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 | 811-08979 | |||||||
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Victory Variable Insurance Funds | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
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4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio |
| 44144 | ||||||
(Address of principal executive offices) |
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Citi Fund Services Ohio, Inc., 4400 Easton Commons, Suite 200, Columbus, Ohio 43219 | ||||||||
(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: | 800-539-3863 |
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Date of fiscal year end: | December 31 |
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Date of reporting period: | June 30, 2019 |
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Item 1. Reports to Stockholders.
June 30, 2019
Semi Annual Report
Victory Variable Insurance Funds
Victory INCORE Investment Quality Bond VIP Series
Beginning January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports may no longer be sent by mail from the insurance company that issued your variable annuity and variable life insurance contract, unless you specifically request paper copies of the reports from your insurance company. Instead, the reports will be made available on www.victoryfunds.com. The insurance company that offers your contract may also make these reports available on a website, and such insurance company will notify you by mail each time a report is posted and provide you with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the insurance company electronically by following the instructions provided by the insurance company.
If offered by your insurance company, you may elect to receive all future reports in paper and free of charge from the insurance company. You can inform your insurance company that you wish to continue receiving paper copies of your reports. Your election to receive reports in paper will apply to all funds available under your contract.
www.vcm.com
News, Information And Education 24 Hours A Day, 7 Days A Week
The Victory Funds site gives fund shareholders, prospective shareholders, and investment professionals a convenient way to access fund information, get guidance, and track fund performance anywhere they can access the Internet. The site includes:
• Detailed performance records
• Daily share prices
• The latest fund news
• Investment resources to help you become a better investor
• A section dedicated to investment professionals
Whether you're a potential investor searching for the fund that matches your investment philosophy, a seasoned investor interested in planning tools, or an investment professional, www.vcm.com has what you seek. Visit us anytime. We're always open.
Victory Variable
Insurance Funds
Table of Contents
Financial Statements | |||||||
Investment Objective & Portfolio Holdings | 3 | ||||||
Schedule of Portfolio Investments | 4 | ||||||
Statement of Assets and Liabilities | 11 | ||||||
Statement of Operations | 12 | ||||||
Statements of Changes in Net Assets | 13 | ||||||
Financial Highlights | 14 | ||||||
Notes to Financial Statements | 16 | ||||||
Supplemental Information | |||||||
Trustee and Officer Information | 27 | ||||||
Proxy Voting and Portfolio Holdings Information | 30 | ||||||
Expense Examples | 30 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Advisers, Inc. Victory Capital Management Inc. is the investment adviser to the Fund and receives fees from the Fund for performing services for the Fund.
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus of the Fund.
For additional information about any Victory Fund, including fees, expenses, and risks, view our prospectus online at www.vcm.com or call 800-539-3863. Read it carefully before you invest or send money.
The information in this semi annual report is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections, or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Past investment performance of the Fund, markets or securities mentioned herein should not be considered to be indicative of future results.
• NOT FDIC INSURED • NO BANK GUARANTEE
• MAY LOSE VALUE
Call Victory at:
800-539-FUND (800-539-3863)
Visit our website at:
www.vcm.com
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2
Victory Variable Insurance Funds | June 30, 2019 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: The Victory INCORE Investment Quality Bond VIP Series seeks to provide a high level of current income and capital appreciation without undue risk to principal.
Portfolio Holdings*:
* Percentages are of total investments of the Fund.
3
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments June 30, 2019 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Asset Backed Securities (2.7%) | |||||||||||
AmeriCredit Automobile Receivables Trust , Series 2018-1, Class B, 3.26%, 1/18/24, Callable 4/18/22 @ 100 (a) | $ | 1,000,000 | $ | 1,015,617 | |||||||
Avis Budget Rental Car Funding (AESOP) LLC , Series 2014-1, Class A, 2.46%, 7/20/20 (a) (b) | 666,667 | 666,499 | |||||||||
CarMax Auto Owner Trust , Series 2015-3, Class B, 2.28%, 4/15/21, Callable 11/15/19 @ 100 | 3,225,000 | 3,222,939 | |||||||||
Popular ABS Mortgage Pass-Through Trust , Series 2005-2, Class AV1B, 2.66% (LIBOR01M+26bps), 4/25/35, Callable 8/25/20 @ 100 (c) | 674,415 | 672,920 | |||||||||
Santander Drive Auto Receivables Trust , Series 2017-3, Class B, 2.19%, 3/15/22, Callable 4/15/21 @ 100 (a) | 3,170,076 | 3,167,850 | |||||||||
Santander Drive Auto Receivables Trust , Series 2018-2, Class B, 3.03%, 9/15/22, Callable 4/15/21 @ 100 (a) | 4,250,000 | 4,268,989 | |||||||||
Santander Drive Auto Receivables Trust , Series 2017-2, Class B, 2.21%, 10/15/21, Callable 3/15/21 @ 100 (a) | 771,824 | 771,598 | |||||||||
Santander Retail Auto Lease Trust , Series 2018-A, Class B, 3.20%, 4/20/22, Callable 3/20/21 @ 100 (a) (b) | 3,825,000 | 3,852,781 | |||||||||
Total Asset Backed Securities (Cost $17,564,005) | 17,639,193 | ||||||||||
Collateralized Mortgage Obligations (1.8%) | |||||||||||
DBUBS Mortgage Trust , Series 2011-LC1A, Class A3, 5.00%, 11/10/46 (a) (b) | 4,500,000 | 4,626,019 | |||||||||
GS Mortgage Securities Trust , Series 2012-GC6, Class B, 5.84%, 1/10/45 (a) (b) (d) | 3,250,000 | 3,463,722 | |||||||||
Morgan Stanley BAML Trust , Series 2013-C13, Class A2, 2.94%, 11/15/46 (a) | 63,877 | 64,301 | |||||||||
WF-RBS Commercial Mortgage Trust , Series 2012-C6, Class B, 4.70%, 4/15/45 | 3,275,000 | 3,427,832 | |||||||||
Total Collateralized Mortgage Obligations (Cost $12,600,811) | 11,581,874 | ||||||||||
Corporate Bonds (32.1%) | |||||||||||
Communication Services (2.6%): | |||||||||||
AT&T, Inc. 3.20%, 3/1/22, Callable 2/1/22 @ 100 (a) | 3,005,000 | 3,067,744 | |||||||||
4.25%, 3/1/27, Callable 12/1/26 @ 100 (a) | 2,847,000 | 3,049,763 | |||||||||
5.15%, 11/15/46, Callable 5/15/46 @ 100 (a) | 3,833,000 | 4,236,731 | |||||||||
SES Global Americas Holdings GP, 5.30%, 3/25/44 (b) | 2,475,000 | 2,394,167 | |||||||||
Verizon Communications, Inc. 5.15%, 9/15/23 (a) | 1,831,000 | 2,046,307 | |||||||||
3.38%, 2/15/25 | 1,830,000 | 1,910,355 | |||||||||
16,705,067 | |||||||||||
Consumer Discretionary (2.4%): | |||||||||||
Best Buy Co., Inc., 4.45%, 10/1/28, Callable 7/1/28 @ 100 (a) | 2,450,000 | 2,586,784 | |||||||||
General Motors Co., 4.88%, 10/2/23 (a) | 2,180,000 | 2,312,435 | |||||||||
Hasbro, Inc., 6.35%, 3/15/40 (e) | 2,155,000 | 2,559,278 | |||||||||
Magna International, Inc., 3.63%, 6/15/24, Callable 3/15/24 @ 100 | 4,305,000 | 4,495,540 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
NIKE, Inc., 3.88%, 11/1/45, Callable 5/1/45 @ 100 (e) | $ | 2,624,000 | $ | 2,824,264 | |||||||
Ross Stores, Inc., 3.38%, 9/15/24, Callable 6/15/24 @ 100 | 1,220,000 | 1,269,312 | |||||||||
16,047,613 | |||||||||||
Consumer Staples (2.5%): | |||||||||||
Altria Group, Inc., 4.40%, 2/14/26, Callable 12/14/25 @ 100 (a) | 3,350,000 | 3,584,735 | |||||||||
Constellation Brands, Inc., 4.65%, 11/15/28, Callable 8/15/28 @ 100 (a) | 1,551,000 | 1,732,048 | |||||||||
Estee Lauder Cos., Inc., 4.15%, 3/15/47, Callable 9/15/46 @ 100 | 1,000,000 | 1,120,150 | |||||||||
Mead Johnson Nutrition Co. 3.00%, 11/15/20 | 3,000,000 | 3,026,639 | |||||||||
4.60%, 6/1/44, Callable 12/1/43 @ 100 (a) | 2,091,000 | 2,410,317 | |||||||||
Reynolds American, Inc., 5.70%, 8/15/35, Callable 2/15/35 @ 100 | 1,835,000 | 2,017,784 | |||||||||
Tyson Foods, Inc., 5.10%, 9/28/48, Callable 3/28/48 @ 100 | 1,285,000 | 1,450,714 | |||||||||
15,342,387 | |||||||||||
Energy (2.4%): | |||||||||||
Continental Resources, 4.50%, 4/15/23, Callable 1/15/23 @ 100 (a) | 2,925,000 | 3,071,601 | |||||||||
Ecopetrol SA, 5.88%, 9/18/23 (a) | 2,048,000 | 2,267,607 | |||||||||
Exxon Mobil Corp., 4.11%, 3/1/46, Callable 9/1/45 @ 100 | 657,000 | 755,833 | |||||||||
Marathon Petroleum Corp. 6.50%, 3/1/41, Callable 9/1/40 @ 100 | 1,285,000 | 1,599,876 | |||||||||
5.85%, 12/15/45, Callable 6/15/45 @ 100 | 850,000 | 938,834 | |||||||||
Statoil ASA, 3.95%, 5/15/43 | 930,000 | 1,007,460 | |||||||||
Valero Energy Corp. 4.00%, 4/1/29, Callable 1/1/29 @ 100 (a) | 1,707,000 | 1,789,021 | |||||||||
6.63%, 6/15/37 | 2,520,000 | 3,184,776 | |||||||||
14,615,008 | |||||||||||
Financials (12.2%): | |||||||||||
Aflac, Inc. 2.88%, 10/15/26, Callable 7/15/26 @ 100 | 2,450,000 | 2,470,090 | |||||||||
4.75%, 1/15/49, Callable 7/15/48 @ 100 | 341,000 | 400,842 | |||||||||
Alleghany Corp., 4.90%, 9/15/44, Callable 3/15/44 @ 100 | 1,648,000 | 1,795,578 | |||||||||
Bank of America Corp. 2.33%(LIBOR03M+63bps), 10/1/21, Callable 10/1/20 @ 100 (a) (c) | 1,875,000 | 1,871,588 | |||||||||
2.50%, 10/21/22, Callable 10/21/21 @ 100, MTN | 3,500,000 | 3,508,470 | |||||||||
4.20%, 8/26/24 (a) | 4,060,000 | 4,315,415 | |||||||||
3.25%, 10/21/27, Callable 10/21/26 @ 100, MTN | 1,775,000 | 1,816,979 | |||||||||
BB&T Corp., 2.75%, 4/1/22, MTN, Callable 3/1/22 @ 100 | 3,550,000 | 3,593,417 | |||||||||
Capital One Financial Corp., 3.30%, 10/30/24, Callable 9/30/24 @ 100 (a) | 3,743,000 | 3,838,783 | |||||||||
Cincinnati Financial Corp., 6.13%, 11/1/34 | 2,170,000 | 2,758,331 | |||||||||
Citigroup, Inc. 2.75%, 4/25/22, Callable 3/25/22 @ 100 | 3,443,000 | 3,475,158 | |||||||||
4.45%, 9/29/27 (a) | 2,497,000 | 2,690,393 | |||||||||
3.88%(LIBOR03M+117bps), 1/24/39, Callable 1/24/38 @ 100 (c) | 1,760,000 | 1,832,970 | |||||||||
Fifth Third Bancorp, 3.65%, 1/25/24, Callable 12/25/23 @ 100 (a) | 4,355,000 | 4,575,493 | |||||||||
HSBC Holdings PLC, 5.10%, 4/5/21 (a) | 5,000,000 | 5,223,950 | |||||||||
JPMorgan Chase & Co. 2.95%, 10/1/26, Callable 7/1/26 @ 100 | 3,400,000 | 3,447,872 | |||||||||
5.60%, 7/15/41 | 1,710,000 | 2,219,973 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
KeyBank NA, 2.25%, 3/16/20 | $ | 6,523,000 | $ | 6,517,976 | |||||||
Morgan Stanley 4.88%, 11/1/22 (a) | 3,812,000 | 4,077,620 | |||||||||
3.75%, 2/25/23 (a) | 3,000,000 | 3,132,750 | |||||||||
3.13%, 7/27/26, MTN | 5,500,000 | 5,597,570 | |||||||||
Newcrest Finance Pty Ltd., 5.75%, 11/15/41 (b) | 1,720,000 | 1,915,753 | |||||||||
The Goldman Sachs Group, Inc. 2.35%, 11/15/21, Callable 11/15/20 @ 100 | 4,540,000 | 4,531,056 | |||||||||
5.75%, 1/24/22 (a) | 2,750,000 | 2,972,585 | |||||||||
Wells Fargo & Co., 4.90%, 11/17/45 (a) | 1,450,000 | 1,678,752 | |||||||||
80,259,364 | |||||||||||
Health Care (3.7%): | |||||||||||
Abbott Laboratories, 2.90%, 11/30/21, Callable 10/30/21 @ 100 (a) | 5,276,000 | 5,361,577 | |||||||||
AbbVie, Inc., 2.30%, 5/14/21, Callable 4/14/21 @ 100 (a) | 6,109,000 | 6,092,200 | |||||||||
Amgen, Inc., 4.40%, 5/1/45, Callable 11/1/44 @ 100 | 1,825,000 | 1,938,059 | |||||||||
Bristol-Myers Squibb Co., 3.40%, 7/26/29, Callable 4/26/29 @ 100 (b) | 4,325,000 | 4,530,740 | |||||||||
Gilead Sciences, Inc., 4.40%, 12/1/21, Callable 9/1/21 @ 100 (a) | 6,150,000 | 6,431,547 | |||||||||
24,354,123 | |||||||||||
Industrials (2.0%): | |||||||||||
Canadian National Railway Co., 3.20%, 8/2/46, Callable 2/2/46 @ 100 | 825,000 | 807,188 | |||||||||
Kansas City Southern, 4.95%, 8/15/45, Callable 2/15/45 @ 100 | 1,440,000 | 1,633,939 | |||||||||
Northrop Grumman Corp., 2.93%, 1/15/25, Callable 11/15/24 @ 100 (a) | 3,868,000 | 3,938,127 | |||||||||
Rockwell Automation, Inc. 3.50%, 3/1/29, Callable 12/1/28 @ 100 | 1,270,000 | 1,352,702 | |||||||||
6.25%, 12/1/37 | 1,151,000 | 1,550,685 | |||||||||
Snap-on, Inc., 4.10%, 3/1/48, Callable 9/1/47 @ 100 | 1,100,000 | 1,192,917 | |||||||||
Valmont Industries, Inc., 5.00%, 10/1/44, Callable 4/1/44 @ 100 (a) | 2,603,000 | 2,597,898 | |||||||||
13,073,456 | |||||||||||
Information Technology (1.5%): | |||||||||||
Apple, Inc., 4.65%, 2/23/46, Callable 8/23/45 @ 100 | 974,000 | 1,155,680 | |||||||||
Broadcom Corp., 3.00%, 1/15/22, Callable 12/15/21 @ 100 (a) | 2,285,000 | 2,291,764 | |||||||||
Lam Research Corp., 4.00%, 3/15/29, Callable 12/15/28 @ 100 | 2,203,000 | 2,347,605 | |||||||||
NVIDIA Corp., 2.20%, 9/16/21, Callable 8/16/21 @ 100 | 1,230,000 | 1,225,818 | |||||||||
Texas Instruments, Inc., 4.15%, 5/15/48, Callable 11/15/47 @ 100 | 1,512,000 | 1,715,772 | |||||||||
Tyco Electronics Group SA, 7.13%, 10/1/37 | 650,000 | 881,777 | |||||||||
9,618,416 | |||||||||||
Materials (0.8%): | |||||||||||
LYB International Finance II BV, 3.50%, 3/2/27, Callable 12/2/26 @ 100 (a) | 2,294,000 | 2,334,259 | |||||||||
Rio Tinto Finance USA Ltd. 3.75%, 6/15/25, Callable 3/15/25 @ 100 | 1,415,000 | 1,519,003 | |||||||||
5.20%, 11/2/40 | 723,000 | 902,130 | |||||||||
4,755,392 | |||||||||||
Utilities (2.0%): | |||||||||||
Arizona Public Service Co., 2.95%, 9/15/27, Callable 6/15/27 @ 100 | 1,800,000 | 1,821,384 | |||||||||
Consolidated Edison, Inc., 6.30%, 8/15/37 | 1,870,000 | 2,496,188 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Exelon Corp. 3.95%, 6/15/25, Callable 3/15/25 @ 100 (a) | $ | 1,995,000 | $ | 2,123,898 | |||||||
3.40%, 4/15/26, Callable 1/15/26 @ 100 | 1,145,000 | 1,175,239 | |||||||||
Iberdrola International BV 6.75%, 9/15/33 | 373,000 | 451,968 | |||||||||
6.75%, 7/15/36 (e) | 783,000 | 1,033,748 | |||||||||
Nevada Power Co., 6.65%, 4/1/36 (a) | 600,000 | 817,686 | |||||||||
Oklahoma G&E Co., 5.25%, 5/15/41, Callable 11/15/40 @ 100 | 1,546,000 | 1,766,923 | |||||||||
Public Service Enterprise Group, Inc., 4.00%, 6/1/44, Callable 12/1/43 @ 100 | 1,289,000 | 1,355,577 | |||||||||
13,042,611 | |||||||||||
Total Corporate Bonds (Cost $202,628,683) | 207,813,437 | ||||||||||
Residential Mortgage Backed Securities (0.7%) | |||||||||||
Bear Stearns Alt-A Trust , Series 2003-3, Class 2A, 4.45%, 10/25/33, Callable 7/25/19 @ 100 (a) (d) | 1,060,410 | 1,060,410 | |||||||||
Credit Suisse First Boston Mortgage Securities Corp. , Series 2002-HE16, Class M1, 3.72% (LIBOR01M+132bps), 10/25/32, Callable 7/25/19 @ 100 (c) | 974,907 | 975,251 | |||||||||
JPMorgan Mortgage Trust , Series 2004-S2, Class 1A3, 4.75%, 11/25/19, Callable 7/25/19 @ 100 (a) | 33,121 | 33,121 | |||||||||
JPMorgan Mortgage Trust , Series 2016-4, Class A5, 3.50%, 10/25/46, Callable 10/25/39 @ 100 (a) (b) (d) | 1,543,921 | 1,566,447 | |||||||||
Residential Funding Mortgage Securities I, Inc. , Series 2005-S3, Class A1, 4.75%, 3/25/20, Callable 7/25/19 @ 100 (a) | 27,044 | 27,044 | |||||||||
Wells Fargo Mortgage Backed Securities Trust , Series 2004-Y, Class 3A1, 4.91%, 11/25/34, Callable 7/25/19 @ 100 (a) (d) | 908,917 | 908,917 | |||||||||
Wells Fargo Mortgage Backed Securities Trust , Series 2005-2, Class 2A1, 4.75%, 4/25/20, Callable 7/25/19 @ 100 (a) | 10,835 | 10,835 | |||||||||
Total Residential Mortgage Backed Securities (Cost $4,578,214) | 4,582,025 | ||||||||||
U.S. Government Mortgage Backed Agencies (42.7%) | |||||||||||
Federal Home Loan Mortgage Corp. 5.00%, 6/15/23 – 7/1/39 (a) | 1,947,719 | 2,097,193 | |||||||||
Series 4139, Class DA, 1.25%, 12/15/27 (a) | 7,058,884 | 6,893,036 | |||||||||
Series 4395, Class PA, 2.50%, 4/15/37 (a) | 2,781,757 | 2,790,682 | |||||||||
7.00%, 9/1/38 (a) | 75,565 | 91,495 | |||||||||
Series 4290, Class CA, 3.50%, 12/15/38 – 3/1/49 (a) | 55,085,722 | 56,872,681 | |||||||||
Series 3713, Class PA, 2.00%, 2/15/40 – 3/15/40 (a) | 8,355,629 | 8,249,276 | |||||||||
4.00%, 1/1/41 (a) | 1,838,828 | 1,942,732 | |||||||||
4.50%, 1/1/41 – 12/1/45 (a) | 12,986,240 | 13,880,284 | |||||||||
Series 4049, Class AB, 2.75%, 12/15/41 (a) | 1,378,624 | 1,386,586 | |||||||||
Series 4494, Class JA, 3.75%, 5/15/42 (a) | 5,407,464 | 5,586,984 | |||||||||
99,790,949 | |||||||||||
Federal National Mortgage Association 6.00%, 8/1/21 – 2/1/37 (a) | 2,691,168 | 3,150,953 | |||||||||
5.00%, 4/1/23 – 12/1/39 (a) | 1,272,816 | 1,371,795 |
See notes to financial statements.
