II: | ||||
Net asset value per share | $ | 17.07 |
Investment income: |
| |||
Dividends | $ | 995,974 | ||
Dividends from affiliates | 3,414 | |||
Total investment income | 999,388 | |||
Expenses: | ||||
Advisory fees | 52,576 | |||
Administrative services fees | 73,172 | |||
Custodian fees | 6,199 | |||
Distribution fees — Series II | 67,110 | |||
Transfer agent fees | 1,794 | |||
Trustees’ and officers’ fees and benefits | 9,715 | |||
Licensing fees | 8,568 | |||
Reports to shareholders | 1,928 | |||
Professional services fees | 14,757 | |||
Other | 4,632 | |||
Total expenses | 240,451 | |||
Less: Fees waived | (980 | ) | ||
Net expenses | 239,471 | |||
Net investment income | 759,917 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 3,890,554 | |||
Futures contracts | (103,005 | ) | ||
3,787,549 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (1,705,182 | ) | ||
Futures contracts | 14,294 | |||
(1,690,888 | ) | |||
Net realized and unrealized gain | 2,096,661 | |||
Net increase in net assets resulting from operations | $ | 2,856,578 |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. S&P 500 Index Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s
evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Fund S&P 500 Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of its performance universe for the one and three year periods and in the second quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one and three year periods and above the performance of the Index for the five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. S&P 500 Index Fund
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was the same as the rate of one such mutual fund.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco
Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds. The Board noted that although Invesco Advisers received a minimal amount of revenues from advising the Fund, Invesco Advisers and its subsidiaries did not make a profit from managing the Fund. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although
Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
Invesco V.I. S&P 500 Index Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2016 | |||
| ||||
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
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | |||||
Series I Shares | 1.08% | ||||
Series II Shares | 0.94 | ||||
S&P 500 Index▼ (Broad Market Index) | 3.84 | ||||
Russell 2000 Index▼ (Style-Specific Index) | 2.22 | ||||
Lipper VUF Small-Cap Core Funds Index¢ (Peer Group Index) | 3.78 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The S&P 500® Index is an unmanaged index considered representative of the US stock market. The Russell 2000® Index is an unmanaged index considered representative of small-cap stocks. The Russell 2000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. The Lipper VUF Small-Cap Core Funds Index is an unmanaged index considered representative of small-cap core variable insurance underlying funds tracked by Lipper. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (8/29/03) | 8.07 | % | ||||||||
10 Years | 6.22 | |||||||||
5 Years | 6.58 | |||||||||
1 Year | -9.66 | |||||||||
Series II Shares | ||||||||||
Inception (8/29/03) | 7.82 | % | ||||||||
10 Years | 5.96 | |||||||||
5 Years | 6.31 | |||||||||
1 Year | -9.91 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.04% and 1.29%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Small Cap Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. Small Cap Equity Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.36% |
| |||||||
Air Freight & Logistics–0.93% | ||||||||
Forward Air Corp. | 61,087 | $ | 2,720,204 | |||||
Alternative Carriers–1.06% | ||||||||
Iridium Communications Inc.(b)(c) | 347,357 | 3,084,530 | ||||||
Apparel, Accessories & Luxury Goods–0.96% | ||||||||
Columbia Sportswear Co. | 48,450 | 2,787,813 | ||||||
Application Software–3.79% | ||||||||
Blackbaud, Inc. | 51,281 | 3,481,980 | ||||||
Bottomline Technologies (de), Inc.(c) | 35,316 | 760,354 | ||||||
MicroStrategy Inc.–Class A(c) | 14,458 | 2,530,439 | ||||||
SS&C Technologies Holdings, Inc. | 86,904 | 2,440,264 | ||||||
Verint Systems Inc.(c) | 55,034 | 1,823,276 | ||||||
11,036,313 | ||||||||
Asset Management & Custody Banks–1.12% | ||||||||
Janus Capital Group Inc. | 235,241 | 3,274,555 | ||||||
Auto Parts & Equipment–0.91% | ||||||||
Visteon Corp. | 40,150 | 2,642,272 | ||||||
Biotechnology–0.59% | ||||||||
Retrophin, Inc.(c) | 96,916 | 1,726,074 | ||||||
Broadcasting–0.93% | ||||||||
Nexstar Broadcasting Group, Inc.–Class A(b) | 56,725 | 2,698,976 | ||||||
Building Products–2.33% | ||||||||
Apogee Enterprises, Inc. | 87,469 | 4,054,188 | ||||||
