Notes to Financial Statements
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. Information presented in these financial statements pertains only to the Fund. Matters
affecting the Fund or each class will be voted on exclusively by the shareholders
of the Fund or each class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the
contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return, comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which
are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The Fund is an investment company and accordingly follows the investment company accounting
and reporting guidance in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 946, Financial Services – Investment Companies.
The following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A.
Security Valuations – Securities, including restricted securities, are valued according to the following policy.
Fixed income securities (including convertible debt securities) generally are valued
on the basis of prices provided by independent pricing services. Prices 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. Pricing services generally value debt obligations assuming orderly transactions of institutional round lot size, but a fund
may hold or transact in the same securities in smaller, odd lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be
adjusted accordingly. 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 quotes provided by an independent
pricing service. 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 is generally valued at its trade price
or official closing price that day as of the close of the exchange where the security is principally traded, or lacking any trades or official closing price on
a particular day, the security may be valued at the closing bid or ask 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 using prices provided by an independent pricing service they
may be considered fair valued. Futures contracts are valued at the daily settlement price set by an exchange on which they are principally traded. Where a
final settlement price exists, exchange-traded options are valued at the final settlement price from the exchange where the option principally trades. Where a final
settlement price does not exist, exchange-traded options are valued at the mean between the last bid and ask price generally from the exchange where the option
principally trades.
Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s end-of-business-day net asset value per share.
Deposits, other obligations of U.S. and non-U.S. banks and financial institutions
are valued at their daily account value.
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. Centrally cleared swap agreements are valued at the daily settlement price
determined by the relevant exchange or clearinghouse.
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 New York Stock Exchange (“NYSE”). If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Invesco Advisers, Inc. (the “Adviser” or “Invesco”) may use various pricing services to obtain market quotations as well as fair value prices. Because trading hours for certain foreign securities end before the close of the NYSE,
closing market quotations may become not representative of market value in the Adviser’s judgment (“unreliable”). If, between the time trading ends on a particular security and the close of the customary trading session on the NYSE, a significant event occurs that makes the closing price of the security unreliable,
the Adviser 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
in accordance with Board- approved policies and related Adviser procedures (“Valuation Procedures”). 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 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.
Unlisted securities will be valued using prices provided by independent pricing services
or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance with the Valuation Procedures.
Non-traded rights and warrants shall be valued at intrinsic value if the terms of
the rights and warrants are available, specifically the subscription or exercise price and the ratio. Intrinsic value is calculated as the daily market closing price
of the security to be received less the subscription price, which is then adjusted
by the exercise ratio. In the case of warrants, an option pricing model supplied by an
independent pricing service may be used based on market data such as volatility, stock price and interest rate from the independent pricing service and
strike price and exercise period from verified terms.
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 mean between the last bid and ask prices may be used to value debt obligations, including
corporate loans.
Securities for which market quotations are not readily available are fair valued by
the Adviser in accordance with the Valuation Procedures. If a fair value price provided by a pricing service is unreliable, the Adviser will fair value the security
using the Valuation Procedures. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
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 market conditions which are not specifically related to the particular issuer, such as real
or perceived adverse economic conditions, changes in the general outlook for revenues or corporate earnings, changes in interest or currency rates, regional or
global instability, natural or environmental disasters, widespread disease or