7
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Principal Amount or Shares | Value | |||||||||
7.50%, 12/1/29 (a) | $ | 41,891 | $ | 49,053 | |||||||
8.00%, 1/1/30 – 9/1/30 (a) | 22,964 | 27,228 | |||||||||
7.00%, 2/1/32 – 6/1/32 (a) | 35,683 | 42,123 | |||||||||
4.63%(LIBOR12M+166bps), 12/1/36 (a) (c) | 135,581 | 139,986 | |||||||||
5.50%, 1/1/38 – 2/1/39 (a) | 837,708 | 918,021 | |||||||||
4.50%, 12/1/38 – 6/1/40 (a) | 8,783,627 | 9,211,873 | |||||||||
Series 2013-33, Class UD, 2.50%, 4/25/39 – 12/25/47 (a) | 8,426,088 | 8,451,063 | |||||||||
Series 2013-137, Class A, 3.50%, 3/25/40 – 12/25/50 (a) | 36,206,517 | 37,051,886 | |||||||||
4.00%, 9/1/40 – 10/1/48 (a) | 37,467,816 | 39,338,420 | |||||||||
Series 2011-101, Class LA, 3.00%, 10/25/40 – 2/25/49 (a) | 51,050,003 | 51,742,943 | |||||||||
Series 2013-81, Class KA, 2.75%, 9/25/42 (a) | 5,611,577 | 5,658,266 | |||||||||
Series 2013-44, Class PB, 1.75%, 1/25/43 (a) | 6,032,245 | 5,848,579 | |||||||||
163,002,189 | |||||||||||
Government National Mortgage Association 6.00%, 10/15/32 (a) | 94,742 | 108,309 | |||||||||
Series 2014-42, Class AD, 2.50%, 7/16/41 | 471,644 | 475,321 | |||||||||
Series 2016-116, Class GA, 1.75%, 11/20/44 (a) | 11,101,620 | 10,810,289 | |||||||||
4.50%, 2/20/49 | 1,577,483 | 1,645,991 | |||||||||
13,039,910 | |||||||||||
Multi-family (0.0%): (f) | |||||||||||
Collateralized Mortgage Obligations (0.0%): (f) | |||||||||||
Government National Mortgage Association 6.00%, 12/15/33 (a) | 32,410 | 37,435 | |||||||||
Total U.S. Government Mortgage Backed Agencies (Cost $272,766,012) | 275,870,483 | ||||||||||
U.S. Treasury Obligations (18.5%) | |||||||||||
U.S. Treasury Bills 2.14%, 11/14/19 (a) (g) | 38,720,000 | 38,423,250 | |||||||||
2.01%, 1/2/20 (a) (g) | 35,000,000 | 34,640,637 | |||||||||
U.S. Treasury Bonds 3.00%, 2/15/48 (a) | 23,756,000 | 26,020,243 | |||||||||
3.00%, 2/15/49 (a) | 10,575,000 | 11,615,977 | |||||||||
U.S. Treasury Notes 2.75%, 8/31/23 (a) | 300,000 | 312,141 | |||||||||
2.88%, 8/15/28 (a) | 7,003,000 | 7,526,037 | |||||||||
2.63%, 2/15/29 | 1,012,000 | 1,067,186 | |||||||||
Total U.S. Treasury Obligations (Cost $114,710,469) | 119,605,471 | ||||||||||
Collateral for Securities Loaned^ (0.2%) | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 2.43% (h) | 279,878 | 279,878 | |||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 2.28% (h) | 360,516 | 360,516 | |||||||||
Fidelity Investments Prime Money Market Portfolio, Class I, 2.39% (h) | 9,363 | 9,363 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 2.48% (h) | 153,913 | 153,913 |
See notes to financial statements.
8
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 2.41% (h) | $ | 209,876 | $ | 209,876 | |||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 2.42% (h) | 326,486 | 326,486 | |||||||||
Total Collateral for Securities Loaned (Cost $1,340,032) | 1,340,032 | ||||||||||
Total Investments (Cost $626,188,226) — 98.7% | 638,432,515 | ||||||||||
Other assets in excess of liabilities — 1.3% | 8,256,168 | ||||||||||
NET ASSETS — 100.00% | $ | 646,688,683 |
^ Purchased with cash collateral from securities on loan.
(a) All or a portion of these securities has been segregated as collateral for derivative instruments.
(b) Rule 144A security or other security that is restricted as to resale to institutional investors. The Fund's Adviser has deemed these securities to be liquid based upon procedures approved by the Board of Trustees. As of June 30, 2019, the fair value of these securities was $23,016,128 and amounted to 3.6% of net assets.
(c) Variable or Floating-Rate Security. Rate disclosed is as of June 30, 2019.
(d) The rate for certain asset-backed and mortgage backed securities may vary based on factors relating to the pool of assets underlying the security. The rate disclosed is the rate in effect at June 30, 2019.
(e) All or a portion of this security is on loan.
(f) Amount represents less than 0.05% of net assets.
(g) Rate represents the effective yield at June 30, 2019.
(h) Rate disclosed is the daily yield on June 30, 2019.
bps — Basis points
LIBOR — London InterBank Offered Rate
LIBOR01M — 1 Month US Dollar LIBOR, rate disclosed as of June 30, 2019, based on the last reset date of the security
LIBOR03M — 3 Month US Dollar LIBOR, rate disclosed as of June 30, 2019, based on the last reset date of the security
LIBOR12M — 12 Month US Dollar LIBOR, rate disclosed as of June 30, 2019, based on the last reset date of the security
LLC — Limited Liability Company
MTN — Medium Term Note
PLC — Public Limited Company
Futures Contracts Purchased
Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||
10-Year U.S. Treasury Note Future | 517 | 9/19/19 | $ | 65,410,794 | $ | 66,159,870 | $ | 749,076 | |||||||||||||||
5-Year U.S. Treasury Note Future | 13 | 9/30/19 | 1,514,037 | 1,536,032 | 21,995 | ||||||||||||||||||
$ | 771,071 |
See notes to financial statements.
9
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Futures Contracts Sold
Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||
2-Year U.S. Treasury Note Future | 20 | 9/30/19 | $ | 4,303,369 | $ | 4,303,592 | $ | (223 | ) | ||||||||||||||
5-Year U.S. Treasury Note Future | 290 | 9/30/19 | 34,262,044 | 34,265,327 | (3,283 | ) | |||||||||||||||||
$ | (3,506 | ) | |||||||||||||||||||||
Total unrealized appreciation | $ | 771,071 | |||||||||||||||||||||
Total unrealized depreciation | (3,506 | ) | |||||||||||||||||||||
Total net unrealized appreciation(depreciation) | $ | 767,565 |
Centrally Cleared
Credit Default Swap Agreements — Sell Protection (a)
Underlying Instrument | Fixed Deal Received Rate | Maturity Date | Payment Frequency | Implied Credit Spread at June 30, 2019 (b) | Notional Amount (c) | Value | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | |||||||||||||||||||||||||||
CDX North America High Yield Index; Series 32 | 5.00 | % | 6/20/24 | Daily | 3.21 | % | $ | 41,000,000 | $ | 3,102,334 | $ | 2,308,163 | $ | 794,171 | |||||||||||||||||||||
$ | 3,102,334 | $ | 2,308,163 | $ | 794,171 |
(a) When a credit event occurs as defined under the terms of the swap agreement, the Fund as a seller of credit protection will either (i) pay to the buyer of protection an amount equal to the par value of the defaulted reference entity and take delivery of the reference entity or (ii) pay a net amount equal to the par value of the defaulted reference entity less its recovery value.
(b) Implied credit spread, represented in absolute terms, utilized in determining the value of the credit default swap agreements as of period end will serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a referenced entity reflects the cost of buying/selling protection and may include payments required to be made to enter into the agreement. Generally, wider credit spreads represent a perceived deterioration of the referenced entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the swap agreement.
(c) The notional amount represents the maximum potential amount the Fund could be required to pay as a seller of credit protection if a credit event occurs, as defined under the terms of the swap agreement, for each security included in the CDX North America High Yield Index .
See notes to financial statements.
10
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2019 |
(Unaudited)
Victory INCORE Investment Quality Bond VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $626,188,226) | $ | 638,432,515 | (a) | ||||
Cash and cash equivalents | 4,334,633 | ||||||
Deposits with brokers for futures contracts | 2,496,926 | ||||||
Deposits with brokers for swap agreements | 3,953,185 | ||||||
Interest and dividends receivable | 3,134,195 | ||||||
Receivable for capital shares issued | 1,550 | ||||||
Receivable for investments sold | 13,927,625 | ||||||
Variation margin receivable on open swap agreements | 45,864 | ||||||
Receivable from Adviser | 285,997 | ||||||
Prepaid expenses | 20,353 | ||||||
Total Assets | 666,632,843 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 1,340,032 | ||||||
Investments purchased | 17,627,039 | ||||||
Capital shares redeemed | 525,086 | ||||||
Variation margin payable on open futures contracts | 1,486 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 265,761 | ||||||
Administration fees | 32,519 | ||||||
Custodian fees | 3,041 | ||||||
Transfer agent fees | 79,092 | ||||||
Chief Compliance Officer fees | 809 | ||||||
Trustees' fees | 693 | ||||||
Other accrued expenses | 68,602 | ||||||
Total Liabilities | 19,944,160 | ||||||
NET ASSETS: | |||||||
Capital | 619,468,641 | ||||||
Total distributable earnings/(loss) | 27,220,042 | ||||||
Net Assets | $ | 646,688,683 | |||||
Shares Outstanding (unlimited shares authorized, with a par value of $0.001 per share): | 51,532,483 | ||||||
Net asset value: | $ | 12.55 |
(a) Includes $1,286,169 of securities on loan.
See notes to financial statements.
11
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2019 |
(Unaudited)
Victory INCORE Investment Quality Bond VIP Series | |||||||
Investment Income: | |||||||
Interest | $ | 10,144,008 | |||||
Securities lending (net of fees) | 2,711 | ||||||
Total Income | 10,146,719 | ||||||
Expenses: | |||||||
Investment advisory fees | 1,581,865 | ||||||
Administration fees | 199,913 | ||||||
Custodian fees | 15,498 | ||||||
Transfer agent fees | 438,821 | ||||||
Trustees' fees | 27,332 | ||||||
Chief Compliance Officer fees | 2,210 | ||||||
Legal and audit fees | 35,417 | ||||||
Interfund lending fees | 313 | ||||||
Other expenses | 55,252 | ||||||
Total Expenses | 2,356,621 | ||||||
Expenses waived/reimbursed by Adviser | (584,586 | ) | |||||
Net Expenses | 1,772,035 | ||||||
Net Investment Income (Loss) | 8,374,684 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities | 8,737,989 | ||||||
Net realized gains (losses) from futures contracts | (2,210,328 | ) | |||||
Net realized gains (losses) from swap agreements | (6,321,067 | ) | |||||
Net change in unrealized appreciation/depreciation on investment securities | 16,648,655 | ||||||
Net change in unrealized appreciation/depreciation on futures contracts | 2,091,827 | ||||||
Net change in unrealized appreciation/depreciation on swap agreements | 3,959,579 | ||||||
Net realized/unrealized gains (losses) on investments | 22,906,655 | ||||||
Change in net assets resulting from operations | $ | 31,281,339 |
See notes to financial statements.
12
Victory Variable Insurance Funds | Statements of Changes in Net Assets |
(Unaudited)
Victory INCORE Investment Quality Bond VIP Series | |||||||||||
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | ||||||||||
(Unaudited) | |||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 8,374,684 | $ | 17,481,631 | |||||||
Net realized gains (losses) from investments | 206,594 | (11,008,512 | ) | ||||||||
Net change in unrealized appreciation/depreciation on investments | 22,700,061 | (10,833,615 | ) | ||||||||
Change in net assets resulting from operations | 31,281,339 | (4,360,496 | ) | ||||||||
Change in net assets resulting from distributions to shareholders | — | (4,289,680 | ) | ||||||||
Change in net assets resulting from capital transactions | (29,594,093 | ) | (73,069,861 | ) | |||||||
Change in net assets | 1,687,246 | (81,720,037 | ) | ||||||||
Net Assets: | |||||||||||
Beginning of period | 645,001,437 | 726,721,474 | |||||||||
End of period | $ | 646,688,683 | $ | 645,001,437 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 23,232,578 | $ | 47,220,231 | |||||||
Distributions reinvested | — | 4,289,680 | |||||||||
Cost of shares redeemed | (52,826,671 | ) | (124,579,772 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (29,594,093 | ) | $ | (73,069,861 | ) | |||||
Share Transactions: | |||||||||||
Issued | 1,915,592 | 3,953,299 | |||||||||
Reinvested | — | 360,968 | |||||||||
Redeemed | (4,349,938 | ) | (10,495,215 | ) | |||||||
Change in Shares | (2,434,346 | ) | (6,180,948 | ) |
See notes to financial statements.
13
Victory Variable Insurance Funds | Financial Highlights |
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholder From | ||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gains (Losses) on Investments | Total from Investment Activities | Net Investment Income | Net Realized Gains From Investments | ||||||||||||||||||||||
Victory INCORE Investment Quality Bond VIP Series | |||||||||||||||||||||||||||
Six Months Ended 06/30/19 (unaudited) | $ | 11.95 | 0.16 | (d) | 0.44 | 0.60 | — | — | |||||||||||||||||||
Year Ended 12/31/18 | $ | 12.08 | 0.30 | (d) | (0.35 | ) | (0.05 | ) | (0.08 | ) | — | (e) | |||||||||||||||
Year Ended 12/31/17 | $ | 11.88 | 0.28 | (d) | 0.21 | 0.49 | (0.29 | ) | — | ||||||||||||||||||
Year Ended 12/31/16 | $ | 11.98 | 0.27 | (d) | 0.15 | 0.42 | (0.30 | ) | (0.22 | ) | |||||||||||||||||
Year Ended 12/31/15 | $ | 12.38 | 0.31 | (d) | (0.27 | ) | 0.04 | (0.32 | ) | (0.12 | ) | ||||||||||||||||
Year Ended 12/31/14 | $ | 12.18 | 0.38 | 0.30 | 0.68 | (0.38 | ) | (0.10 | ) |
(a) Not annualized for periods less than one year.
(b) Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(c) Annualized for periods less than one year.
(d) Per share net investment income (loss) has been calculated using the average daily shares method.
(e) Amount is less than $0.005 per share.
(f) The Fund received monies related to a nonrecurring refund from the prior Custodian. The corresponding impact to the total return was less than 0.01% for the period shown. (See Note 8)
(g) During the period, certain fees were reduced and/or reimbursed. If such fee reductions and/or reimbursements had not occurred, the ratios would have been as indicated.
See notes to financial statements.