Trex Co., Inc.(c) | 61,199 | 2,749,059 | ||||||
6,803,247 | ||||||||
Casinos & Gaming–1.06% | ||||||||
Boyd Gaming Corp.(c) | 167,429 | 3,080,694 | ||||||
Construction & Engineering–2.36% | ||||||||
Dycom Industries, Inc.(c) | 53,630 | 4,813,829 | ||||||
Primoris Services Corp. | 108,991 | 2,063,199 | ||||||
6,877,028 | ||||||||
Construction Materials–0.99% | ||||||||
Eagle Materials Inc. | 37,331 | 2,880,087 | ||||||
Data Processing & Outsourced Services–3.06% | ||||||||
DST Systems, Inc. | 22,251 | 2,590,684 | ||||||
Genpact Ltd.(c) | 107,161 | 2,876,201 | ||||||
Jack Henry & Associates, Inc. | 39,742 | 3,468,285 | ||||||
8,935,170 | ||||||||
Diversified Support Services–0.97% | ||||||||
Mobile Mini, Inc. | 81,248 | 2,814,431 |
Shares | Value | |||||||
Electrical Components & Equipment–2.13% | ||||||||
EnerSys | 58,612 | $ | 3,485,656 | |||||
Generac Holdings, Inc.(c) | 78,278 | 2,736,599 | ||||||
6,222,255 | ||||||||
Electronic Components–0.82% | ||||||||
Belden Inc. | 39,617 | 2,391,678 | ||||||
Electronic Equipment & Instruments–1.03% | ||||||||
Coherent, Inc.(c) | 32,777 | 3,008,273 | ||||||
Environmental & Facilities Services–2.01% | ||||||||
ABM Industries Inc. | 28,488 | 1,039,242 | ||||||
Team, Inc.(c) | 69,472 | 1,724,990 | ||||||
Waste Connections, Inc. (Canada) | 43,161 | 3,109,750 | ||||||
5,873,982 | ||||||||
Gas Utilities–1.36% | ||||||||
UGI Corp. | 87,387 | 3,954,262 | ||||||
Health Care Equipment–3.89% | ||||||||
Analogic Corp. | 38,638 | 3,069,403 | ||||||
Globus Medical, Inc.–Class A(c) | 128,989 | 3,073,808 | ||||||
Hill-Rom Holdings, Inc. | 69,011 | 3,481,605 | ||||||
Wright Medical Group N.V.(c) | 98,291 | 1,707,314 | ||||||
11,332,130 | ||||||||
Health Care Facilities–1.08% | ||||||||
Community Health Systems Inc.(c) | 37,992 | 457,804 | ||||||
LifePoint Health, Inc.(c) | 41,239 | 2,695,793 | ||||||
3,153,597 | ||||||||
Health Care Services–0.75% | ||||||||
Team Health Holdings, Inc.(c) | 54,047 | 2,198,092 | ||||||
Health Care Technology–1.85% | ||||||||
HMS Holdings Corp.(c) | 141,496 | 2,491,744 | ||||||
Press Ganey Holdings, Inc.(c) | 73,608 | 2,896,475 | ||||||
5,388,219 | ||||||||
Home Entertainment Software–1.18% | ||||||||
Take-Two Interactive Software, Inc.(c) | 90,795 | 3,442,946 | ||||||
Home Furnishings–1.02% | ||||||||
La-Z-Boy Inc. | 106,825 | 2,971,872 | ||||||
Homebuilding–0.39% | ||||||||
Beazer Homes USA, Inc.(c) | 148,158 | 1,148,225 | ||||||
Household Appliances–1.35% | ||||||||
Helen of Troy Ltd.(c) | 38,194 | 3,927,871 | ||||||
Industrial Machinery–2.29% | ||||||||
Albany International Corp.–Class A | 86,647 | 3,459,815 | ||||||
Watts Water Technologies, Inc.–Class A | 55,250 | 3,218,865 | ||||||
6,678,680 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Investment Banking & Brokerage–1.25% | ||||||||
E*TRADE Financial Corp.(c) | 154,987 | $ | 3,640,645 | |||||
IT Consulting & Other Services–0.68% | ||||||||
Luxoft Holding, Inc.(c) | 38,024 | 1,978,008 | ||||||
Leisure Facilities–1.06% | ||||||||
Vail Resorts, Inc. | 22,436 | 3,101,328 | ||||||
Life & Health Insurance–1.03% | ||||||||
CNO Financial Group, Inc. | 171,444 | 2,993,412 | ||||||
Life Sciences Tools & Services–2.28% | ||||||||
Bio-Techne Corp. | 33,733 | 3,804,070 | ||||||
Cambrex Corp.(c) | 55,026 | 2,846,495 | ||||||
6,650,565 | ||||||||
Multi-Line Insurance–1.61% | ||||||||
American Financial Group, Inc. | 42,073 | 3,110,457 | ||||||
Horace Mann Educators Corp. | 47,179 | 1,594,178 | ||||||
4,704,635 | ||||||||
Office Services & Supplies–0.80% | ||||||||
Pitney Bowes Inc. | 131,315 | 2,337,407 | ||||||
Oil & Gas Drilling–0.66% | ||||||||
Precision Drilling Corp. (Canada) | 365,033 | 1,934,675 | ||||||
Oil & Gas Equipment & Services–2.19% | ||||||||
Forum Energy Technologies Inc.(c) | 154,406 | 2,672,768 | ||||||
Superior Energy Services, Inc. | 201,852 | 3,716,095 | ||||||
6,388,863 | ||||||||
Oil & Gas Exploration & Production–3.60% | ||||||||
Energen Corp. | 74,374 | 3,585,571 | ||||||
Newfield Exploration Co.(c) | 79,970 | 3,533,075 | ||||||
RSP Permian Inc.(c) | 96,641 | 3,371,804 | ||||||
10,490,450 | ||||||||
Oil & Gas Storage & Transportation–0.06% | ||||||||
Scorpio Tankers Inc. (Monaco) | 43,846 | 184,153 | ||||||
Packaged Foods & Meats–2.41% | ||||||||
Pinnacle Foods Inc. | 85,838 | 3,973,441 | ||||||
TreeHouse Foods, Inc.(c) | 29,873 | 3,066,463 | ||||||
7,039,904 | ||||||||
Paper Packaging–1.48% | ||||||||
Graphic Packaging Holding Co. | 344,208 | 4,316,368 | ||||||
Pharmaceuticals–1.52% | ||||||||
Impax Laboratories, Inc.(c) | 78,674 | 2,267,385 | ||||||
Phibro Animal Health Corp.–Class A | 86,568 | 1,615,359 | ||||||
Supernus Pharmaceuticals Inc.(c) | 27,061 | 551,232 | ||||||