14
Victory Variable Insurance Funds | Financial Highlights — continued |
For a Share Outstanding Throughout Each Period
Ratios to Average Net Assets | Supplemental Data | ||||||||||||||||||||||||||||||||||||||
Total Distributions to Shareholders | Capital contributions from prior custodian, Net (See Note 8) | Net Asset Value, End of Period | Total Return(a)(b) | Net Expenses(c) | Net Investment Income (Loss)(c) | Gross Expenses(c) | Net Assets, End of Period (000's) | Portfolio Turnover(a) | |||||||||||||||||||||||||||||||
Victory INCORE Investment Quality Bond VIP Series | |||||||||||||||||||||||||||||||||||||||
Six Months Ended 06/30/19 (unaudited) | — | — | $ | 12.55 | 5.02 | % | 0.56 | % | 2.65 | % | 0.74 | %(g) | $ | 646,689 | 58 | % | |||||||||||||||||||||||
Year Ended 12/31/18 | (0.08 | ) | — | $ | 11.95 | (0.41 | )% | 0.56 | % | 2.52 | % | 0.62 | %(g) | $ | 645,001 | 109 | % | ||||||||||||||||||||||
Year Ended 12/31/17 | (0.29 | ) | — | $ | 12.08 | 4.15 | % | 0.56 | % | 2.28 | % | 0.61 | %(g) | $ | 726,721 | 83 | % | ||||||||||||||||||||||
Year Ended 12/31/16 | (0.52 | ) | — | (e) | $ | 11.88 | 3.53 | %(f) | 0.55 | % | 2.17 | % | 0.55 | % | $ | 716,292 | 142 | % | |||||||||||||||||||||
Year Ended 12/31/15 | (0.44 | ) | — | $ | 11.98 | 0.33 | % | 0.56 | % | 2.47 | % | 0.56 | % | $ | 755,696 | 41 | % | ||||||||||||||||||||||
Year Ended 12/31/14 | (0.48 | ) | — | $ | 12.38 | 5.55 | % | 0.56 | % | 2.93 | % | 0.56 | % | $ | 802,377 | 47 | % |
See notes to financial statements.
15
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2019 |
(Unaudited)
1. Organization:
Victory Variable Insurance Funds (the "Trust") was organized on February 11, 1998 as a Delaware statutory trust. The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end investment company. The Trust is comprised of nine funds and is authorized to issue an unlimited number of shares, which are units of beneficial interest with a par value of $0.001 per share.
The accompanying financial statements are those of the Victory INCORE Investment Quality Bond VIP Series (the "Fund"). The Fund offers a single class of shares: Class I Shares. Sales of shares of the Fund may only be made to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. ("GIAC") that fund certain variable annuity and variable life insurance contracts issued by GIAC. GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America ("Guardian Life").
Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. The Fund follows the specialized accounting and reporting requirements under GAAP that are applicable to investment companies.
Investment Valuation:
The Fund records investments at fair value. Fair value is defined 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.
The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund's investments are summarized in the three broad levels listed below:
• Level 1 — quoted prices in active markets for identical securities
• Level 2 — other significant observable inputs (including quoted prices for similar securities or interest rates applicable to those securities, etc.)
• Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The inputs or methodologies used for valuation techniques are not necessarily an indication of the risk associated with entering into those investments.
Portfolio securities listed or traded on securities exchanges, including American Depositary Receipts ("ADRs") and Rights, are valued at the closing price on the exchange or system where the security is principally traded, if available, or at the Nasdaq Official Closing Price. If there have been no sales for that day on the exchange or system, then a security is valued at the last available bid quotation on the exchange or system where the security is principally traded. In each of these situations, valuations are typically categorized as Level 1 in the fair value hierarchy.
16
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Futures contracts are valued at the settlement price established each day by the board of trade or an exchange on which they are traded. These valuations are typically categorized as Level 1 in the fair value hierarchy.
Swap agreements are valued at the mean between the current bid and ask prices. These valuations are typically categorized as Level 2 in the fair value hierarchy.
Debt securities of United States ("U.S.") issuers (other than short-term investments maturing in 60 days or less), including corporate and municipal securities, are valued on the basis of bid valuations provided by dealers or an independent pricing service approved by the Trust's Board of Trustees (the "Board"). Short-term investments maturing in 60 days or less may be valued at amortized cost, which approximates market value. Under the amortized cost method, premium or discount, if any, is amortized or accreted, respectively, on a constant basis to the maturity of the security. In each of these situations, valuations are typically categorized as Level 2 in the fair value hierarchy.
Investments for which there are no such quotations, or for which quotations do not appear reliable, are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Board. These valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based on the observability of inputs used to determine the fair value.
A summary of the valuations as of June 30, 2019, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed in the Schedule of Portfolio Investments:
LEVEL 1 — Quoted Prices | LEVEL 2 — Other Significant Observable Inputs | Total | |||||||||||||||||||||||||
Investments in Securities | Other Financial Investments^ | Investments in Securities | Other Financial Investments^ | Investments in Securities | Other Financial Investments^ | ||||||||||||||||||||||
Asset Backed Securities | $ | — | $ | — | $ | 17,639,193 | $ | — | $ | 17,639,193 | $ | — | |||||||||||||||
Collateralized Mortgage Obligations | — | — | 11,581,874 | — | 11,581,874 | — | |||||||||||||||||||||
Corporate Bonds | — | — | 207,813,437 | — | 207,813,437 | — | |||||||||||||||||||||
Residential Mortgage Backed Securities | — | — | 4,582,025 | — | 4,582,025 | — | |||||||||||||||||||||
U.S. Government Mortgage Backed Agencies | — | — | 275,870,483 | — | 275,870,483 | — | |||||||||||||||||||||
U.S. Treasury Obligations | — | — | 119,605,471 | — | 119,605,471 | — | |||||||||||||||||||||
Futures Contracts | — | 767,565 | — | — | — | 767,565 | |||||||||||||||||||||
Credit Default Swap | — | — | — | 794,171 | — | 794,171 | |||||||||||||||||||||
Collateral for Securities Loaned | 1,340,032 | — | — | — | 1,340,032 | — | |||||||||||||||||||||
Total | $ | 1,340,032 | $ | 767,565 | $ | 637,092,483 | $ | 794,171 | $ | 638,432,515 | $ | 1,561,736 |
^ Other Financial instruments include any derivative instruments not reflected in the Schedule of Portfolio Investments as Investment Securities, such as futures contracts and swap agreements. These instruments are generally recorded in the financial statements at the unrealized gain or loss on the investment.
For the six months ended June 30, 2019, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
Securities Purchased on a When-Issued Basis:
The Fund may purchase securities on a when-issued basis. When-issued securities are securities purchased for delivery beyond normal settlement periods at a stated price and/or yield, thereby involving the risk that the price and/or yield obtained may be more or less than those available in the market when delivery takes place. At the time the Fund makes the commitment to purchase a security on a when-issued basis, the Fund records the transaction and reflects the value of the security in determining net asset value. No interest accrues to the Fund until the transaction settles and payment takes place. Normally, the settlement date occurs within one month of the purchase. A segregated account is
17
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
established and the Fund maintains cash and/or marketable securities at least equal in value to commitments for when-issued securities. If the Fund owns when-issued securities, these values are included in "Payable for investments purchased" on the accompanying Statement of Assets and Liabilities and the segregated assets are identified in the Schedule of Portfolio Investments.
Loans:
Floating rate loans in which the Fund invests are primarily "senior" loans. Senior floating rate loans typically hold a senior position in the capital structure of the borrower, are typically secured by specific collateral, and have a claim on the assets and/or stock of the borrower that is senior to that held by subordinated debtholders and stockholders of the borrower. While these protections may reduce risk, these investments still present significant credit risk. A significant portion of the Fund's floating rate investments may be issued in connection with highly leveraged transactions such as leveraged buyouts, leveraged recapitalization loans, and other types of acquisition financing. Obligations in these types of transactions are subject to greater credit risk (including default and bankruptcy) than many other investments and may be, or become, illiquid. See note below regarding below investment grade securities.
The Fund may purchase second lien loans (secured loans with a claim on collateral subordinate to a senior lender's claim on such collateral), fixed rate loans, unsecured loans, and other debt obligations.
Transactions in loans often settle on a delayed basis, and the Fund may not receive the proceeds from the sale of a loan or pay for a loan purchase for a substantial period of time after entering into the transactions.
Below Investment Grade Securities:
The Fund may invest in below investment grade securities (i.e. lower-quality, "junk" debt), which are subject to various risks. Lower-quality debt is considered to be speculative because it is less certain that the issuer will be able to pay interest or repay the principal than in the case of investment grade debt. These securities can involve a substantially greater risk of default than higher-rated securities, and their values can decline significantly over short periods of time. Lower-quality debt securities tend to be more sensitive to adverse news about their issuers, the market and the economy in general, than higher-quality debt securities. The market for these securities can be less liquid, especially during periods of recession or general market decline.
Investment Companies:
The Fund may invest in portfolios of open-end investment companies. These investment companies value securities in their portfolios for which market quotations are readily available at their market values (generally the last reported sale price) and all other securities and assets at their fair value by the methods established by the board of directors of the underlying funds.
Derivative Instruments:
Futures Contracts:
The Fund may enter into contracts for the future delivery of securities or foreign currencies and futures contracts based on a specific security, class of securities, foreign currency or an index, and purchase or sell options on any such futures contracts. A futures contract on a securities index is an agreement obligating either party to pay, and entitling the other party to receive, while the contract is outstanding, cash payments based on the level of a specified securities index. No physical delivery of the underlying asset is made. The Fund may enter into futures contracts in an effort to hedge against market risks. The acquisition of put and call options on futures contracts will give the Fund the right (but not the obligation), for a specified price, to sell or to purchase the underlying futures contract, upon exercise of the option, at any time during the option period. Futures transactions involve brokerage costs and require the Fund to segregate assets to cover contracts that would require it to purchase securities or
18
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
currencies. A good faith margin deposit, known as initial margin, of cash or government securities with a broker or custodian is required to initiate and maintain open positions in futures contracts. Subsequent payments, known as variation margin, are made or received by the Fund based on the change in the market value of the position and are recorded as unrealized appreciation or depreciation until the contract is closed out, at which time the gain or loss is realized. The Fund may lose the expected benefit of futures transactions if interest rates, exchange rates or securities prices change in an unanticipated manner. Such unanticipated changes may also result in lower overall performance than if the Fund had not entered into any futures transactions. In addition, the value of the Fund's futures positions may not prove to be perfectly or even highly correlated with the value of its portfolio securities or foreign currencies, limiting the Fund's ability to hedge effectively against interest rate, exchange rate and/or market risk and giving rise to additional risks. There is no assurance of liquidity in the secondary market for purposes of closing out futures positions. The collateral held by the Fund is presented on the Statement of Assets and Liabilities under Deposit with broker for futures contracts. As of June 30, 2019, the Fund entered into Futures Contracts primarily for the strategy of hedging or other purposes, including but not limited to, providing liquidity and equitizing cash.
Credit Derivatives:
The Fund may enter into credit derivatives, including centrally-cleared credit default swaps on individual obligations or credit indices. The Fund may use these investments (i) as alternatives to direct long or short investment in a particular security or securities, (ii) to adjust the Fund's asset allocation or risk exposure, or (iii) for hedging purposes. The use by the Fund of centrally-cleared credit default swaps may have the effect of creating a short position in a security. Credit derivatives can create investment leverage and may create additional investment risks that may subject the Fund to greater volatility than investments in more traditional securities, as described in the Fund's Statement of Additional Information.
Centrally-cleared credit default swap ("CDS") agreements on credit indices involve one party making a stream of payments (referred to as the buyer of protection) to another party (the seller of protection) in exchange for the right to receive a specified return in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising the credit index. A credit index is a basket of credit instruments or exposures designed to be representative of a specific sector of the credit market as a whole. These indices are made up of reference credits that are judged by a poll of dealers to be the most liquid entities in the CDS.
The counterparty risk for cleared swap agreements is generally lower than uncleared over-the-counter swap agreements because generally a clearing organization becomes substituted for each counterparty to a centrally-cleared swap agreement and, in effect, guarantees each party's performance under the contract as each party to a trade looks only to the clearing organization for performance of financial obligations. However, there can be no assurance that the clearing organization, or its members, will satisfy its obligations to the Fund.
The Fund may enter into CDS agreements either as a buyer or seller. The Fund may buy protection under a CDS to attempt to mitigate the risk of default or credit quality deterioration in one or more individual holdings or in a segment of the fixed income securities market. The Fund may sell protection under a CDS in an attempt to gain exposure to an underlying issuer's credit quality characteristics without investing directly in that issuer. For swaps entered with an individual counterparty, the Fund bears the risk of loss of the uncollateralized amount expected to be received under a CDS agreement in the event of the default or bankruptcy of the counterparty. CDS agreements are generally valued at a price at which the counterparty to such agreement would terminate the agreement. The Fund may also enter into cleared swaps.
Upon entering into a cleared CDS, the Fund may be required to deposit with the broker an amount of cash or cash equivalents in the range of approximately 3% to 6% of the notional amount for CDS on high yield debt issuers (this amount is subject to change by the clearing organization that clears the trade). This amount, known as "initial margin," is in the nature of a performance bond or good faith deposit on the CDS and is returned to a Fund upon termination of the CDS, assuming all contractual
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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obligations have been satisfied. Subsequent payments, known as "variation margin," to and from the broker will be made daily as the price of the CDS fluctuates, making the long and short positions in the CDS contract more or less valuable, a process known as "marking-to-market." The premium (discount) payments are built into the daily price of the CDS and thus are amortized through the variation margin. The variation margin payment also includes the daily portion of the periodic payment stream.
The maximum potential amount of future payments (undiscounted) that the Fund as a seller of protection could be required to make under a CDS agreement equals the notional amount of the agreement. Notional amounts of each individual CDS agreement outstanding as of period end for which the Fund is the seller of protection are disclosed on the Schedule of Portfolio Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, periodic interest payments, or net amounts received from the settlement of buy protection CDS agreements entered into by the Fund for the same referenced entity or entities.
As of June 30, 2019, the Fund entered into centrally cleared CDS agreements primarily for the strategy of asset allocation and risk exposure management.
Summary of Derivative Instruments:
The following table presents the effect of derivative instruments on the Statement of Assets and Liabilities, categorized by risk exposure, as of June 30, 2019.
Assets | Liabilities | ||||||||||||||||||
Variation Margin Receivable on Open Futures Contracts* | Variation Margin Receivable on Open Swap Agreements* | Variation Margin Payable on Open Futures Contracts* | Variation Margin Payable on Open Swap Agreements* | ||||||||||||||||
Credit Risk Exposure | $ | — | $ | 794,171 | $ | — | $ | — | |||||||||||
Interest Rate Risk Exposure | 771,071 | — | 3,506 | — |
* Includes cumulative appreciation (depreciation) of futures contracts and centrally cleared swap agreements as reported in the Schedule of Investments. Only current day's variation margin is reported within the Statement of Assets and Liabilities.
The following table presents the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the six months ended June 30, 2019.
Net Realized Gains (Losses) on Derivatives Recognized as a Result from Operations | Net Change in Unrealized Appreciation/Depreciation on Derivatives Recognized as a Result of Operations | ||||||||||||||||||
Net Realized Gains (Losses) From Futures Contracts | Net Realized Gains (Losses) from Swap Agreements | Net Change in Unrealized Appreciation/ Depreciation On Futures Contracts | Net Change in Unrealized Appreciation/ Depreciation On Swap Agreements | ||||||||||||||||
Credit Risk Exposure | $ | — | $ | (6,321,067 | ) | $ | — | $ | 3,959,579 | ||||||||||
Interest Rate Risk Exposure | (2,210,328 | ) | — | 2,091,827 | — |
All open derivative positions at period end are reflected on the Fund's Schedule of Portfolio Investments. The underlying face value of open derivative positions relative to the Fund's net assets at period end is generally representative of the notional amount of open positions to net assets throughout the period.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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Investment Transactions and Related Income:
Changes in holdings of investments are accounted for no later than one business day following the trade date. For financial reporting purposes, however, investment transactions are accounted for on trade date on the last business day of the reporting period. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date. Gains or losses realized on sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds.
The Fund may receive other income from investment in loan assignments and/or unfunded commitments, including amendment fees, consent fees and commitment fees. These fees are recorded as income when received by the Fund. These amounts are included in Interest Income in the Statement of Operations.
Withholding taxes on interest, dividends and gains as a result of certain investments in ADRs by the Fund have been provided for in accordance with each investment's applicable country's tax rules and rates.
Securities Lending:
The Trust has entered into a Master Securities Lending Agreement ("MSLA") with Citibank, N.A. ("Citibank" or the "Agent"). Under the terms of the MSLA, the Fund may lend securities to certain broker-dealers and banks in exchange for collateral in the amount of at least 102% of the value of U.S. securities loaned or at least 105% of the value of non-U.S. securities loaned, marked-to-market daily. Any collateral shortfalls associated with increases in the valuation of the securities loaned are adjusted the next business day. The collateral can be received in the form of cash collateral and/or non-cash collateral. Non-cash collateral can include U.S. Government Securities, letters of credit and certificates of deposit. The cash collateral is invested in short-term instruments or cash equivalents as noted on the Fund's Schedule of Portfolio Investments. The Trust does not have effective control of the non-cash collateral and therefore it is not disclosed in the Fund's Schedule of Portfolio Investments. The Fund continues to benefit from interest or dividends on the securities loaned and may also earn a return from the collateral. The Fund pays various fees in connection with the investment of cash collateral. The Fund pays the Agent fees based on the investment income received from securities lending activities. Securities lending income is disclosed in the Fund's Statement of Operations. Although risk is mitigated by the collateral, the Fund could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them.
Securities lending transactions are entered into by the Fund under the MSLA, which permits the Fund, under certain circumstances such as an event of default, to offset amounts payable by the Fund to the same counterparty against amounts receivable from the counterparty to create a net payment due to or from the Fund.
The following table is a summary of the Fund's securities lending transactions which are subject to offset under the MSLA as of June 30, 2019. These transactions are accounted for as secured borrowings with an overnight and continuous contractual maturity for cash collateral, and greater than overnight and continuous contractual maturity for non-cash collateral.