4,433,976 | ||||||||
Property & Casualty Insurance–1.11% | ||||||||
Hanover Insurance Group Inc. (The) | 38,387 | 3,248,308 |
Shares | Value | |||||||
Real Estate Services–1.43% | ||||||||
Jones Lang LaSalle Inc. | 19,252 | $ | 1,876,107 | |||||
Kennedy-Wilson Holdings Inc. | 121,604 | 2,305,612 | ||||||
4,181,719 | ||||||||
Regional Banks–10.85% | ||||||||
Bank of the Ozarks, Inc. | 72,919 | 2,735,921 | ||||||
BankUnited, Inc. | 83,775 | 2,573,568 | ||||||
East West Bancorp, Inc. | 86,908 | 2,970,515 | ||||||
Glacier Bancorp, Inc. | 104,148 | 2,768,254 | ||||||
Great Western Bancorp, Inc. | 95,751 | 3,019,987 | ||||||
IBERIABANK Corp. | 46,589 | 2,782,761 | ||||||
Pinnacle Financial Partners, Inc. | 57,763 | 2,821,723 | ||||||
PrivateBancorp, Inc. | 70,349 | 3,097,466 | ||||||
Synovus Financial Corp. | 93,959 | 2,723,871 | ||||||
Webster Financial Corp. | 83,134 | 2,822,399 | ||||||
Western Alliance Bancorp(c) | 101,409 | 3,311,004 | ||||||
31,627,469 | ||||||||
Restaurants–4.08% | ||||||||
Cracker Barrel Old Country Store, Inc.(b) | 18,948 | 3,249,014 | ||||||
Panera Bread Co.–Class A(c) | 13,468 | 2,854,408 | ||||||
Papa John’s International, Inc. | 49,474 | 3,364,232 | ||||||
Sonic Corp. | 89,401 | 2,418,297 | ||||||
11,885,951 | ||||||||
Semiconductor Equipment–2.20% | ||||||||
Entegris Inc.(c) | 232,103 | 3,358,531 | ||||||
Tessera Technologies Inc. | 99,335 | 3,043,624 | ||||||
6,402,155 | ||||||||
Semiconductors–2.97% | ||||||||
Intersil Corp.–Class A | 211,741 | 2,866,973 | ||||||
MA-COM Technology Solutions Holdings | 82,689 | 2,727,083 | ||||||
Microsemi Corp.(c) | 94,156 | 3,077,018 | ||||||
8,671,074 | ||||||||
Specialized REIT’s–2.19% | ||||||||
CubeSmart | 123,818 | 3,823,500 | ||||||
Geo Group Inc. (The) | 74,948 | 2,561,722 | ||||||
6,385,222 | ||||||||
Specialty Chemicals–3.37% | ||||||||
Minerals Technologies Inc. | 53,792 | 3,055,385 | ||||||
PolyOne Corp. | 84,265 | 2,969,499 | ||||||
Sensient Technologies Corp. | 53,669 | 3,812,646 | ||||||
9,837,530 | ||||||||
Specialty Stores–2.97% | ||||||||
GNC Holdings, Inc.–Class A | 85,486 | 2,076,455 | ||||||
Michaels Cos., Inc. (The)(c) | 138,021 | 3,925,317 | ||||||
Sally Beauty Holdings, Inc.(c) | 89,930 | 2,644,841 | ||||||
8,646,613 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Technology Distributors–1.07% | ||||||||
Tech Data Corp.(c) | 43,302 | $ | 3,111,249 | |||||
Technology Hardware, Storage & Peripherals–0.72% | ||||||||
Cray, Inc.(c) | 70,488 | 2,109,001 | ||||||
Trucking–1.56% | ||||||||
Celadon Group, Inc. | 128,020 | 1,045,923 | ||||||
Heartland Express, Inc.(b) | 14,432 | 250,973 | ||||||
Old Dominion Freight Line, Inc.(c) | 53,686 | 3,237,802 | ||||||
4,534,698 | ||||||||
Total Common Stocks & Other Equity Interests |
| 283,888,854 | ||||||
Money Market Funds–1.52% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(d) | 2,205,311 | 2,205,311 | ||||||
Premier Portfolio–Institutional Class, 0.40%(d) | 2,205,311 | 2,205,311 | ||||||
Total Money Market Funds | 4,410,622 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–98.88% |
| 288,299,476 |
Shares | Value | |||||||
Investments Purchased with Cash |
| |||||||
Money Market Funds–2.50% |
| |||||||
Liquid Assets Portfolio–Institutional Class, 0.44% | 7,290,209 | $ | 7,290,209 | |||||
TOTAL INVESTMENTS–101.38% | 295,589,685 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.38)% |
| (4,010,103 | ) | |||||
NET ASSETS–100.00% | $ | 291,579,582 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $249,430,638)* | $ | 283,888,854 | ||
Investments in affiliated money market funds, at value and cost | 11,700,831 | |||
Total investments, at value (Cost $261,131,469) | 295,589,685 | |||
Receivable for: | ||||
Investments sold | 4,537,891 | |||
Fund shares sold | 85,459 | |||
Dividends | 186,197 | |||
Investment for trustee deferred compensation and retirement plans | 68,652 | |||
Other assets | 894 | |||
Total assets | 300,468,778 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 537,067 | |||
Fund shares reacquired | 533,153 | |||
Collateral upon return of securities loaned | 7,290,209 | |||
Accrued fees to affiliates | 429,008 | |||
Accrued trustees’ and officers’ fees and benefits | 712 | |||
Accrued other operating expenses | 21,158 | |||
Trustee deferred compensation and retirement plans | 77,889 | |||
Total liabilities | 8,889,196 | |||
Net assets applicable to shares outstanding | $ | 291,579,582 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 230,717,310 | ||
Undistributed net investment income | (5,593 | ) | ||
Undistributed net realized gain | 26,409,649 | |||
Net unrealized appreciation | 34,458,216 | |||
$ | 291,579,582 | |||
Net Assets: |
| |||
Series I | $ | 156,448,169 | ||
Series II | $ | 135,131,413 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 8,774,987 | |||
Series II | 7,892,523 | |||
Series I: | ||||
Net asset value per share | $ | 17.83 | ||
Series II: | ||||
Net asset value per share | $ | 17.12 |
* | At June 30, 2016, securities with an aggregate value of $7,094,468 were on loan to brokers. |
Investment income: |
| |||
Dividends | $ | 1,689,227 | ||
Dividends from affiliated money market funds (includes securities lending income of $34,873) | 46,662 | |||
Total investment income | 1,735,889 | |||
Expenses: | ||||
Advisory fees | 1,059,732 | |||
Administrative services fees | 381,810 | |||
Custodian fees | 7,738 | |||
Distribution fees — Series II | 159,850 | |||
Transfer agent fees | 22,609 | |||
Trustees’ and officers’ fees and benefits | 12,129 | |||
Reports to shareholders | 1,939 | |||
Professional services fees | 24,656 | |||
Other | 5,072 | |||
Total expenses | 1,675,535 | |||
Less: Fees waived | (4,091 | ) | ||
Net expenses | 1,671,444 | |||
Net investment income | 64,445 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities | 4,930,135 | |||
Change in net unrealized appreciation (depreciation) of investment securities | (1,437,594 | ) | ||
Net realized and unrealized gain | 3,492,541 | |||
Net increase in net assets resulting from operations | $ | 3,556,986 |
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 |
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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 |
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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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Small Cap Equity Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which met throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s evaluation is
prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Fund Small-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of its performance universe for the one and five year periods and the fifth quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. Small Cap Equity Fund
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one such mutual fund. The Board also noted how the Fund’s rate compared to the effective sub-adviser fee rate of three mutual funds sub-advised by Invesco Advisers.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other types of client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco
Funds and to manage other client accounts tended to be more comparable, reflecting a similar scope of services.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed
and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
Invesco V.I. Small Cap Equity Fund
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Semiannual Report to Shareholders
| June 30, 2016 | |||
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Invesco V.I. Technology Fund | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. | ||||
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. I-VITEC-SAR-1 | ||||
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | |||||
Series I Shares | -8.92% | ||||
Series II Shares | -9.05 | ||||
NASDAQ Composite Index▼ (Broad Market/Style-Specific Index)* | -2.66 | ||||
S&P 500 Index▼ (Former Broad Market Index)* | 3.84 | ||||
The BofA Merrill Lynch 100 Technology Index (price only)¢ (Former Style-Specific Index)* | 0.35 | ||||
Lipper VUF Science & Technology Funds Classification Average¿ (Peer Group) | 0.23 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Bloomberg LP; ¿Lipper Inc.
* The Fund has elected to use the NASDAQ Composite Index as its broad market/style-specific index rather than the S&P 500 Index as its broad market index and The BofA Merrill Lynch 100 Technology Index as its style-specific index, because the NASDAQ Composite Index more closely reflects the performance of the types of securities in which the Fund invests. | |||||
The NASDAQ Composite Index is a broad-based, capitalization-weighted, total return index of all Nasdaq domestic and international based common type stocks listed on the Nasdaq stock market. The S&P 500® Index is an unmanaged index considered representative of the US stock market. The BofA Merrill Lynch 100 Technology Index (price only) is an unmanaged, price-only equal-dollar-weighted index of 100 stocks designed to measure the performance of a cross section of large, actively traded technology stocks and American Depositary Receipts. The Lipper VUF Science & Technology Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper Science & Technology Funds classification. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (5/20/97) | 4.47 | % | ||||||||