Gross Amount of Recognized Assets (Value of | Value of Cash | Value of Non-cash Collateral Received by Maturity | |||||||||||||||||||||
Securities on Loan) | Collateral Received* | <30 Days | Between 30 & 90 days | >90 Days | Net Amount | ||||||||||||||||||
$ | 1,286,169 | $ | 1,286,169 | $ | — | $ | — | $ | — | $ | — |
* Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by the Fund is disclosed in the Statement of Assets and Liabilities.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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Dividends to Shareholders:
Dividends from net investment income, if any, are declared and paid annually by the Fund. Distributable net realized gains, if any, are declared and distributed at least annually.
The amounts of dividends from net investment income and distributions from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these "book/tax" differences are permanent in nature (e.g., net operating loss and distributions reclassification), such amounts are reclassified within the components of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales) do not require reclassification. To the extent dividends and distributions exceed net investment income and net realized gains for tax purposes, they are reported as distributions of capital. Net investment losses incurred by the Fund may be reclassified as an offset to capital on the accompanying Statement of Assets and Liabilities.
Federal Income Taxes:
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes is required in the financial statements. The Fund has a tax year end of December 31.
Management of the Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Allocations:
Expenses directly attributable to the Fund are charged to the Fund, while expenses which are attributable to more than one fund in the Trust, or jointly with an affiliated trust, are allocated among the respective funds in the Trust and/or affiliated trust based upon net assets or another appropriate basis.
Affiliated Securities Transactions:
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Adviser and any applicable sub-adviser. Any such purchase or sale transaction must be effected without brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security's last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. For the six months ended June 30, 2019, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding securities maturing less than one year from acquisition) for the six months ended June 30, 2019 were as follows for the Fund:
Purchases (excluding U.S. Government Securities) | Sales (excluding U.S. Government Securities) | Purchases of U.S. Government Securities | Sales of U.S. Government Securities | ||||||||||||
$ | 165,065,222 | $ | 115,252,288 | $ | 181,093,810 | $ | 314,534,056 |
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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4. Fees and Transactions with Affiliates and Related Parties:
Investment advisory services are provided to the Fund by Victory Capital Management Inc. ("VCM" or the "Adviser"), a New York corporation registered as an investment adviser with the Securities and Exchange Commission ("SEC"). The Adviser is a wholly-owned indirect subsidiary of Victory Capital Holdings, Inc., a publicly traded Delaware corporation, and a wholly-owned direct subsidiary of Victory Capital Operating, LLC.
Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive 0.50% of the average daily net assets of the Fund. The Adviser may use its resources to assist with the Fund's distribution and marketing expenses.
VCM also serves as the Fund's administrator and fund accountant. Under an Administration and Fund Accounting Agreement, VCM is paid for its services an annual fee at a rate of 0.08% of the first $15 billion in average daily net assets of the Trust, Victory Portfolios and Victory Portfolios II (collectively, the "Victory Funds Complex"), 0.05% of the average daily net assets above $15 billion to $30 billion of the Victory Funds Complex and 0.04% of the average daily net assets over $30 billion of the Victory Funds Complex.
Citi Fund Services Ohio, Inc. ("Citi"), an affiliate of Citibank, N.A., acts as sub-administrator and sub-fund accountant to the Fund pursuant to a Sub-Administration and Sub-Fund Accounting Services Agreement between VCM and Citi. VCM pays Citi a fee for providing these services. The Trust reimburses VCM and Citi for all of their reasonable out-of-pocket expenses incurred in providing these services.
FIS Investor Services, LLC ("FIS") serves as the Fund's transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Chief Compliance Officer ("CCO") is an employee of the Adviser, which pays the compensation of the CCO and his support staff. The Trust has entered into an Agreement to provide compliance services with the Adviser, pursuant to which the Adviser furnishes its compliance personnel, including the services of the CCO, and other resources reasonably necessary to provide the Trust with compliance oversight services related to the design, administration and oversight of a compliance program for the Trust in accordance with Rule 38a-1 under the 1940 Act. The funds in the Victory Funds Complex, in the aggregate, compensate the Adviser for these services.
The Victory Funds Complex pays an annual retainer to each Independent Trustee, plus an additional annual retainer to the Chairman of the Board. The aggregate amount of the fees and expenses of the Independent Trustees are allocated amongst all the funds in the Victory Funds Complex and are presented in the Statement of Operations.
Shearman & Sterling LLP provides legal services to the Trust.
Victory Capital Advisers, Inc. (the "Distributor"), an affiliate of the Adviser, serves as distributor for the continuous offering of the shares of the Fund pursuant to a Distribution Agreement between the Distributor and the Trust.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2020. Under the terms of the agreement, the Adviser has agreed to waive fees or reimburse certain expenses to the extent that ordinary operating expenses incurred by the Fund in any fiscal year exceed the expense limit for the Fund. Such excess amounts will be the liability of the Adviser. Interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with GAAP, and other extraordinary expenses not incurred in the ordinary course of a Fund's business are excluded from the expense limits. For the six months ended June 30, 2019, the expense limit (excluding voluntary waivers) is 0.56%.
The Fund has agreed to repay fees and expenses that were waived or reimbursed by the Adviser for a period up to three fiscal years after such waiver or reimbursement was made to the extent such payments or repayments would not cause the expenses of a class to exceed the original expense limitation in place at time of the waiver or reimbursement or any expense limitation agreement in
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
place at the time of repayment. As of June 30, 2019, the following amounts are available to be repaid to the Adviser. Amounts repaid to the Adviser during the six months ended, if any, are reflected on the Statement of Operations as "Recoupment of prior expenses waived/reimbursed by Adviser".
Expires 12/31/2020 | Expires 12/31/2021 | Expires 12/31/2022 | |||||||||||||
$ | 362,552 | $ | 441,458 | $ | 584,586 |
The Adviser may voluntarily waive or reimburse additional fees to assist the Fund in maintaining a competitive expense ratio. Voluntary waivers and reimbursements applicable to the Fund are not available to be recouped at a future time. There were no voluntary waivers or reimbursements for the year ended June 30, 2019.
Certain officers and/or interested trustees of the Fund are also officers and/or employees of the Adviser, Administrator, Fund Accountant, Sub-Administrator, Sub-Fund Accountant and Legal Counsel.
5. Risks:
The Fund may be subject to other risks in addition to these identified risks.
An investment in the Fund's shares represents an indirect investment in the securities owned by the Fund, some of which will be traded on a national securities exchange or in the over-the-counter markets. The value of the securities in which the Fund invests, like other market investments, may move up or down, sometimes rapidly and unpredictably. The value of the securities in which the Fund invests may affect the value of the Fund's shares. An investment in the Fund's shares at any point in time may be worth less than the original investment, even after taking into account the reinvestment of the Fund's distributions.
The Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties for financial instruments entered into by the Fund. The Fund may be negatively impacted 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 bankruptcy or other reorganization proceeding and the Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund typically enters into transactions with counterparties whose credit ratings are investment grade, as determined by a nationally recognized statistical rating organization or, if unrated, judged by the Adviser to be of comparable quality.
The Funds will be subject to credit and interest rate risk with respect to fixed income securities. Credit risk refers to the ability of an issuer to make timely payments of interest and principal. Interest rates may rise or the rate of inflation may increase, impacting the value of investments in fixed income securities. A debt issuers' credit quality may be downgraded or an issuer may default. Interest rates may fluctuate due to changes in governmental fiscal policy initiatives and resulting market reaction to those initiatives.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2019, the Victory Funds Complex participated in a short-term, demand note "Line of Credit" agreement with Citibank. Under the agreement with Citibank, the Victory Funds Complex may have borrowed up to $250 million, of which $100 million was committed and $150 million was uncommitted. This agreement was in effect through July 26, 2019. Effective July 1, 2019, the current agreement was amended to include the USAA Mutual Funds Complex and has a new termination date of June 29, 2020. Under this amended agreement, the Victory Funds Complex and USAA Funds Complex, combined, may borrow up to $600 million, of which $300 million is committed and $300 million is uncommitted. $40 million of the Line of Credit is reserved for use by the Victory Floating Rate Fund, another series of the Victory Funds Complex, with that Fund paying the related commitment fees for that amount. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. With the agreement in affect for the six months ended June 30, 2019, Citibank received an annual commitment fee of 0.15% on $100 million for providing the Line of Credit. For the six months
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
ended June 30, 2019, Citibank earned approximately $76 thousand in commitment fees from the Victory Funds Complex. Effective July 1, 2019, Citibank receives an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest on amounts borrowed, including the USAA Funds Complex, commencing July 1, 2019. Interest charged to the Fund during the period is presented on the Statement of Operations under line of credit fees.
The Fund did not utilize the Line of Credit during the six months ended June 30, 2019.
Interfund Lending:
The Trust and Adviser rely on an exemptive order granted by the SEC in March 2017 (the "Order"), permitting the establishment and operation of an Interfund Lending Facility (the "Facility"). The Facility allows the Fund to directly lend and borrow money to or from any other Victory Fund relying upon the Order at rates beneficial to both the borrowing and lending funds. Advances under the Facility are allowed for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities, and are subject to each Fund's borrowing restrictions. The interfund loan rate is determined, as specified in the Order, by averaging the current repurchase agreement rate and the current bank loan rate. As a Borrower, interest charged to the Fund during the period is presented on the Statement of Operations under interfund lending fees. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Income on interfund lending.
Borrower or Lender | Amount Outstanding at June 30, 2019 | Average Borrowing | Days Borrowing Outstanding | Average Interest Rate | Maximum Borrowing During the Period | ||||||||||||||||||
Borrower | — | $ | 1,909,500 | 2 | 2.99 | % | $ | 2,009,000 |
7. Federal Income Tax Information:
The tax character of current year distributions paid and the tax basis of the current components of accumulated earnings (deficit) will be determined at the end of the current tax year ending December 31, 2019.
The tax character of distributions paid during the most recent tax year ended December 31, 2018, was as follows (total distributions paid may differ from the Statement of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid).
Distributions paid from | |||||||||||||||
Ordinary Income | Net Long-Term Capital Gains | Total Distributions Paid | |||||||||||||
$ | 4,289,680 | $ | — | $ | 4,289,680 |
As of the most recent tax year ended December 31, 2018, the components of accumulated earnings (deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation (Depreciation)* | Total Accumulated Earnings (Deficit) | ||||||||||||||||||
$ | 17,229,581 | $ | — | $ | 17,229,581 | $ | (13,332,054 | ) | $ | (7,958,824 | ) | $ | (4,061,297 | ) |
*The difference between the book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to tax deferral of losses on wash sales.
As of the tax year ended December 31, 2018, the Fund had short term and long term capital loss carryforwards of $5,300,039 and $8,032,015 respectively that were not subject to expiration.
During the most recent tax year ended December 31, 2018, the Fund did not utilize capital loss carryforwards.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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At June 30, 2019, the cost basis for federal income tax purposes, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) for investments were as follows:
Cost of Investments for Federal Tax Purposes | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||||||||||
$ | 626,202,468 | $ | 14,933,486 | $ | (2,703,439 | ) | $ | 12,230,047 |
8. Capital Contribution from Prior Custodian:
During 2016, the Fund received notification from the Fund's prior custodian, State Street Bank and Trust ("State Street"), concerning issues related to billing on certain categories of expenses during the approximately 16-year period from 1998 through October 31, 2014. The over-billing primarily related to categories of expenses that involved an allocation of general costs among multiple clients.
State Street paid the refunded amounts during January 2017. Based on billing information received during 2016 from State Street and an analysis of any expense limitation agreements that were in place during the period of the activities in question, including the application of any recoupment provisions in such agreements, the Adviser received a portion of the refund.
The portion of the refund retained by the Fund was accounted for as a capital contribution and is reflected on the Financial Highlights as "Capital Contribution from Prior Custodian, Net".
9. Fund Ownership:
Ownership of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2(a)(9) of the 1940 Act. As of June 30, 2019, the shareholders listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund.
Shareholder | Percent | ||||||||||
The Guardian Insurance & Annuity Company, Inc. | 99.9 | % |
10. Recent Accounting Pronouncements:
In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards ("ASU") Update No. 2017-08 "Premium Amortization on Purchased Callable Debt Securities" ("ASU 2017-08"), which shortens the premium amortization period for purchased non-contingently callable debt securities. ASU 2017-08 specifies that the premium amortization period ends at the earliest call date, for purchased non-contingently callable debt securities. The Fund has adopted and applied ASU 2017-08 on a modified retrospective basis through a cumulative-effect adjustment as of the beginning of the period of adoption. As a result of the adoption of ASU 2017-08, as of January 1, 2019, the amortized cost basis of investments was reduced by $1,231 and unrealized appreciation of investments was increased by $1,231. The adoption of ASU 2017-08 had no impact on beginning net assets, the current period results from operations, or any prior period information presented in the financial statements.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurements" ("ASU 2018-13"). This update makes certain removals from, changes to and additions to existing disclosure requirements for fair value measurements. ASU 2018-13 does not change fair value measurements already required or permitted by existing standards. ASU 2018-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As permitted, the Fund has early adopted ASU 2018-13 with the financial statements prepared as of June 30, 2019.
11. Subsequent Events:
The Fund has evaluated the need for additional disclosures or adjustments resulting from subsequent events through the date these financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have a material impact on the Fund's financial statements.
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Victory Variable Insurance Funds | Supplemental Information June 30, 2019 |
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Trustee and Officer Information
Board of Trustees:
Overall responsibility for management of the Trust rests with the Board. The Trust is managed by the Board in accordance with the laws of the State of Delaware. There are currently ten Trustees, nine of whom are not "interested persons" of the Trust within the meaning of that term under the 1940 Act ("Independent Trustees") and one of whom is an "interested person" of the Trust within the meaning of that term under the 1940 Act ("Interested Trustee"). The Trustees, in turn, elect the officers of the Trust to actively supervise its day-to-day operations.
The following tables list the Trustees, their ages, position with the Trust, commencement of service, principal occupations during the past five years and any directorships of other investment companies or companies whose securities are registered under the Securities Exchange Act of 1934, as amended, or who file reports under that Act. Each Trustee oversees nine portfolios in the Trust, 42 portfolios in Victory Portfolios and 20 portfolios in Victory Portfolios II, each a registered investment company that, together with the Trust, comprise the Victory Funds Complex. Each Trustee's address is c/o Victory Variable Insurance Funds, 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. Each Trustee has an indefinite term.
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Independent Trustees. | |||||||||||||||||||
David Brooks Adcock, 67 | Trustee | February 2005 | Consultant (since 2006). | Chair and Trustee, Turner Funds (December 2016-December 2017). | |||||||||||||||
Nigel D.T. Andrews, 72 | Vice Chair and Trustee | August 2002 | Retired. | Director, TCG BDC II, Inc. (since 2017); Director, TCG BDC I, Inc. (formerly Carlyle GMS Finance, Inc.) (since 2012); Director, Old Mutual US Asset Management (2002-2014). | |||||||||||||||
E. Lee Beard, 68* | Trustee | February 2005 | Retired (since 2015); Consultant, The Henlee Group, LLC (consulting) (2005-2015). | None. | |||||||||||||||
Dennis M. Bushe, 75 | Trustee | July 2016 | Retired. | Trustee, RS Investment Trust and RS Variable Products Trust (November 2011-July 2016). |
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Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
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Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Sally M. Dungan, 65 | Trustee | February 2011 | Chief Investment Officer, Tufts University (since 2002). | None. | |||||||||||||||
John L. Kelly, 66 | Trustee | February 2015 | Partner, McCarvill Capital Partners (September 2016-September 2017); Advisor, Endgate Commodities LLC (January 2016-April 2016); Managing Partner, Endgate Commodities LLC (August 2014-January 2016); Chief Operating Officer, Liquidnet Holdings, Inc. (December 2011-July 2014). | Director, Caledonia Mining Corporation (since May 2012). | |||||||||||||||
David L. Meyer, 62* | Trustee | December 2008 | Retired. | None. | |||||||||||||||
Gloria S. Nelund, 58 | Trustee | July 2016 | Chair, CEO and Co-Founder of TriLinc Global, LLC, an investment firm. | TriLinc Global Impact Fund, LLC (since 2012); Trustee, RS Investment Trust and RS Variable Products Trust (November 2007-July 2016). | |||||||||||||||
Leigh A. Wilson, 74 | Chair and Trustee | February 1998 | Private Investor. | Chair (since 2013), Caledonia Mining Corporation. | |||||||||||||||
Interested Trustee. | |||||||||||||||||||
David C. Brown, 47** | Trustee | May 2008 | Chairman and Chief Executive Officer (since 2013), Co-Chief Executive Officer (2011-2013), the Adviser; Chairman and Chief Executive Officer, Victory Capital Holdings, Inc. (since 2013). | None. |
* The Board has designated Mr. Meyer and Ms. Beard as its Audit Committee Financial Experts.
** Mr. Brown is an "Interested Person" by reason of his relationship with the Adviser.
The Statement of Additional Information includes additional information about the Trustees of the Trust and is available, without charge, by calling 800-539-3863.
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Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
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Officers:
The officers of the Trust, their ages, commencement of service and their principal occupations during the past five years, are detailed in the following table. Each officer serves until the earlier of his or her resignation, removal, retirement, death, or the election of a successor. The mailing address of each officer of the Trust is 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. The officers of the Trust receive no compensation directly from the Trust for performing the duties of their offices.
Name and Age | Position with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | ||||||||||||
Christopher K. Dyer, 57 | President | February 2006* | Director of Fund Administration, the Adviser. | ||||||||||||
Scott A. Stahorsky, 50 | Vice President | December 2014 | Manager, Fund Administration, the Adviser (since 2015); Senior Analyst, Fund Administration, the Adviser (prior to 2015). | ||||||||||||
Erin G. Wagner, 45 | Secretary | December 2014 | Associate General Counsel, the Adviser (since 2013). | ||||||||||||
Allan Shaer, 54 | Treasurer | May 2017 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc. (since 2016); Vice President, Mutual Fund Administration, JP Morgan Chase (2011-2016). | ||||||||||||
Christopher A. Ponte, 35 | Assistant Treasurer | December 2017 | Manager, Fund Administration, the Adviser (since 2017); Senior Analyst, Fund Administration, the Adviser (prior to 2017); Chief Financial Officer, Victory Capital Advisers, Inc. (since 2018). | ||||||||||||
Colin Kinney, 45 | Chief Compliance Officer | July 2017 | Chief Compliance Officer (since 2013) and Chief Risk Officer (2009-2017), the Adviser. | ||||||||||||
Chuck Booth, 59 | Anti-Money Laundering Compliance Officer and Identity Theft Officer | May 2015 | Director, Regulatory Administration and CCO Support Services, Citi Fund Services Ohio, Inc. | ||||||||||||
Jay G. Baris, 65 | Assistant Secretary | February 1998 | Partner, Shearman & Sterling LLP (since 2018); Partner, Morrison & Foerster LLP (2011-January 2018). |
* On December 3, 2014, Mr. Dyer resigned as Secretary of the Trust and accepted the position of President.