10 Years | 6.09 | |||||||||
5 Years | 6.26 | |||||||||
1 Year | -6.18 | |||||||||
Series II Shares | ||||||||||
Inception (4/30/04) | 5.84 | % | ||||||||
10 Years | 5.83 | |||||||||
5 Years | 6.00 | |||||||||
1 Year | -6.37 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.15% and 1.40%, respectively.
The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Technology Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. Technology Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.90% |
| |||||||
Aerospace & Defense–4.15% | ||||||||
Raytheon Co. | 29,186 | $ | 3,967,837 | |||||
Application Software–2.48% | ||||||||
salesforce.com, inc.(b) | 29,911 | 2,375,232 | ||||||
Biotechnology–12.94% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 6,238 | 728,349 | ||||||
Alkermes PLC(b) | 48,245 | 2,085,149 | ||||||
Amgen Inc. | 10,255 | 1,560,298 | ||||||
Biogen Inc.(b) | 3,540 | 856,043 | ||||||
Celgene Corp.(b) | 32,463 | 3,201,826 | ||||||
Gilead Sciences, Inc. | 35,532 | 2,964,079 | ||||||
Vertex Pharmaceuticals Inc.(b) | 11,381 | 978,994 | ||||||
12,374,738 | ||||||||
Cable & Satellite–3.63% | ||||||||
Charter Communications, Inc.–Class A(b) | 3,223 | 736,906 | ||||||
DISH Network Corp.–Class A(b) | 52,247 | 2,737,743 | ||||||
3,474,649 | ||||||||
Communications Equipment–0.63% | ||||||||
Palo Alto Networks, Inc.(b) | 4,944 | 606,332 | ||||||
Consumer Electronics–3.76% | ||||||||
Harman International Industries, Inc. | 18,435 | 1,324,002 | ||||||
Sony Corp. (Japan) | 77,800 | 2,277,124 | ||||||
3,601,126 | ||||||||
Data Processing & Outsourced Services–8.03% | ||||||||
First Data Corp.–Class A(b) | 56,937 | 630,293 | ||||||
MasterCard, Inc.–Class A | 29,398 | 2,588,788 | ||||||
Vantiv, Inc.–Class A(b) | 14,062 | 795,909 | ||||||
Visa Inc.–Class A | 49,394 | 3,663,553 | ||||||
7,678,543 | ||||||||
Health Care Equipment–1.87% | ||||||||
Medtronic PLC | 20,631 | 1,790,152 | ||||||
Home Entertainment Software–7.27% | ||||||||
Activision Blizzard, Inc. | 82,952 | 3,287,388 | ||||||
Electronic Arts Inc.(b) | 22,603 | 1,712,403 | ||||||
Nintendo Co., Ltd. (Japan) | 6,900 | 984,623 | ||||||
Take-Two Interactive Software, Inc.(b) | 25,554 | 969,007 | ||||||
6,953,421 | ||||||||
Internet Retail–8.99% | ||||||||
Amazon.com, Inc.(b) | 8,827 | 6,316,778 | ||||||
Netflix Inc.(b) | 9,817 | 898,059 | ||||||
Priceline Group Inc. (The)(b) | 1,109 | 1,384,487 | ||||||
8,599,324 |
Shares | Value | |||||||
Internet Software & Services–16.46% | ||||||||
Alibaba Group Holding Ltd.–ADR | 7,383 | $ | 587,170 | |||||
Alphabet Inc.–Class A(b) | 8,660 | 6,092,570 | ||||||
Alphabet Inc.–Class C(b) | 3,199 | 2,214,028 | ||||||
Facebook Inc.–Class A(b) | 59,935 | 6,849,371 | ||||||
15,743,139 | ||||||||
IT Consulting & Other Services–0.56% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 9,331 | 534,106 | ||||||
Life Sciences Tools & Services–2.62% | ||||||||
Thermo Fisher Scientific, Inc. | 16,955 | 2,505,271 | ||||||
Managed Health Care–0.80% | ||||||||
UnitedHealth Group Inc. | 5,419 | 765,163 | ||||||
Pharmaceuticals–4.98% | ||||||||
Allergan PLC(b) | 6,264 | 1,447,548 | ||||||
Bristol-Myers Squibb Co. | 30,864 | 2,270,047 | ||||||
Eli Lilly and Co. | 13,317 | 1,048,714 | ||||||
4,766,309 | ||||||||
Semiconductors–8.03% | ||||||||
Broadcom Ltd. (Singapore) | 25,443 | 3,953,842 | ||||||
Integrated Device Technology, Inc.(b) | 78,601 | 1,582,238 | ||||||
NXP Semiconductors N.V. | 27,450 | 2,150,433 | ||||||
7,686,513 | ||||||||
Systems Software–5.33% | ||||||||
Microsoft Corp. | 83,773 | 4,286,664 | ||||||
ServiceNow, Inc.(b) | 12,254 | 813,666 | ||||||
5,100,330 | ||||||||
Technology Hardware, Storage & Peripherals–4.39% | ||||||||
Apple Inc. | 43,967 | 4,203,245 | ||||||
Wireless Telecommunication Services–1.98% | ||||||||
Sprint Corp.(b) | 417,684 | 1,892,109 | ||||||
Total Common Stocks & Other Equity Interests (Cost $68,779,185) |
| 94,617,539 | ||||||
Money Market Funds–1.84% | ||||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(c) | 879,652 | 879,652 | ||||||
Premier Portfolio–Institutional Class, 0.40%(c) | 879,652 | 879,652 | ||||||
Total Money Market Funds | 1,759,304 | |||||||
TOTAL INVESTMENTS–100.74% | 96,376,843 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.74)% |
| (703,942 | ) | |||||
NET ASSETS–100.00% |
| $ | 95,672,901 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $68,779,185) | $ | 94,617,539 | ||
Investments in affiliated money market funds, at value and cost | 1,759,304 | |||
Total investments, at value (Cost $70,538,489) | 96,376,843 | |||
Foreign currencies, at value (Cost $10,361) | 10,425 | |||
Receivable for: | ||||
Fund shares sold | 31,025 | |||
Dividends | 14,697 | |||
Investment for trustee deferred compensation and retirement plans | 60,460 | |||
Total assets | 96,493,450 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 518,982 | |||
Fund shares reacquired | 97,372 | |||
Accrued fees to affiliates | 123,667 | |||
Accrued trustees’ and officers’ fees and benefits | 640 | |||
Accrued other operating expenses | 13,205 | |||
Trustee deferred compensation and retirement plans | 66,683 | |||
Total liabilities | 820,549 | |||
Net assets applicable to shares outstanding | $ | 95,672,901 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 66,559,676 | ||
Undistributed net investment income (loss) | (230,154 | ) | ||
Undistributed net realized gain | 3,504,961 | |||
Net unrealized appreciation | 25,838,418 | |||
$ | 95,672,901 | |||
Net Assets: |
| |||
Series I | $ | 88,623,675 | ||
Series II | $ | 7,049,226 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 5,167,160 | |||
Series II | 427,770 | |||
Series I: | ||||
Net asset value per share | $ | 17.15 | ||
Series II: | ||||
Net asset value per share | $ | 16.48 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $531) | $ | 392,796 | ||
Dividends from affiliated money market funds (includes securities lending income of $527) | 5,225 | |||
Total investment income | 398,021 | |||
Expenses: | ||||
Advisory fees | 367,263 | |||
Administrative services fees | 145,382 | |||
Custodian fees | 2,531 | |||
Distribution fees — Series II | 8,846 | |||
Transfer agent fees | 9,019 | |||
Trustees’ and officers’ fees and benefits | 10,714 | |||
Reports to shareholders | 1,493 | |||
Professional services fees | 16,362 | |||
Other | 1,033 | |||
Total expenses | 562,643 | |||
Less: Fees waived | (1,865 | ) | ||
Net expenses | 560,778 | |||
Net investment income (loss) | (162,757 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (709,632 | ) | ||
Foreign currencies | 131 | |||
(709,501 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (9,520,638 | ) | ||
Foreign currencies | (41 | ) | ||
(9,520,679 | ) | |||
Net realized and unrealized gain (loss) | (10,230,180 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (10,392,937 | ) |
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) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
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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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Technology Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s
evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Fund Science & Technology Funds Index. The Board noted that performance of Series I shares of the Fund was in the second quintile of its performance universe for the one year period and the fourth quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one year period and below the performance of the Index for the three and five year periods. Invesco Advisers advised the Board that the portfolio management team had changed in 2014 and
Invesco V.I. Technology Fund
the benchmark had changed in 2015 to better align with the investment process of the team. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rates of two such mutual funds. The Board also noted how the Fund’s rate compared to the effective sub-adviser fee rate of one fund sub-advised by Invesco Advisers.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by
Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
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
Performance summary
| |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/15 to 6/30/16, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | |||||
Series I Shares | -4.99% | ||||
Series II Shares | -5.01 | ||||
S&P 500 Index▼ (Broad Market Index) | 3.84 | ||||
S&P 1500 Value Index▼ (Style-Specific Index) | 6.62 | ||||
Lipper VUF Multi-Cap Value Funds Index¢ (Peer Group Index) | 5.14 | ||||
Source(s): ▼FactSet Research Systems Inc.; ¢Lipper Inc. | |||||
The S&P 500® Index is an unmanaged index considered representative of the US stock market. The S&P 1500 Value Index combines the value stocks of the S&P 500 Index, S&P MidCap 400 Index and the S&P SmallCap 600 Index. The Lipper VUF Multi-Cap Value Funds Index is an unmanaged index considered representative of multi-cap value variable insurance underlying funds tracked by Lipper. The S&P MidCap 400® Index is an unmanaged index considered representative of mid-sized US companies. The S&P SmallCap 600® Index is a market-value weighted index considered representative of small-cap US stocks. The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns | ||||||||||
As of 6/30/16 | ||||||||||
Series I Shares | ||||||||||
Inception (9/10/01) | 2.92 | % | ||||||||
10 Years | 1.91 | |||||||||
5 Years | 6.05 | |||||||||
1 Year | -15.81 | |||||||||
Series II Shares | ||||||||||
Inception (9/10/01) | 2.67 | % | ||||||||
10 Years | 1.66 | |||||||||
5 Years | 5.80 | |||||||||
1 Year | -15.90 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.04% and 1.29%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Value Opportunities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable
Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Fund performance reflects any applicable fee waivers and/or expense reimbursements. Had the adviser not waived fees and/or reimbursed expenses currently or in the past, returns would have been lower. See current prospectus for more information.