29
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Proxy Voting and Portfolio Holdings Information
Proxy Voting:
Information regarding the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 800-539-3863. The information is also included in the Fund's Statement of Additional Information, which is available on the SEC's website at www.sec.gov.
Information relating to how the Fund voted proxies relating to portfolio securities held during the most recent twelve months ended June 30 is available on the SEC's website at www.sec.gov.
Availability of Schedules of Portfolio Investments:
The Trust files a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-PORT. Prior to the implementation of Form N-PORT, the Trust filed a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-PORT and Forms N-Q are available on the SEC's website at www.sec.gov.
Expense Examples
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2019 through June 30, 2019.
The Actual Expense figures in the table below provide information about actual account values and actual expenses. You may use the information below, 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.
The Hypothetical Expense figures in the table below provide 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 this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 1/1/19 | Actual Ending Account Value 6/30/19 | Hypothetical Ending Account Value 6/30/19 | Actual Expenses Paid During Period 1/1/19-6/30/19* | Hypothetical Expenses Paid During Period 1/1/19-6/30/19* | Annualized Expense Ratio During Period 1/1/19-6/30/19 | ||||||||||||||||||
$ | 1,000.00 | $ | 1,050.20 | $ | 1,022.02 | $ | 2.85 | $ | 2.81 | 0.56 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 181/365 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
30
Privacy Policy
Protecting the Privacy of Information
The Trust respects your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information about investment goals and risk tolerance.
We do not disclose any information about you or about former customers to anyone except as permitted or required by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and printers and mailers that assist us in the distribution of investor materials. We may also disclose this information to companies that perform marketing services on our behalf. This allows us to continue to offer you Victory investment products and services that meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only in connection with the services for which we hired them. They are not permitted to use or share this information for any other purpose.
To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information.*
* You may have received communications regarding information about privacy policies from other financial institutions which gave you the opportunity to "opt-out" of certain information sharing with companies which are not affiliated with that financial institution. The Trust does not share information with other companies for purposes of marketing solicitations for products other than the Trust. Therefore, the Trust does not provide opt-out options to their shareholders.
Victory Funds
P.O. Box 182593
Columbus, Ohio 43218-2593
Visit our website at: | Call Victory at: | ||||||
www.vcm.com | 800-539-FUND (800-539-3863) |
VVIF-RS-IIQBVIP-SAR (6/19)
June 30, 2019
Semi Annual Report
Victory Variable Insurance Funds
Victory High Yield VIP Series
Beginning January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports may no longer be sent by mail from the insurance company that issued your variable annuity and variable life insurance contract, unless you specifically request paper copies of the reports from your insurance company. Instead, the reports will be made available on www.victoryfunds.com. The insurance company that offers your contract may also make these reports available on a website, and such insurance company will notify you by mail each time a report is posted and provide you with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the insurance company electronically by following the instructions provided by the insurance company.
If offered by your insurance company, you may elect to receive all future reports in paper and free of charge from the insurance company. You can inform your insurance company that you wish to continue receiving paper copies of your reports. Your election to receive reports in paper will apply to all funds available under your contract.
www.vcm.com
News, Information And Education 24 Hours A Day, 7 Days A Week
The Victory Funds site gives fund shareholders, prospective shareholders, and investment professionals a convenient way to access fund information, get guidance, and track fund performance anywhere they can access the Internet. The site includes:
• Detailed performance records
• Daily share prices
• The latest fund news
• Investment resources to help you become a better investor
• A section dedicated to investment professionals
Whether you're a potential investor searching for the fund that matches your investment philosophy, a seasoned investor interested in planning tools, or an investment professional, www.vcm.com has what you seek. Visit us anytime. We're always open.
Victory Variable Insurance Funds
Table of Contents
Financial Statements | |||||||
Investment Objective & Portfolio Holdings | 3 | ||||||
Schedule of Portfolio Investments | 4 | ||||||
Statement of Assets and Liabilities | 8 | ||||||
Statement of Operations | 9 | ||||||
Statements of Changes in Net Assets | 10 | ||||||
Financial Highlights | 12 | ||||||
Notes to Financial Statements | 14 | ||||||
Supplemental Information | |||||||
Trustee and Officer Information | 23 | ||||||
Proxy Voting and Portfolio Holdings Information | 26 | ||||||
Expense Examples | 26 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Advisers, Inc. Victory Capital Management Inc. is the investment adviser to the Fund and receives fees from the Fund for performing services for the Fund.
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus of the Fund.
For additional information about any Victory Fund, including fees, expenses, and risks, view our prospectus online at www.vcm.com or call 800-539-3863. Read it carefully before you invest or send money.
The information in this semi annual report is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections, or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Past investment performance of the Fund, markets or securities mentioned herein should not be considered to be indicative of future results.
• NOT FDIC INSURED • NO BANK GUARANTEE
• MAY LOSE VALUE
Call Victory at:
800-539-FUND (800-539-3863)
Visit our website at:
www.vcm.com
1
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2
Victory Variable Insurance Funds | June 30, 2019 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: The Victory High Yield VIP Series seeks to provide long-term capital appreciation.
Portfolio Holdings*:
* Percentages are of total investments of the Fund.
3
Victory Variable Insurance Funds Victory High Yield VIP Series | Schedule of Portfolio Investments June 30, 2019 |
(Unaudited)
Security Description | Shares or Principal Amount | Value | |||||||||
Common Stocks (2.4%) | |||||||||||
Communication Services (1.6%): | |||||||||||
AMC Networks, Inc., Class A (a) | 3,000 | $ | 163,470 | ||||||||
Cinemark Holdings, Inc. | 2,500 | 90,250 | |||||||||
TEGNA, Inc. | 17,000 | 257,550 | |||||||||
511,270 | |||||||||||
Consumer Discretionary (0.8%): | |||||||||||
Wynn Resorts Ltd. | 2,000 | 247,980 | |||||||||
Total Common Stocks (Cost $731,222) | 759,250 | ||||||||||
Senior Secured Loans (27.5%) | |||||||||||
Ai Ladder Luxembourg Subco Sarl, 1st Lien Term Loan B, 6.83% (LIBOR03M+450bps), 5/4/25 (b) | $ | 394,843 | 383,325 | ||||||||
Alphabet Holding Co., Inc., 2nd Lien Term Loan, 10.15% (LIBOR01M+775bps), 8/15/25, Callable 8/4/19 @ 101 (b) | 500,000 | 441,665 | |||||||||
Avaya, Inc., 1st Lien Term Loan B, 6.65% (LIBOR01M+425bps), 12/15/24, Callable 8/4/19 @ 100 (b) | 344,750 | 329,236 | |||||||||
Bass Pro Group LLC, Term Loan B, 7.40% (LIBOR01M+500bps), 12/16/23, Callable 8/4/19 @ 100 (b) | 487,525 | 464,875 | |||||||||
Caesars Resort Collection LLC, 1st Lien Term Loan B, 5.15% (LIBOR01M+275bps), 10/2/24, Callable 8/4/19 @ 100 (b) | 244,389 | 240,061 | |||||||||
CommScope, Inc, 1st Lien term Loan, 5.65% (LIBOR01M+325bps), 4/6/26, Callable 8/4/19 @ 101 (b) | 250,000 | 249,000 | |||||||||
CPM Holdings, Inc., 1st Lien Term Loan, 6.15% (LIBOR01M+375bps), 11/17/25, Callable 8/4/19 @ 100 (b) | 199,000 | 196,180 | |||||||||
Crown Finance US, Inc., 1st Lien Term Loan B, 4.65% (LIBOR01M+225bps), 2/7/25, Callable 8/4/19 @ 100 (b) | 287,730 | 282,784 | |||||||||
Dayco Products LLC, 6.77% (LIBOR03M+425bps), 5/19/24, Callable 8/4/19 @ 100 (b) | 489,737 | 473,821 | |||||||||
Dynasty Acquisition Co., Inc., 1st Lien Term Loan, 1/24/26 (b) (c) (h) | 162,587 | 163,168 | |||||||||
Hertz Corp., Term Loan B1, 5.16% (LIBOR01M+275bps), 6/30/23, Callable 8/4/19 @ 100 (b) | 484,733 | 482,459 | |||||||||
Holley Purchaser, Inc., 1st Lien Term Loan, 7.58% (LIBOR03M+500bps), 10/24/25, Callable 8/4/19 @ 101 (b) | 199,000 | 193,030 | |||||||||
II-VI Inc, 1st Lien Term Loan, 5/8/26 (b) (c) (h) | 250,000 | 246,095 | |||||||||
LifeScan Global Corp., 1st Lien Term Loan, 8.66% (LIBOR06M+600bps), 6/19/24, Callable 8/4/19 @ 101 (b) | 482,500 | 459,581 | |||||||||
Navistar, Inc., 1st Lien Term Loan B, 5.91% (LIBOR01M+350bps), 11/2/24, Callable 8/4/19 @ 100 (b) | 245,009 | 244,167 | |||||||||
Nexstar Broadcasting, Inc., 1st Lien Term Loan, 6/20/26 (b) (c) (h) | 250,000 | 249,063 | |||||||||
Packaging Coordinators Midco, Inc., 2nd Lien Term Loan, 11.08% (LIBOR03M+875bps), 7/1/24, Callable 8/4/19 @ 100 (b) | 250,000 | 248,750 | |||||||||
Radiate Holdco LLC, 5.40% (LIBOR01M+300bps), 2/1/24, Callable 8/4/19 @ 100 (b) | 492,443 | 480,467 | |||||||||
Reynolds Group Holdings, Inc., 1st Lien Term Loan B, 5.15% (LIBOR01M+275bps), 2/5/23, Callable 8/4/19 @ 100 (b) | 253,658 | 251,552 | |||||||||
SIWF Holdings, Inc., 10.90% (LIBOR01M+850bps), 5/26/26 (b) | 500,000 | 475,000 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory High Yield VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Specialty Building Products Holdings LLC, 1st Lien Term Loan, 8.15% (LIBOR01M+575bps), 10/1/25, Callable 8/4/19 @ 101 (b) | $ | 498,750 | $ | 495,009 | |||||||
Sprint Communications, Inc., 1st Lien Term Loan B, 4.94% (LIBOR01M+250bps), 2/2/24, Callable 8/4/19 @ 100 (b) | 493,687 | 485,665 | |||||||||
StandardAero, Ltd., 1st Lien Term Loan, 1/24/26 (b) (c) (h) | 87,413 | 87,725 | |||||||||
Stars Group Holdings BV, 5.83% (LIBOR03M+350bps), 6/27/25, Callable 8/4/19 @ 100 (b) | 446,049 | 445,817 | |||||||||
Tenneco, Inc., 1st Lien Term Loan B, 5.40% (LIBOR01M+300bps), 6/18/25, Callable 8/4/19 @ 100 (b) | 199,000 | 183,428 | |||||||||
Utz Quality Foods LLC, 2nd Lien Term Loan, 9.65% (LIBOR01M+725bps), 11/21/25, Callable 8/4/19 @ 101 (b) | 300,000 | 297,000 | |||||||||
Wynn Resorts Ltd., 1st Lien Term Loan B, 4.69% (LIBOR01M+225bps), 10/30/24, Callable 8/4/19 @ 100 (b) | 249,375 | 247,123 | |||||||||
Total Senior Secured Loans (Cost $8,916,093) | 8,796,046 | ||||||||||
Corporate Bonds (66.7%) | |||||||||||
Communication Services (6.9%): | |||||||||||
AMC Entertainment Holdings, Inc., 6.13%, 5/15/27, Callable 5/15/22 @ 103.06 | 500,000 | 446,900 | |||||||||
AMC Networks, Inc., 4.75%, 8/1/25, Callable 8/1/21 @ 102.38 | 400,000 | 406,712 | |||||||||
Cablevision Systems Corp., 5.88%, 9/15/22 | 500,000 | 529,010 | |||||||||
Hughes Satellite Systems Corp., 6.63%, 8/1/26 (d) | 500,000 | 525,105 | |||||||||
Telesat Canada/Telesat LLC, 8.88%, 11/15/24, Callable 11/15/19 @ 106.66 (e) (f) | 300,000 | 325,407 | |||||||||
2,233,134 | |||||||||||
Consumer Discretionary (12.4%): | |||||||||||
AV Homes, Inc., 6.63%, 5/15/22, Callable 8/5/19 @ 103.31 | 175,000 | 181,281 | |||||||||
Beazer Homes USA, Inc., 5.88%, 10/15/27, Callable 10/15/22 @ 102.94 (d) | 400,000 | 347,504 | |||||||||
Boyd Gaming Corp., 6.38%, 4/1/26, Callable 4/1/21 @ 103.19 | 392,000 | 414,289 | |||||||||
Churchill Downs, Inc., 5.50%, 4/1/27, Callable 4/1/22 @ 102.75 (f) | 150,000 | 157,239 | |||||||||
Eldorado Resorts, Inc., 6.00%, 9/15/26, Callable 9/15/21 @ 104.5 | 400,000 | 436,660 | |||||||||
Golden Nugget, Inc., 8.75%, 10/1/25, Callable 10/1/20 @ 104.38 (f) | 500,000 | 525,080 | |||||||||
MGM Resorts International, 5.50%, 4/15/27, Callable 1/15/27 @ 100 | 250,000 | 262,140 | |||||||||
Panther BF Aggregator 2 LP / Panther Finance Co., Inc., 8.50%, 5/15/27, Callable 5/15/22 @ 104.25 (f) | 250,000 | 256,913 | |||||||||
Scientific Games International, Inc., 8.25%, 3/15/26, Callable 3/15/22 @ 104.13 (f) | 300,000 | 314,421 | |||||||||
The Enterprise Development Authority, 12.00%, 7/15/24, Callable 7/15/21 @ 109 (f) | 500,000 | 542,309 | |||||||||
Yum! Brands, Inc., 5.35%, 11/1/43, Callable 5/1/43 @ 100 | 550,000 | 495,985 | |||||||||
3,933,821 | |||||||||||
Consumer Staples (6.5%): | |||||||||||
Albertsons Cos. LLC, 5.75%, 3/15/25, Callable 9/15/19 @ 104.31 | 500,000 | 504,570 | |||||||||
B&G Foods, Inc., 5.25%, 4/1/25, Callable 4/1/20 @ 103.94 | 200,000 | 202,062 | |||||||||
Cott Holdings, Inc., 5.50%, 4/1/25, Callable 4/1/20 @ 104.13 (e) (f) | 500,000 | 509,445 | |||||||||
Dole Food Co., Inc., 7.25%, 6/15/25, Callable 6/15/20 @ 103.63 (f) | 500,000 | 485,155 | |||||||||
Simmons Foods, Inc., 7.75%, 1/15/24, Callable 1/15/21 @ 103.88 (f) | 330,000 | 355,526 | |||||||||
2,056,758 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory High Yield VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Financials (7.6%): | |||||||||||
Acrisure LLC / Acrisure Finance, Inc., 8.13%, 2/15/24, Callable 2/15/21 @ 104.06 (f) | $ | 225,000 | $ | 232,236 | |||||||
Compass Group Diversified Holdings LLC, 8.00%, 5/1/26, Callable 5/1/21 @ 104 (e) (f) | 500,000 | 521,219 | |||||||||
Downstream Development Authority of the Quapaw Tribe of Oklahoma, 10.50%, 2/15/23, Callable 2/15/20 @ 105.25 (f) | 500,000 | 527,325 | |||||||||
Eagle Holding Co. II LLC, 7.75%, 5/15/22, Callable 8/5/19 @ 101 (f) | 250,000 | 253,338 | |||||||||
Gray Escrow, Inc., 7.00%, 5/15/27, Callable 5/15/22 @ 105.25 (f) | 120,000 | 130,115 | |||||||||
Intelsat Jackson Holdings SA, 5.50%, 8/1/23, Callable 8/5/19 @ 101.83 | 250,000 | 228,780 | |||||||||
LABL Escrow Issuer LLC, 10.50%, 7/15/27, Callable 7/15/22 @ 105.25 (c) (f) | 250,000 | 250,580 | |||||||||
Resideo Funding, Inc., 6.13%, 11/1/26, Callable 11/1/21 @ 104.59 (f) | 300,000 | 311,574 | |||||||||
2,455,167 | |||||||||||
Health Care (9.8%): | |||||||||||
Air Medical Group Holdings, Inc., 6.38%, 5/15/23, Callable 8/5/19 @ 101.59 (d) (f) | 500,000 | 447,504 | |||||||||
Avantor, Inc., 9.00%, 10/1/25, Callable 10/1/20 @ 106.75 (e) (f) | 250,000 | 278,425 | |||||||||
Bausch Health Cos., Inc., 6.13%, 4/15/25, Callable 4/15/20 @ 103.06 (f) | 500,000 | 510,935 | |||||||||
BCPE Cycle Merger Sub II, Inc., 10.63%, 7/15/27, Callable 7/15/22 @ 105.31 (f) | 200,000 | 203,436 | |||||||||
Endo Finance LLC, 6.00%, 2/1/25, Callable 2/1/20 @ 103 (f) | 200,000 | 134,462 | |||||||||
Ortho-Clinical Diagnostics, Inc., 6.63%, 5/15/22, Callable 8/5/19 @ 100 (e) (f) | 300,000 | 289,527 | |||||||||
Polaris Intermediate Corp., 8.50%, 12/1/22, Callable 7/16/19 @ 104 (e) (f) | 250,000 | 220,715 | |||||||||
RegionalCare Hospital Partners Holdings, Inc./LifePoint Health, Inc., 9.75%, 12/1/26, Callable 12/1/21 @ 104.88 (f) | 300,000 | 314,208 | |||||||||
Surgery Center Holdings, Inc., 10.00%, 4/15/27, Callable 4/15/22 @ 105 (f) | 250,000 | 249,348 | |||||||||
Verscend Escrow Corp., 9.75%, 8/15/26, Callable 8/15/21 @ 104.88 (f) | 500,000 | 520,055 | |||||||||
3,168,615 | |||||||||||
Industrials (16.6%): | |||||||||||
Ahern Rentals, Inc., 7.38%, 5/15/23, Callable 8/5/19 @ 103.69 (e) (f) | 500,000 | 446,865 | |||||||||
Algeco Global Finance 2 PLC, 10.00%, 8/15/23, Callable 2/15/20 @ 105 (e) (f) | 300,000 | 303,456 | |||||||||
Allison Transmission, Inc., 5.88%, 6/1/29, Callable 6/1/24 @ 102.94 (f) | 150,000 | 157,920 | |||||||||
Apex Tool Group LLC/BC Mountain Finance, Inc., 9.00%, 2/15/23, Callable 8/5/19 @ 102 (f) | 250,000 | 224,488 | |||||||||
Beacon Escrow Corp., 4.88%, 11/1/25, Callable 11/1/20 @ 102.44 (d) (f) | 470,000 | 465,271 | |||||||||
Bombardier, Inc., 7.88%, 4/15/27, Callable 4/15/22 @ 103.94 (f) | 400,000 | 400,488 | |||||||||
Clean Harbors, Inc. | |||||||||||
4.88%, 7/15/27, Callable 7/15/22 @ 102.44 (c) (f) | 125,000 | 127,026 | |||||||||
5.13%, 7/15/29, Callable 7/15/24 @ 102.56 (c) (f) | 125,000 | 127,699 | |||||||||
Covanta Holding Corp., 5.88%, 7/1/25, Callable 7/1/20 @ 104.41 (d) | 500,000 | 519,989 | |||||||||
IAA, Inc., 5.50%, 6/15/27, Callable 6/15/22 @ 102.75 (f) | 150,000 | 156,014 | |||||||||
Pisces Midco, Inc., 8.00%, 4/15/26, Callable 4/15/21 @ 104 (d) (f) | 500,000 | 485,865 | |||||||||
SRS Distribution, Inc., 8.25%, 7/1/26, Callable 7/1/21 @ 104.13 (d) (e) (f) | 250,000 | 244,990 | |||||||||
Stevens Holding Co., Inc., 6.13%, 10/1/26, Callable 10/1/23 @ 101.53 (f) | 330,000 | 347,618 | |||||||||
TransDigm, Inc., 6.50%, 7/15/24, Callable 8/5/19 @ 103.25 | 400,000 | 404,904 | |||||||||
Triumph Group, Inc., 4.88%, 4/1/21, Callable 8/5/19 @ 100 | 250,000 | 246,890 | |||||||||
United Rentals, Inc., 6.50%, 12/15/26, Callable 12/15/21 @ 103.25 (d) | 200,000 | 216,322 | |||||||||
W/S Packaging Holdings, Inc., 9.00%, 4/15/23 (e) (f) | 400,000 | 437,680 | |||||||||
5,313,485 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory High Yield VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares or Principal Amount | Value | |||||||||
Materials (6.9%): | |||||||||||
Ardagh Packaging Finance PLC/Holdings USA, Inc., 6.00%, 2/15/25, Callable 2/15/20 @ 104.5 (f) | $ | 450,000 | $ | 466,727 | |||||||
Greif, Inc., 6.50%, 3/1/27, Callable 3/1/22 @ 103.25 (f) | 400,000 | 413,000 | |||||||||
Intertape Polymer Group, Inc., 7.00%, 10/15/26, Callable 10/15/21 @ 103.5 (f) | 670,000 | 692,452 | |||||||||
Plastipak Holdings, Inc., 6.25%, 10/15/25, Callable 10/15/20 @ 103.13 (d) (f) | 330,000 | 305,257 | |||||||||
Summit Materials LLC / Summit Materials Finance Corp., 6.50%, 3/15/27, Callable 3/15/22 @ 103.25 (f) | 130,000 | 135,961 | |||||||||
Titan Acquisition Ltd./Titan Co-Borrower LLC, 7.75%, 4/15/26, Callable 4/15/21 @ 103.88 (d) (e) (f) | 250,000 | 225,906 | |||||||||
2,239,303 | |||||||||||
Total Corporate Bonds (Cost $21,054,251) | 21,400,283 | ||||||||||
Collateral for Securities Loaned^ (10.7%) | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 2.43% (g) | 715,423 | 715,423 | |||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 2.28% (g) | 921,547 | 921,547 | |||||||||
Fidelity Investments Prime Money Market Portfolio, Class I, 2.39% (g) | 23,933 | 23,933 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 2.48% (g) | 393,431 | 393,431 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class , 2.41% (g) | 536,484 | 536,484 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 2.42% (g) | 834,561 | 834,561 | |||||||||
Total Collateral for Securities Loaned (Cost $3,425,379) | 3,425,379 | ||||||||||
Total Investments (Cost $34,126,945) — 107.3% | 34,380,958 | ||||||||||
Liabilities in excess of other assets — (7.3)% | (2,352,034 | ) | |||||||||
NET ASSETS — 100.00% | $ | 32,028,924 |
^ Purchased with cash collateral from securities on loan.
(a) Non-income producing security.
(b) Variable or Floating-Rate Security. Rate disclosed is as of June 30, 2019.
(c) Security purchased on a when-issued basis.
(d) All or a portion of this security is on loan.
(e) All or a portion of this security has been segregated as collateral for securities purchased on a when-issued basis.
(f) Rule 144A security or other security that is restricted as to resale to institutional investors. The Fund's Adviser has deemed these securities to be liquid based upon procedures approved by the Board of Trustees. As of June 30, 2019, the fair value of these securities was $15,031,179 and amounted to 46.9% of net assets.
(g) Rate disclosed is the daily yield on June 30, 2019.
(h) The rates for this senior secured loan will be known on settlement date of the loan, subsequent to this report date. Senior secured loans have rates that will fluctuate over time in line with prevailing interest rates.
bps — Basis points
LIBOR — London InterBank Offered Rate
LIBOR01M — 1 Month US Dollar LIBOR, rate disclosed as of June 30, 2019, based on the last reset date of the security
LIBOR03M — 3 Month US Dollar LIBOR, rate disclosed as of June 30, 2019, based on the last reset date of the security
LIBOR06M — 6 Month US Dollar LIBOR, rate disclosed as of June 30, 2019, based on the last reset date of the security
LLC — Limited Liability Company
LP — Limited Partnership
PLC — Public Limited Company
See notes to financial statements.
7
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2019 |
(Unaudited)
Victory High Yield VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $34,126,945) | $ | 34,380,958 | (a) | ||||
Cash and cash equivalents | 1,709,474 | ||||||
Interest and dividends receivable | 404,163 | ||||||
Receivable for capital shares issued | 593 | ||||||
Receivable for investments sold | 1,590,232 | ||||||
Receivable from Adviser | 4,876 | ||||||
Prepaid expenses | 991 | ||||||
Total Assets | 38,091,287 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 3,425,379 | ||||||
Investments purchased | 2,559,188 | ||||||
Capital shares redeemed | 43,225 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 15,760 | ||||||
Administration fees | 1,608 | ||||||
Custodian fees | 1,756 | ||||||
Transfer agent fees | 3,759 | ||||||
Chief Compliance Officer fees | 42 | ||||||
Other accrued expenses | 11,646 | ||||||
Total Liabilities | 6,062,363 | ||||||
NET ASSETS: | |||||||
Capital | 32,314,877 | ||||||
Total distributable earnings/(loss) | (285,953 | ) | |||||
Net Assets | $ | 32,028,924 | |||||
Shares Outstanding (unlimited shares authorized, with a par value of $0.001 per share): | 4,244,383 | ||||||
Net asset value: | $ | 7.55 |
(a) Includes $3,312,451 of securities on loan.
See notes to financial statements.
8
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2019 |
(Unaudited)
Victory High Yield VIP Series | |||||||
Investment Income: | |||||||
Dividends | $ | 7,580 | |||||
Interest | 1,116,415 | ||||||
Securities lending (net of fees) | 15,754 | ||||||
Total Income | 1,139,749 | ||||||
Expenses: | |||||||
Investment advisory fees | 95,594 | ||||||
Administration fees | 10,067 | ||||||
Custodian fees | 5,686 | ||||||
Transfer agent fees | 21,913 | ||||||
Trustees' fees | 1,448 | ||||||
Chief Compliance Officer fees | 112 | ||||||
Legal and audit fees | 7,360 | ||||||
Other expenses | 9,906 | ||||||
Total Expenses | 152,086 | ||||||
Expenses waived/reimbursed by Adviser | (10,259 | ) | |||||
Net Expenses | 141,827 | ||||||
Net Investment Income (Loss) | 997,922 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities | (95,093 | ) | |||||
Net change in unrealized appreciation/depreciation on investment securities | 2,247,980 | ||||||
Net realized/unrealized gains (losses) on investments | 2,152,887 | ||||||
Change in net assets resulting from operations | $ | 3,150,809 |
See notes to financial statements.
9
Victory Variable Insurance Funds | Statements of Changes in Net Assets |
Victory High Yield VIP Series | |||||||||||
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | ||||||||||
(Unaudited) | |||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 997,922 | $ | 2,232,471 | |||||||
Net realized gains (losses) from investments | (95,093 | ) | 356,829 | ||||||||
Net change in unrealized appreciation/depreciation on investments | 2,247,980 | (2,369,605 | ) | ||||||||
Change in net assets resulting from operations | 3,150,809 | 219,695 | |||||||||
Change in net assets resulting from distributions to shareholders | — | (179,666 | ) | ||||||||
Change in net assets resulting from capital transactions | (2,040,120 | ) | (6,521,715 | ) | |||||||
Change in net assets | 1,110,689 | (6,481,686 | ) | ||||||||
Net Assets: | |||||||||||
Beginning of period | 30,918,235 | 37,399,921 | |||||||||
End of period | $ | 32,028,924 | $ | 30,918,235 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 659,694 | $ | 1,232,848 | |||||||
Distributions reinvested | — | 179,666 | |||||||||
Cost of shares redeemed | (2,699,814 | ) | (7,934,229 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (2,040,120 | ) | $ | (6,521,715 | ) | |||||
Share Transactions: | |||||||||||
Issued | 88,956 | 176,340 | |||||||||
Reinvested | — | 26,344 | |||||||||
Redeemed | (367,350 | ) | (1,133,739 | ) | |||||||
Change in Shares | (278,394 | ) | (931,055 | ) |
See notes to financial statements.
10
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11
Victory Variable Insurance Funds | Financial Highlights |
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholder From | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gains (Losses) on Investments | Total from Investment Activities | Net Investment Income | Net Realized Gains From Investments | Return of Capital | |||||||||||||||||||||||||
Victory High Yield VIP Series | |||||||||||||||||||||||||||||||
Six Months Ended 6/30/19 (unaudited) | $ | 6.84 | 0.23 | (d) | 0.48 | 0.71 | — | — | — | ||||||||||||||||||||||
Year Ended 12/31/18 | $ | 6.86 | 0.45 | (d) | (0.43 | ) | 0.02 | (0.04 | ) | — | — | ||||||||||||||||||||
Year Ended 12/31/17 | $ | 6.63 | 0.42 | (d) | 0.24 | 0.66 | (0.43 | ) | — | — | |||||||||||||||||||||
Year Ended 12/31/16 | $ | 6.13 | 0.41 | (d) | 0.53 | 0.94 | (0.45 | ) | — | — | |||||||||||||||||||||
Year Ended 12/31/15 | $ | 6.90 | 0.43 | (d) | (0.75 | ) | (0.32 | ) | (0.44 | ) | — | (0.01 | ) | ||||||||||||||||||
Year Ended 12/31/14 | $ | 7.70 | 0.50 | (0.56 | ) | (0.06 | ) | (0.53 | ) | (0.21 | ) | — |
(a) Not annualized for periods less than one year.
(b) Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(c) Annualized for periods less than one year.
(d) Per share net investment income (loss) has been calculated using the average daily shares method.
(e) The Fund received monies related to a nonrecurring refund from the prior Custodian. The corresponding impact to the total return was 0.15% for the period shown. (See Note 8)
(f) During the period, certain fees were reduced and/or reimbursed. If such fee reductions and/or reimbursements had not occurred, the ratios would have been as indicated.
See notes to financial statements.
12
Victory Variable Insurance Funds | Financial Highlights — continued |
For a Share Outstanding Throughout Each Period
Ratios to Average Net Assets | Supplemental Data | ||||||||||||||||||||||||||||||||||||||
Total Distributions | Capital contributions from prior custodian, Net (See Note 8) | Net Asset Value, End of Period | Total Return(a)(b) | Net Expenses(c) | Net Investment Income (Loss)(c) | Gross Expenses(c) | Net Assets, End of Period (000's) | Portfolio Turnover(a) | |||||||||||||||||||||||||||||||
Victory High Yield VIP Series | |||||||||||||||||||||||||||||||||||||||
Six Months Ended 6/30/19 (unaudited) | — | — | $ | 7.55 | 10.23 | % | 0.89 | % | 6.26 | % | 0.95 | %(f) | $ | 32,029 | 41 | % | |||||||||||||||||||||||
Year Ended 12/31/18 | (0.04 | ) | — | $ | 6.84 | 0.29 | % | 0.83 | % | 6.38 | % | 0.83 | % | $ | 30,918 | 94 | % | ||||||||||||||||||||||
Year Ended 12/31/17 | (0.43 | ) | — | $ | 6.86 | 9.94 | % | 0.79 | % | 6.02 | % | 0.79 | % | $ | 37,411 | 173 | % | ||||||||||||||||||||||
Year Ended 12/31/16 | (0.45 | ) | 0.01 | $ | 6.63 | 15.44 | %(e) | 0.87 | % | 6.31 | % | 0.87 | %(f) | $ | 38,842 | 159 | % | ||||||||||||||||||||||
Year Ended 12/31/15 | (0.45 | ) | — | $ | 6.13 | (4.58 | )% | 0.89 | % | 6.15 | % | 0.89 | % | $ | 38,503 | 148 | % | ||||||||||||||||||||||
Year Ended 12/31/14 | (0.74 | ) | — | $ | 6.90 | (0.84 | )% | 0.82 | % | 5.68 | % | 0.82 | % | $ | 44,533 | 212 | % |
See notes to financial statements.
13
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2019 |
(Unaudited)
1. Organization:
Victory Variable Insurance Funds (the "Trust") was organized on February 11, 1998 as a Delaware statutory trust. The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end investment company. The Trust is comprised of nine funds and is authorized to issue an unlimited number of shares, which are units of beneficial interest with a par value of $0.001 per share.
The accompanying financial statements are those of the Victory High Yield VIP Series (the "Fund"). The Fund offers a single class of shares: Class I Shares. Sales of shares of the Fund may only be made to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. ("GIAC") that fund certain variable annuity and variable life insurance contracts issued by GIAC. GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America ("Guardian Life").
Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. The Fund follows the specialized accounting and reporting requirements under GAAP that are applicable to investment companies.
Investment Valuation:
The Fund records investments at fair value. Fair value is defined 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.
The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund's investments are summarized in the three broad levels listed below:
• Level 1 — quoted prices in active markets for identical securities
• Level 2 — other significant observable inputs (including quoted prices for similar securities or interest rates applicable to those securities, etc.)
• Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The inputs or methodologies used for valuation techniques are not necessarily an indication of the risk associated with entering into those investments.
Portfolio securities listed or traded on securities exchanges, including American Depositary Receipts ("ADRs") and Rights, are valued at the closing price on the exchange or system where the security is principally traded, if available, or at the Nasdaq Official Closing Price. If there have been no sales for that day on the exchange or system, then a security is valued at the last available bid quotation on the exchange or system where the security is principally traded. In each of these situations, valuations are typically categorized as Level 1 in the fair value hierarchy.
14
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Investments in open-end investment companies are valued at net asset value. These valuations are typically categorized as Level 1 in the fair value hierarchy.
Debt securities of United States ("U.S.") issuers (other than short-term investments maturing in 60 days or less), including corporate and municipal securities, are valued on the basis of bid valuations provided by dealers or an independent pricing service approved by the Trust's Board of Trustees (the "Board"). Short-term investments maturing in 60 days or less may be valued at amortized cost, which approximates market value. Under the amortized cost method, premium or discount, if any, is amortized or accreted, respectively, on a constant basis to the maturity of the security. In each of these situations, valuations are typically categorized as Level 2 in the fair value hierarchy.
Investments for which there are no such quotations, or for which quotations do not appear reliable, are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Board. These valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based on the observability of inputs used to determine the fair value.
A summary of the valuations as of June 30, 2019, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed in the Schedule of Portfolio Investments:
LEVEL 1 — Quoted Prices | LEVEL 2 — Other Significant Observable Inputs | Total | |||||||||||||
Investments in Securities | Investments in Securities | Investments in Securities | |||||||||||||
Common Stocks | $ | 759,250 | $ | — | $ | 759,250 | |||||||||
Senior Secured Loans | — | 8,796,046 | 8,796,046 | ||||||||||||
Corporate Bonds | — | 21,400,283 | 21,400,283 | ||||||||||||
Collateral for Securities Loaned | 3,425,379 | — | 3,425,379 | ||||||||||||
Total | $ | 4,184,629 | $ | 30,196,329 | $ | 34,380,958 |
For the six months ended June 30, 2019, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
Securities Purchased on a When-Issued Basis:
The Fund may purchase securities on a when-issued basis. When-issued securities are securities purchased for delivery beyond normal settlement periods at a stated price and/or yield, thereby involving the risk that the price and/or yield obtained may be more or less than those available in the market when delivery takes place. At the time the Fund makes the commitment to purchase a security on a when-issued basis, the Fund records the transaction and reflects the value of the security in determining net asset value. No interest accrues to the Fund until the transaction settles and payment takes place. Normally, the settlement date occurs within one month of the purchase. A segregated account is established and the Fund maintains cash and/or marketable securities at least equal in value to commitments for when-issued securities. If the Fund owns when-issued securities, these values are included in "Payable for investments purchased" on the accompanying Statement of Assets and Liabilities and the segregated assets are identified in the Schedule of Portfolio Investments.