Invesco V.I. Value Opportunities Fund |
Schedule of Investments(a)
June 30, 2016
(Unaudited)
Shares | Value | |||||||
Common Stocks–93.40% |
| |||||||
Advertising–1.84% | ||||||||
Omnicom Group Inc. | 27,615 | $ | 2,250,346 | |||||
Asset Management & Custody Banks–4.58% | ||||||||
Affiliated Managers Group, Inc.(b) | 39,840 | 5,608,277 | ||||||
Auto Parts & Equipment–5.18% | ||||||||
Dana Holding Corp. | 301,700 | 3,185,952 | ||||||
Gentex Corp. | 204,451 | 3,158,768 | ||||||
6,344,720 | ||||||||
Building Products–0.25% | ||||||||
Owens Corning | 5,888 | 303,350 | ||||||
Construction & Engineering–4.59% | ||||||||
AECOM(b) | 176,704 | 5,613,886 | ||||||
Consumer Electronics–2.29% | ||||||||
Harman International Industries, Inc. | 39,000 | 2,800,980 | ||||||
Consumer Finance–3.38% | ||||||||
Synchrony Financial(b) | 163,432 | 4,131,561 | ||||||
Diversified Banks–11.35% | ||||||||
Bank of America Corp. | 281,502 | 3,735,532 | ||||||
Citigroup Inc. | 95,372 | 4,042,819 | ||||||
JPMorgan Chase & Co. | 94,060 | 5,844,888 | ||||||
Wells Fargo & Co. | 5,685 | 269,071 | ||||||
13,892,310 | ||||||||
Electronic Components–5.61% | ||||||||
Belden Inc. | 113,756 | 6,867,450 | ||||||
Electronic Equipment & Instruments–2.35% | ||||||||
FLIR Systems, Inc. | 92,800 | 2,872,160 | ||||||
Electronic Manufacturing Services–1.22% | ||||||||
Flextronics International Ltd.(b) | 127,000 | 1,498,600 | ||||||
Health Care Facilities–2.23% | ||||||||
Brookdale Senior Living Inc.(b) | 176,973 | 2,732,463 | ||||||
Health Care Supplies–1.31% | ||||||||
Alere, Inc.(b) | 38,424 | 1,601,512 | ||||||
Hotels, Resorts & Cruise Lines–1.02% | ||||||||
Carnival Corp. | 28,300 | 1,250,860 | ||||||
Human Resource & Employment Services–1.79% | ||||||||
ManpowerGroup Inc. | 34,000 | 2,187,560 | ||||||
Investment Banking & Brokerage–7.63% | ||||||||
E*TRADE Financial Corp.(b) | 87,500 | 2,055,375 | ||||||
LPL Financial Holdings, Inc. | 148,019 | 3,334,868 | ||||||
TD Ameritrade Holding Corp. | 138,500 | 3,943,788 | ||||||
9,334,031 |
Shares | Value | |||||||
Life & Health Insurance–6.49% | ||||||||
Aflac, Inc. | 18,334 | $ | 1,322,981 | |||||
MetLife, Inc. | 76,317 | 3,039,706 | ||||||
Unum Group | 112,812 | 3,586,294 | ||||||
7,948,981 | ||||||||
Managed Health Care–1.47% | ||||||||
Anthem, Inc. | 13,700 | 1,799,358 | ||||||
Oil & Gas Equipment & Services–3.50% | ||||||||
Halliburton Co. | 31,200 | 1,413,048 | ||||||
Weatherford International PLC(b) | 516,850 | 2,868,518 | ||||||
4,281,566 | ||||||||
Oil & Gas Exploration & Production–2.06% | ||||||||
Apache Corp. | 45,300 | 2,521,851 | ||||||
Personal Products–0.77% | ||||||||
Nu Skin Enterprises, Inc.–Class A | 20,467 | 945,371 | ||||||
Pharmaceuticals–2.02% | ||||||||
Novartis AG (Switzerland) | 23,552 | 1,937,774 | ||||||
Pfizer Inc. | 15,176 | 534,347 | ||||||
2,472,121 | ||||||||
Property & Casualty Insurance–3.03% | ||||||||
AmTrust Financial Services, Inc. | 151,202 | 3,704,449 | ||||||
Real Estate Services–2.04% | ||||||||
Realogy Holdings Corp.(b) | 86,166 | 2,500,537 | ||||||
Regional Banks–4.88% | ||||||||
First Horizon National Corp. | 140,600 | 1,937,468 | ||||||
SVB Financial Group(b) | 13,400 | 1,275,144 | ||||||
Zions Bancorp. | 109,739 | 2,757,741 | ||||||
5,970,353 | ||||||||
Semiconductor Equipment–2.23% | ||||||||
Lam Research Corp. | 32,400 | 2,723,544 | ||||||
Semiconductors–2.85% | ||||||||
ON Semiconductor Corp.(b) | 395,600 | 3,489,192 | ||||||
Steel–2.51% | ||||||||
Allegheny Technologies, Inc. | 240,900 | 3,071,475 | ||||||
Systems Software–2.93% | ||||||||
Oracle Corp. | 87,595 | 3,585,263 | ||||||
Total Common Stocks |
| 114,304,127 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Value Opportunities Fund
Shares | Value | |||||||
Money Market Funds–5.53% | ||||||||
Liquid Assets Portfolio–Institutional Class, 0.44%(c) | 3,385,320 | $ | 3,385,320 | |||||
Premier Portfolio–Institutional | 3,385,320 | 3,385,320 | ||||||
Total Money Market Funds | 6,770,640 | |||||||
TOTAL INVESTMENTS–98.93% |
| 121,074,767 | ||||||
OTHER ASSETS LESS LIABILITIES–1.07% |
| 1,314,152 | ||||||
NET ASSETS–100.00% |
| $ | 122,388,919 |
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
Statement of Assets and Liabilities
June 30, 2016
(Unaudited)
Statement of Operations
For the six months ended June 30, 2016
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $119,822,739) | $ | 114,304,127 | ||
Investments in affiliated money market funds, at value and cost | 6,770,640 | |||
Total investments, at value (Cost $126,593,379) | 121,074,767 | |||
Foreign currencies, at value (Cost $1,402) | 1,513 | |||
Receivable for: | ||||
Investments sold | 1,913,417 | |||
Fund shares sold | 259,326 | |||
Dividends | 115,293 | |||
Investment for trustee deferred compensation and retirement plans | 99,320 | |||
Other assets | 889 | |||
Total assets | 123,464,525 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 704,517 | |||
Fund shares reacquired | 47,788 | |||
Accrued fees to affiliates | 189,716 | |||
Accrued trustees’ and officers’ fees and benefits | 650 | |||
Accrued other operating expenses | 20,805 | |||
Trustee deferred compensation and retirement plans | 112,130 | |||
Total liabilities | 1,075,606 | |||