Loans:
Floating rate loans in which the Fund invests are primarily "senior" loans. Senior floating rate loans typically hold a senior position in the capital structure of the borrower, are typically secured by specific collateral, and have a claim on the assets and/or stock of the borrower that is senior to that held by subordinated debtholders and stockholders of the borrower. While these protections may reduce risk, these investments still present significant credit risk. A significant portion of the Fund's floating rate investments may be issued in connection with highly leveraged transactions such as leveraged buyouts, leveraged recapitalization loans, and other types of acquisition financing. Obligations in these types of
15
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
transactions are subject to greater credit risk (including default and bankruptcy) than many other investments and may be, or become, illiquid. See note below regarding below investment grade securities.
The Fund may purchase second lien loans (secured loans with a claim on collateral subordinate to a senior lender's claim on such collateral), fixed rate loans, unsecured loans, and other debt obligations.
Transactions in loans often settle on a delayed basis, and the Fund may not receive the proceeds from the sale of a loan or pay for a loan purchase for a substantial period of time after entering into the transactions.
Below Investment Grade Securities:
The Fund may invest in below investment grade securities (i.e. lower-quality, "junk" debt), which are subject to various risks. Lower-quality debt is considered to be speculative because it is less certain that the issuer will be able to pay interest or repay the principal than in the case of investment grade debt. These securities can involve a substantially greater risk of default than higher-rated securities, and their values can decline significantly over short periods of time. Lower-quality debt securities tend to be more sensitive to adverse news about their issuers, the market and the economy in general, than higher-quality debt securities. The market for these securities can be less liquid, especially during periods of recession or general market decline.
Investment Companies:
The Fund may invest in portfolios of open-end investment companies. These investment companies value securities in their portfolios for which market quotations are readily available at their market values (generally the last reported sale price) and all other securities and assets at their fair value by the methods established by the board of directors of the underlying funds.
Investment Transactions and Related Income:
Changes in holdings of investments are accounted for no later than one business day following the trade date. For financial reporting purposes, however, investment transactions are accounted for on trade date on the last business day of the reporting period. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date. Gains or losses realized on sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds.
The Fund may receive other income from investment in loan assignments and/or unfunded commitments, including amendment fees, consent fees and commitment fees. These fees are recorded as income when received by the Fund. These amounts are included in Interest Income in the Statement of Operations.
Withholding taxes on interest, dividends and gains as a result of certain investments in ADRs by the Fund have been provided for in accordance with each investment's applicable country's tax rules and rates.
Securities Lending:
The Trust has entered into a Master Securities Lending Agreement ("MSLA") with Citibank, N.A. ("Citibank" or the "Agent"). Under the terms of the MSLA, the Fund may lend securities to certain broker-dealers and banks in exchange for collateral in the amount of at least 102% of the value of U.S. securities loaned or at least 105% of the value of non-U.S. securities loaned, marked-to-market daily. Any collateral shortfalls associated with increases in the valuation of the securities loaned are adjusted the next business day. The collateral can be received in the form of cash collateral and/or non-cash collateral. Non-cash collateral can include U.S. Government Securities, letters of credit and certificates of deposit. The cash collateral is invested in short-term instruments or cash equivalents as noted on the Fund's Schedule of Portfolio Investments. The Trust does not have effective control of the non-cash collateral and therefore it is not disclosed in the Fund's Schedule of Portfolio Investments. The Fund continues to benefit from interest or dividends on the securities loaned and may also earn a return from the collateral. The Fund pays various fees in connection with the investment of cash collateral.
16
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
The Fund pays the Agent fees based on the investment income received from securities lending activities. Securities lending income is disclosed in the Fund's Statement of Operations. Although risk is mitigated by the collateral, the Fund could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them.
Securities lending transactions are entered into by the Fund under the MSLA, which permits the Fund, under certain circumstances such as an event of default, to offset amounts payable by the Fund to the same counterparty against amounts receivable from the counterparty to create a net payment due to or from the Fund.
The following table is a summary of the Fund's securities lending transactions which are subject to offset under the MSLA as of June 30, 2019. These transactions are accounted for as secured borrowings with an overnight and continuous contractual maturity for cash collateral, and greater than overnight and continuous contractual maturity for non-cash collateral.
Gross Amount of Recognized Assets (Value of | Value of Cash | Value of Non-cash Collateral Received by Maturity | |||||||||||||||||||||
Securities on Loan) | Collateral Received* | <30 Days | Between 30 & 90 days | >90 Days | Net Amount | ||||||||||||||||||
$ | 3,312,451 | $ | 3,312,451 | $ | — | $ | — | $ | — | $ | — |
* Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by the Fund is disclosed in the Statement of Assets and Liabilities.
Dividends to Shareholders:
Dividends from net investment income, if any, are declared and paid annually by the Fund. Distributable net realized gains, if any, are declared and distributed at least annually.
The amounts of dividends from net investment income and distributions from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these "book/tax" differences are permanent in nature (e.g., net operating loss and distribution reclassification), such amounts are reclassified within the components of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales) do not require reclassification. To the extent dividends and distributions exceed net investment income and net realized gains for tax purposes, they are reported as distributions of capital. Net investment losses incurred by the Fund may be reclassified as an offset to capital on the accompanying Statement of Assets and Liabilities.
Federal Income Taxes:
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes is required in the financial statements. The Fund has a tax year end of December 31.
Management of the Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Allocations:
Expenses directly attributable to the Fund are charged to the Fund, while expenses which are attributable to more than one fund in the Trust, or jointly with an affiliated trust, are allocated among the respective funds in the Trust and/or affiliated trust based upon net assets or another appropriate basis.
17
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Affiliated Securities Transactions:
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Adviser and any applicable sub-adviser. Any such purchase or sale transaction must be effected without brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security's last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. For the six months ended June 30, 2019, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding securities maturing less than one year from acquisition) for the six months ended June 30, 2019 were as follows for the Fund:
Purchases | Sales | ||||||
$ | 12,654,821 | $ | 14,188,412 |
For the six months ended June 30, 2019, there were no purchases or sales of U.S. Government Securities.
4. Fees and Transactions with Affiliates and Related Parties:
Investment advisory services are provided to the Fund by Victory Capital Management Inc. ("VCM" or the "Adviser"), a New York corporation registered as an investment adviser with the Securities and Exchange Commission ("SEC"). The Adviser is a wholly-owned indirect subsidiary of Victory Capital Holdings, Inc., a publicly traded Delaware corporation, and a wholly-owned direct subsidiary of Victory Capital Operating, LLC.
VCM has entered into a Sub-Advisory Agreement with Park Avenue Institutional Advisers LLC ("Park Avenue") with respect to the Fund. Park Avenue is responsible for providing day-to-day investment advisory services to the Fund, subject to the oversight of the Board of Trustees of the Trust. Sub-investment advisory fees, which are paid by VCM to Park Avenue, do not represent a separate or additional expense to the Fund.
Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive 0.60% of the average daily net assets of the Fund. The Adviser may use its resources to assist with the Fund's distribution and marketing expenses.
VCM also serves as the Fund's administrator and fund accountant. Under an Administration and Fund Accounting Agreement, VCM is paid for its services an annual fee at a rate of 0.08% of the first $15 billion in average daily net assets of the Trust, Victory Portfolios and Victory Portfolios II (collectively, the "Victory Funds Complex"), 0.05% of the average daily net assets above $15 billion to $30 billion of the Victory Funds Complex and 0.04% of the average daily net assets over $30 billion of the Victory Funds Complex.
Citi Fund Services Ohio, Inc. ("Citi"), an affiliate of Citibank, N.A., acts as sub-administrator and sub-fund accountant to the Fund pursuant to a Sub-Administration and Sub-Fund Accounting Services Agreement between VCM and Citi. VCM pays Citi a fee for providing these services. The Trust reimburses VCM and Citi for all of their reasonable out-of-pocket expenses incurred in providing these services.
FIS Investor Services, LLC ("FIS") serves as the Fund's transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Chief Compliance Officer ("CCO") is an employee of the Adviser, which pays the compensation of the CCO and his support staff. The Trust has entered into an Agreement to provide compliance services with the Adviser, pursuant to which the Adviser furnishes its compliance personnel, including the services of the CCO, and other resources reasonably necessary to provide the Trust with compliance oversight services related to the design, administration and oversight of a compliance program for the Trust in accordance with Rule 38a-1 under the 1940 Act. The funds in the Victory Funds Complex, in the aggregate, compensate the Adviser for these services.
18
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
The Victory Funds Complex pays an annual retainer to each Independent Trustee, plus an additional annual retainer to the Chairman of the Board. The aggregate amount of the fees and expenses of the Independent Trustees are allocated amongst all the funds in the Victory Funds Complex and are presented in the Statement of Operations.
Shearman & Sterling LLP provides legal services to the Trust.
Victory Capital Advisers, Inc. (the "Distributor"), an affiliate of the Adviser, serves as distributor for the continuous offering of the shares of the Fund pursuant to a Distribution Agreement between the Distributor and the Trust.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2020. Under the terms of the agreement, the Adviser has agreed to waive fees or reimburse certain expenses to the extent that ordinary operating expenses incurred by the Fund in any fiscal year exceed the expense limit for the Fund. Such excess amounts will be the liability of the Adviser. Interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with GAAP, and other extraordinary expenses not incurred in the ordinary course of a Fund's business are excluded from the expense limits. For the six months ended June 30, 2019, the expense limit (excluding voluntary waivers) is 0.89%.
The Fund has agreed to repay fees and expenses that were waived or reimbursed by the Adviser for a period up to three fiscal years after such waiver or reimbursement was made to the extent such payments or repayments would not cause the expenses of a class to exceed the original expense limitation in place at time of the waiver or reimbursement or any expense limitation agreement in place at the time of repayment. As of June 30, 2019, the following amounts are available to be repaid to the Adviser. Amounts repaid to the Adviser during the six months ended, if any, are reflected on the Statement of Operations as "Recoupment of prior expenses waived/reimbursed by Adviser".
Expires 12/31/2019 | Expires 12/31/2022 | ||||||
$ | 29 | $ | 10,259 |
The Adviser may voluntarily waive or reimburse additional fees to assist the Fund in maintaining a competitive expense ratio. Voluntary waivers and reimbursements applicable to the Fund are not available to be recouped at a future time. There were no voluntary waivers or reimbursements for the six months ended June 30, 2019.
Certain officers and/or interested trustees of the Fund are also officers and/or employees of the Adviser, Administrator, Fund Accountant, Sub-Administrator, Sub-Fund Accountant and Legal Counsel.
5. Risks:
The Fund may be subject to other risks in addition to these identified risks.
An investment in the Fund's shares represents an indirect investment in the securities owned by the Fund, some of which will be traded on a national securities exchange or in the over-the-counter markets. The value of the securities in which the Fund invests, like other market investments, may move up or down, sometimes rapidly and unpredictably. The value of the securities in which the Fund invests may affect the value of the Fund's shares. An investment in the Fund's shares at any point in time may be worth less than the original investment, even after taking into account the reinvestment of the Fund's distributions.
The Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties for financial instruments entered into by the Fund. The Fund may be negatively impacted 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 bankruptcy or other reorganization proceeding and the Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund typically enters into transactions with counterparties whose credit ratings are investment grade, as determined by a nationally recognized statistical rating organization or, if unrated, judged by the Adviser to be of comparable quality.
19
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
The Fund will be subject to credit and interest rate risk with respect to fixed income securities. Credit risk refers to the ability of an issuer to make timely payments of interest and principal. Interest rates may rise or the rate of inflation may increase, impacting the value of investments in fixed income securities. A debt issuers' credit quality may be downgraded or an issuer may default. Interest rates may fluctuate due to changes in governmental fiscal policy initiatives and resulting market reaction to those initiatives.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2019, the Victory Funds Complex participated in a short-term, demand note "Line of Credit" agreement with Citibank. Under the agreement with Citibank, the Victory Funds Complex may have borrowed up to $250 million, of which $100 million was committed and $150 million was uncommitted. This agreement was in effect through July 26, 2019. Effective July 1, 2019, the current agreement was amended to include the USAA Mutual Funds Complex and has a new termination date of June 29, 2020. Under this amended agreement, the Victory Funds Complex and USAA Funds Complex, combined, may borrow up to $600 million, of which $300 million is committed and $300 million is uncommitted. $40 million of the Line of Credit is reserved for use by the Victory Floating Rate Fund, another series of the Victory Funds Complex, with that Fund paying the related commitment fees for that amount. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. With the agreement in affect for the six months ended June 30, 2019, Citibank received an annual commitment fee of 0.15% on $100 million for providing the Line of Credit. For the six months ended June 30, 2019, Citibank earned approximately $76 thousand in commitment fees from the Victory Funds Complex. Effective July 1, 2019, Citibank receives an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest on amounts borrowed, including the USAA Funds Complex, commencing July 1, 2019. Interest charged to the Fund during the period is presented on the Statement of Operations under line of credit fees.
The Fund did not utilize the Line of Credit during the six months ended June 30, 2019.
Interfund Lending:
The Trust and Adviser rely on an exemptive order granted by the SEC in March 2017 (the "Order"), permitting the establishment and operation of an Interfund Lending Facility (the "Facility"). The Facility allows the Fund to directly lend and borrow money to or from any other Victory Fund relying upon the Order at rates beneficial to both the borrowing and lending funds. Advances under the Facility are allowed for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities, and are subject to each Fund's borrowing restrictions. The interfund loan rate is determined, as specified in the Order, by averaging the current repurchase agreement rate and the current bank loan rate. As a Borrower, interest charged to the Fund during the period is presented on the Statement of Operations under interfund lending fees. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Income on interfund lending.
The Fund did not utilize the Facility during the six months ended June 30, 2019.
7. Federal Income Tax Information:
The tax character of current year distributions paid and the tax basis of the current components of accumulated earnings (deficit) will be determined at the end of the current tax year ending December 31, 2019.
20
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
The tax character of distributions paid during the most recent tax year ended December 31, 2018 was as follows (total distributions paid may differ from the Statement of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid).
Distributions paid from | |||||||||||||||
Ordinary Income | Net Long-Term Capital Gains | Total Distributions Paid | |||||||||||||
$ | 179,666 | $ | — | $ | 179,666 |
As of the most recent tax year ended December 31, 2018, the components of accumulated earnings (deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation (Depreciation)* | Total Accumulated Earnings (Deficit) | ||||||||||||||||||
$ | 2,209,103 | $ | — | $ | 2,209,103 | $ | (3,651,790 | ) | $ | (1,994,075 | ) | $ | (3,436,762 | ) |
*The difference between the book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to tax deferral of losses on wash sales.
As of the most recent tax year ended December 31, 2018, the Fund had short term and long term capital loss carryforwards of $1,034,189 and $2,617,601 respectively that were not subject to expiration.
During the most recent tax year ended December 31, 2018, the Fund utilized $349,395 of capital loss carryforwards.
At June 30, 2019, the cost basis for federal income tax purposes, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) for investments were as follows:
Cost of Investments for Federal Tax Purposes | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||||||||||
$ | 34,127,086 | $ | 775,285 | $ | (521,413 | ) | $ | 253,872 |
8. Capital Contribution from Prior Custodian:
During 2016, the Fund received notification from the Fund's prior custodian, State Street Bank and Trust ("State Street"), concerning issues related to billing on certain categories of expenses during the approximately 16-year period from 1998 through October 31, 2014. The over-billing primarily related to categories of expenses that involved an allocation of general costs among multiple clients.
State Street paid the refunded amounts during January 2017. Based on billing information received during 2016 from State Street and an analysis of any expense limitation agreements that were in place during the period of the activities in question, including the application of any recoupment provisions in such agreements, the Adviser received a portion of the refund.
The portion of the refund retained by the Fund was accounted for as a capital contribution and is reflected on the Financial Highlights as "Capital Contribution from Prior Custodian, Net".
9. Fund Ownership:
Ownership of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2(a)(9) of the 1940 Act. As of June 30, 2019, the shareholders listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund.
Shareholder | Percent | ||||||
The Guardian Insurance & Annuity Company, Inc. | 100.0 | % |
21
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
10. Recent Accounting Pronouncements:
In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards ("ASU") Update No. 2017-08 "Premium Amortization on Purchased Callable Debt Securities" ("ASU 2017-08"), which shortens the premium amortization period for purchased non-contingently callable debt securities. ASU 2017-08 specifies that the premium amortization period ends at the earliest call date, for purchased non-contingently callable debt securities. The Fund has adopted and applied ASU 2017-08 on a modified retrospective basis through a cumulative-effect adjustment as of the beginning of the period of adoption. As a result of the adoption of ASU 2017-08, as of January 1, 2019, the amortization cost basis of investments was reduced by $12,038 and unrealized appreciation of investment was increased by $12,038. The adoption of ASU 2017-08 had no impact on beginning net assets, the current period results from operations, or any prior period information presented in the financial statements.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurements" ("ASU 2018-13"). This update makes certain removals from, changes to and additions to existing disclosure requirements for fair value measurements. ASU 2018-13 does not change fair value measurements already required or permitted by existing standards. ASU 2018-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As permitted, the Fund has early adopted ASU 2018-13 with the financial statements prepared as of June 30, 2019.
11. Subsequent Events:
The Fund has evaluated the need for additional disclosures or adjustments resulting from subsequent events through the date these financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have a material impact on the Fund's financial statements.