Net assets applicable to shares outstanding | $ | 122,388,919 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 92,764,572 | ||
Undistributed net investment income | 430,519 | |||
Undistributed net realized gain | 34,714,844 | |||
Net unrealized appreciation (depreciation) | (5,521,016 | ) | ||
$ | 122,388,919 | |||
Net Assets: |
| |||
Series I | $ | 73,987,747 | ||
Series II | $ | 48,401,172 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 9,953,201 | |||
Series II | 6,541,860 | |||
Series I: | ||||
Net asset value per share | $ | 7.43 | ||
Series II: | ||||
Net asset value per share | $ | 7.40 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $9,643) | $ | 935,882 | ||
Dividends from affiliated money market funds | 8,201 | |||
Total investment income | 944,083 | |||
Expenses: | ||||
Advisory fees | 444,117 | |||
Administrative services fees | 182,378 | |||
Custodian fees | 4,630 | |||
Distribution fees — Series II | 63,327 | |||
Transfer agent fees | 13,658 | |||
Trustees’ and officers’ fees and benefits | 10,572 | |||
Reports to shareholders | 1,854 | |||
Professional services fees | 22,284 | |||
Other | 4,243 | |||
Total expenses | 747,063 | |||
Less: Fees waived | (2,545 | ) | ||
Net expenses | 744,518 | |||
Net investment income | 199,565 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (3,502,810 | ) | ||
Foreign currencies | (355 | ) | ||
(3,503,165 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (3,452,335 | ) | ||
Foreign currencies | 1,769 | |||
(3,450,566 | ) | |||
Net realized and unrealized gain (loss) | (6,953,731 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (6,754,166 | ) |
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
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Value Opportunities Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 7-8, 2016, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with 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 and the sub-advisory contracts) for another year, effective July 1, 2016.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts is in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, which meet throughout the year to review the performance of funds advised by Invesco Advisers (the Invesco Funds). Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Board had the benefit of reports from the Sub-Committees and Investments Committee throughout the year in considering approval of the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Board receives comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the
independent Trustees. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 8, 2016, and does not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office
support functions, trading operations, internal audit, valuation and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Broadridge performance universe and against the Lipper Variable Underlying Funds Multi-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of its performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. Invesco Advisers noted portfolio management changes that had been made to the Fund over the last year. The Trustees also reviewed more recent Fund
Invesco V.I. Value Opportunities Fund
performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was above the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in the expense group may include both advisory and certain administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not separately charge the Invesco Funds for the administrative services included in the term as defined by Broadridge. The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, based on asset balances as of December 31, 2015. The Board noted that the Fund’s rate was above the rate of one mutual fund advised by Invesco Advisers using a similar investment process. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory
and other services that Invesco Advisers and its affiliates provide to the Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board received information from Invesco Advisers and a report from an independent consultant engaged by the Senior Officer about the methodology used to prepare the profitability information. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for providing transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Broadridge and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; and that the services are required for the operation of the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from
these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to certain investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the amount of advisory fees received by Invesco Advisors from the Fund’s investment of cash collateral from any securities lending arrangements in the affiliated money market funds is fair and reasonable.
The Board also considered that the Fund may use an affiliated broker to execute certain trades for the Fund to, among other things, control information leakage, and was advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended, and consistent with best execution obligations.
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. |