22
Victory Variable Insurance Funds | Supplemental Information June 30, 2019 |
(Unaudited)
Trustee and Officer Information
Board of Trustees:
Overall responsibility for management of the Trust rests with the Board. The Trust is managed by the Board in accordance with the laws of the State of Delaware. There are currently ten Trustees, nine of whom are not "interested persons" of the Trust within the meaning of that term under the 1940 Act ("Independent Trustees") and one of whom is an "interested person" of the Trust within the meaning of that term under the 1940 Act ("Interested Trustee"). The Trustees, in turn, elect the officers of the Trust to actively supervise its day-to-day operations.
The following tables list the Trustees, their ages, position with the Trust, commencement of service, principal occupations during the past five years and any directorships of other investment companies or companies whose securities are registered under the Securities Exchange Act of 1934, as amended, or who file reports under that Act. Each Trustee oversees nine portfolios in the Trust, 42 portfolios in Victory Portfolios and 20 portfolios in Victory Portfolios II, each a registered investment company that, together with the Trust, comprise the Victory Funds Complex. Each Trustee's address is c/o Victory Variable Insurance Funds, 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. Each Trustee has an indefinite term.
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Independent Trustees. | |||||||||||||||||||
David Brooks Adcock, 67 | Trustee | February 2005 | Consultant (since 2006). | Chair and Trustee, Turner Funds (December 2016-December 2017). | |||||||||||||||
Nigel D.T. Andrews, 72 | Vice Chair and Trustee | August 2002 | Retired. | Director, TCG BDC II, Inc. (since 2017); Director, TCG BDC I, Inc. (formerly Carlyle GMS Finance, Inc.) (since 2012); Director, Old Mutual US Asset Management (2002-2014). | |||||||||||||||
E. Lee Beard, 68* | Trustee | February 2005 | Retired (since 2015); Consultant, The Henlee Group, LLC (consulting) (2005-2015). | None. | |||||||||||||||
Dennis M. Bushe, 75 | Trustee | July 2016 | Retired. | Trustee, RS Investment Trust and RS Variable Products Trust (November 2011-July 2016). |
23
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Sally M. Dungan, 65 | Trustee | February 2011 | Chief Investment Officer, Tufts University (since 2002). | None. | |||||||||||||||
John L. Kelly, 66 | Trustee | February 2015 | Partner, McCarvill Capital Partners (September 2016-September 2017); Advisor, Endgate Commodities LLC (January 2016-April 2016); Managing Partner, Endgate Commodities LLC (August 2014-January 2016); Chief Operating Officer, Liquidnet Holdings, Inc. (December 2011-July 2014). | Director, Caledonia Mining Corporation (since May 2012). | |||||||||||||||
David L. Meyer, 62* | Trustee | December 2008 | Retired. | None. | |||||||||||||||
Gloria S. Nelund, 58 | Trustee | July 2016 | Chair, CEO and Co-Founder of TriLinc Global, LLC, an investment firm. | TriLinc Global Impact Fund, LLC (since 2012); Trustee, RS Investment Trust and RS Variable Products Trust (November 2007-July 2016). | |||||||||||||||
Leigh A. Wilson, 74 | Chair and Trustee | February 1998 | Private Investor. | Chair (since 2013), Caledonia Mining Corporation. | |||||||||||||||
Interested Trustee. | |||||||||||||||||||
David C. Brown, 47** | Trustee | May 2008 | Chairman and Chief Executive Officer (since 2013), Co-Chief Executive Officer (2011-2013), the Adviser; Chairman and Chief Executive Officer, Victory Capital Holdings, Inc. (since 2013). | None. |
* The Board has designated Mr. Meyer and Ms. Beard as its Audit Committee Financial Experts.
** Mr. Brown is an "Interested Person" by reason of his relationship with the Adviser.
The Statement of Additional Information includes additional information about the Trustees of the Trust and is available, without charge, by calling 800-539-3863.
24
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Officers:
The officers of the Trust, their ages, commencement of service and their principal occupations during the past five years, are detailed in the following table. Each officer serves until the earlier of his or her resignation, removal, retirement, death, or the election of a successor. The mailing address of each officer of the Trust is 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. The officers of the Trust receive no compensation directly from the Trust for performing the duties of their offices.
Name and Age | Position with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | ||||||||||||
Christopher K. Dyer, 57 | President | February 2006* | Director of Fund Administration, the Adviser. | ||||||||||||
Scott A. Stahorsky, 50 | Vice President | December 2014 | Manager, Fund Administration, the Adviser (since 2015); Senior Analyst, Fund Administration, the Adviser (prior to 2015). | ||||||||||||
Erin G. Wagner, 45 | Secretary | December 2014 | Associate General Counsel, the Adviser (since 2013). | ||||||||||||
Allan Shaer, 54 | Treasurer | May 2017 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc. (since 2016); Vice President, Mutual Fund Administration, JP Morgan Chase (2011-2016). | ||||||||||||
Christopher A. Ponte, 35 | Assistant Treasurer | December 2017 | Manager, Fund Administration, the Adviser (since 2017); Senior Analyst, Fund Administration, the Adviser (prior to 2017); Chief Financial Officer, Victory Capital Advisers, Inc. (since 2018). | ||||||||||||
Colin Kinney, 45 | Chief Compliance Officer | July 2017 | Chief Compliance Officer (since 2013) and Chief Risk Officer (2009-2017), the Adviser. | ||||||||||||
Chuck Booth, 59 | Anti-Money Laundering Compliance Officer and Identity Theft Officer | May 2015 | Director, Regulatory Administration and CCO Support Services, Citi Fund Services Ohio, Inc. | ||||||||||||
Jay G. Baris, 65 | Assistant Secretary | February 1998 | Partner, Shearman & Sterling LLP (since 2018); Partner, Morrison & Foerster LLP (2011-January 2018). |
* On December 3, 2014, Mr. Dyer resigned as Secretary of the Trust and accepted the position of President.
25
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Proxy Voting and Portfolio Holdings Information
Proxy Voting:
Information regarding the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 800-539-3863. The information is also included in the Fund's Statement of Additional Information, which is available on the SEC's website at www.sec.gov.
Information relating to how the Fund voted proxies relating to portfolio securities held during the most recent twelve months ended June 30 is available on the SEC's website at www.sec.gov.
Availability of Schedules of Portfolio Investments:
The Trust files a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-PORT. Prior to the implementation of Form N-PORT, the Trust filed a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-PORT and Forms N-Q are available on the SEC's website at www.sec.gov.
Expense Examples
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2019 through June 30, 2019.
The Actual Expense figures in the table below provide information about actual account values and actual expenses. You may use the information below, 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.
The Hypothetical Expense figures in the table below provide 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 this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 1/1/19 | Actual Ending Account Value 6/30/19 | Hypothetical Ending Account Value 6/30/19 | Actual Expenses Paid During Period 1/1/19-6/30/19* | Hypothetical Expenses Paid During Period 1/1/19-6/30/19* | Annualized Expense Ratio During Period 1/1/19-6/30/19 | ||||||||||||||||||
$ | 1,000.00 | $ | 1,102.30 | $ | 1,020.38 | $ | 4.64 | $ | 4.46 | 0.89 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 181/365 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
26
Privacy Policy
Protecting the Privacy of Information
The Trust respects your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information about investment goals and risk tolerance.
We do not disclose any information about you or about former customers to anyone except as permitted or required by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and printers and mailers that assist us in the distribution of investor materials. We may also disclose this information to companies that perform marketing services on our behalf. This allows us to continue to offer you Victory investment products and services that meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only in connection with the services for which we hired them. They are not permitted to use or share this information for any other purpose.
To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information.*
* You may have received communications regarding information about privacy policies from other financial institutions which gave you the opportunity to "opt-out" of certain information sharing with companies which are not affiliated with that financial institution. The Trust does not share information with other companies for purposes of marketing solicitations for products other than the Trust. Therefore, the Trust does not provide opt-out options to their shareholders.
Victory Funds
P.O. Box 182593
Columbus, Ohio 43218-2593
Visit our website at: | Call Victory at: | ||||||
www.vcm.com | 800-539-FUND (800-539-3863) |
VVIF-RS-HYVIP-SAR (6/19)
June 30, 2019
Semi Annual Report
Victory Variable Insurance Funds
Victory INCORE Low Duration Bond VIP Series
Beginning January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports may no longer be sent by mail from the insurance company that issued your variable annuity and variable life insurance contract, unless you specifically request paper copies of the reports from your insurance company. Instead, the reports will be made available on www.victoryfunds.com. The insurance company that offers your contract may also make these reports available on a website, and such insurance company will notify you by mail each time a report is posted and provide you with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the insurance company electronically by following the instructions provided by the insurance company.
If offered by your insurance company, you may elect to receive all future reports in paper and free of charge from the insurance company. You can inform your insurance company that you wish to continue receiving paper copies of your reports. Your election to receive reports in paper will apply to all funds available under your contract.
www.vcm.com
News, Information And Education 24 Hours A Day, 7 Days A Week
The Victory Funds site gives fund shareholders, prospective shareholders, and investment professionals a convenient way to access fund information, get guidance, and track fund performance anywhere they can access the Internet. The site includes:
• Detailed performance records
• Daily share prices
• The latest fund news
• Investment resources to help you become a better investor
• A section dedicated to investment professionals
Whether you're a potential investor searching for the fund that matches your investment philosophy, a seasoned investor interested in planning tools, or an investment professional, www.vcm.com has what you seek. Visit us anytime. We're always open.
Victory Variable Insurance Funds
Table of Contents
Financial Statements | |||||||
Investment Objective & Portfolio Holdings | 3 | ||||||
Schedule of Portfolio Investments | 4 | ||||||
Statement of Assets and Liabilities | 11 | ||||||
Statement of Operations | 12 | ||||||
Statements of Changes in Net Assets | 13 | ||||||
Financial Highlights | 14 | ||||||
Notes to Financial Statements | 16 | ||||||
Supplemental Information | |||||||
Trustee and Officer Information | 28 | ||||||
Proxy Voting and Portfolio Holdings Information | 31 | ||||||
Expense Examples | 31 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Advisers, Inc. Victory Capital Management Inc. is the investment adviser to the Fund and receives fees from the Fund for performing services for the Fund.
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus of the Fund.
For additional information about any Victory Fund, including fees, expenses, and risks, view our prospectus online at www.vcm.com or call 800-539-3863. Read it carefully before you invest or send money.
The information in this semi annual report is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections, or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Past investment performance of the Fund, markets or securities mentioned herein should not be considered to be indicative of future results.
• NOT FDIC INSURED • NO BANK GUARANTEE
• MAY LOSE VALUE
Call Victory at:
800-539-FUND (800-539-3863)
Visit our website at:
www.vcm.com
1
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2
Victory Portfolios | June 30, 2019 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: The Victory INCORE Low Duration Bond VIP Series seeks to provide a high level of current income consistent with preservation of capital.
Portfolio Holdings*:
* Percentages are of total investments of the Fund.
3
Victory Variable Insurance Funds Victory INCORE Low Duration Bond VIP Series | Schedule of Portfolio Investments June 30, 2019 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Asset Backed Securities (8.7%) | |||||||||||
AmeriCredit Automobile Receivables Trust , Series 2016-3, Class C, 2.24%, 4/8/22, Callable 12/8/20 @ 100 (a) | $ | 1,635,000 | $ | 1,631,364 | |||||||
AmeriCredit Automobile Receivables Trust , Series 2017-2, Class B, 2.40%, 5/18/22, Callable 8/18/21 @ 100 (a) | 1,385,000 | 1,385,211 | |||||||||
AmeriCredit Automobile Receivables Trust , Series 2015-3, Class D, 3.34%, 8/8/21, Callable 2/8/20 @ 100 (a) | 1,675,000 | 1,683,470 | |||||||||
AmeriCredit Automobile Receivables Trust , Series 2018-1, Class B, 3.26%, 1/18/24, Callable 4/18/22 @ 100 (a) | 2,800,000 | 2,843,728 | |||||||||
Avis Budget Rental Car Funding (AESOP) LLC , Series 2014-1, Class A, 2.46%, 7/20/20 (a) (b) | 208,333 | 208,281 | |||||||||
Chrysler Capital Auto Receivables Trust , Series 2016-BA, Class B, 2.22%, 5/16/22, Callable 6/15/21 @ 100 (a) (b) | 1,700,000 | 1,695,799 | |||||||||
Drive Auto Receivables Trust , Series 2017-AA, Class C, 2.98%, 1/18/22, Callable 12/15/20 @ 100 (a) (b) | 390,689 | 391,015 | |||||||||
Drive Auto Receivables Trust , Series 2018-2, Class B, 3.22%, 4/15/22, Callable 6/15/21 @ 100 (a) | 3,218,710 | 3,223,820 | |||||||||
Santander Drive Auto Receivables Trust , Series 2016-3, Class C, 2.46%, 3/15/22, Callable 11/15/20 @ 100 (a) | 2,588,209 | 2,587,764 | |||||||||
Santander Drive Auto Receivables Trust , Series 2017-3, Class B, 2.19%, 3/15/22, Callable 4/15/21 @ 100 (a) | 1,247,169 | 1,246,293 | |||||||||
Santander Drive Auto Receivables Trust , Series 2018-2, Class B, 3.03%, 9/15/22, Callable 4/15/21 @ 100 (a) | 2,750,000 | 2,762,287 | |||||||||
Santander Drive Auto Receivables Trust , Series 2017-2, Class B, 2.21%, 10/15/21, Callable 3/15/21 @ 100 (a) | 299,519 | 299,432 | |||||||||
Santander Retail Auto Lease Trust , Series 2018-A, Class B, 3.20%, 4/20/22, Callable 3/20/21 @ 100 (a) (b) | 1,585,000 | 1,596,512 | |||||||||
World Financial Network Credit Card Master Trust , Series 2017-A, Class A, 2.12%, 3/15/24 (a) | 1,610,000 | 1,606,062 | |||||||||
Total Asset Backed Securities (Cost $23,111,766) | 23,161,038 | ||||||||||
Collateralized Mortgage Obligations (2.4%) | |||||||||||
Galaxy CLO Ltd. , Series 2017-24A, Class A, 3.72% (LIBOR03M+112bps), 1/15/31, Callable 1/15/20 @ 100 (a) (b) (c) | 1,000,000 | 991,588 | |||||||||
GS Mortgage Securities Trust , Series 2012-GC6, Class B, 5.84%, 1/10/45 (a) (b) (d) | 2,000,000 | 2,131,521 | |||||||||
Morgan Stanley BAML Trust , Series 2013-C13, Class A2, 2.94%, 11/15/46 (a) | 15,969 | 16,075 | |||||||||
Steele Creek CLO Ltd. , Series 2017-1A, Class A, 3.85% (LIBOR03M+125bps), 1/15/30, Callable 1/15/20 @ 100 (a) (b) (c) | 2,175,000 | 2,169,602 | |||||||||
Voya CLO Ltd. , Series 2017-4A, Class A1, 3.73% (LIBOR03M+113bps), 10/15/30, Callable 10/15/19 @ 100 (a) (b) (c) | 1,000,000 | 996,771 | |||||||||
Total Collateralized Mortgage Obligations (Cost $6,372,300) | 6,305,557 | ||||||||||
Corporate Bonds (49.6%) | |||||||||||
Communication Services (3.8%): | |||||||||||
AT&T, Inc. 2.45%, 6/30/20, Callable 5/30/20 @ 100 (a) | 4,079,000 | 4,075,165 | |||||||||
3.20%, 3/1/22, Callable 2/1/22 @ 100 (a) | 919,000 | 938,189 | |||||||||
4.25%, 3/1/27, Callable 12/1/26 @ 100 (a) | 865,000 | 926,605 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory INCORE Low Duration Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Electronic Arts, Inc., 3.70%, 3/1/21, Callable 2/1/21 @ 100 (a) | $ | 2,255,000 | $ | 2,297,101 | |||||||
Verizon Communications, Inc. 5.15%, 9/15/23 (a) | 631,000 | 705,199 | |||||||||
3.38%, 2/15/25 | 457,000 | 477,067 | |||||||||
3.62%(LIBOR03M+110bps), 5/15/25, Callable 3/15/25 @ 100 (a) (c) | 719,000 | 728,117 | |||||||||
10,147,443 | |||||||||||
Consumer Discretionary (4.5%): | |||||||||||
Best Buy Co., Inc. 5.50%, 3/15/21, Callable 12/15/20 @ 100 (a) | 2,115,000 | 2,203,957 | |||||||||
4.45%, 10/1/28, Callable 7/1/28 @ 100 (a) | 718,000 | 758,086 | |||||||||
BorgWarner, Inc., 4.63%, 9/15/20 (a) | 859,000 | 879,676 | |||||||||
D.R Horton, Inc., 4.00%, 2/15/20 (a) | 2,133,000 | 2,149,979 | |||||||||
General Motors Co., 4.88%, 10/2/23 (a) | 656,000 | 695,852 | |||||||||
Hasbro, Inc., 3.15%, 5/15/21, Callable 3/15/21 @ 100 (a) | 2,622,000 | 2,653,831 | |||||||||
NVR, Inc., 3.95%, 9/15/22, Callable 6/15/22 @ 100 (a) | 2,635,000 | 2,730,044 | |||||||||
12,071,425 | |||||||||||
Consumer Staples (3.8%): | |||||||||||
Altria Group, Inc., 4.40%, 2/14/26, Callable 12/14/25 @ 100 (a) | 1,041,000 | 1,113,943 | |||||||||
BAT Capital Corp., 2.30%, 8/14/20 (a) | 2,250,000 | 2,245,140 | |||||||||
Church & Dwight Co., Inc., 2.45%, 12/15/19, Callable 11/15/19 @ 100 (a) (e) | 1,515,000 | 1,514,439 | |||||||||
Constellation Brands, Inc. 3.22%(LIBOR03M+70bps), 11/15/21, Callable 10/30/19 @ 100 (a) (c) | 2,500,000 | 2,500,075 | |||||||||
4.65%, 11/15/28, Callable 8/15/28 @ 100 (a) | 496,000 | 553,898 | |||||||||
Ingredion, Inc., 4.63%, 11/1/20 (a) | 900,000 | 924,273 | |||||||||
Molson Coors Brewing Co., 1.45%, 7/15/19 (a) | 1,250,000 | 1,249,488 | |||||||||
10,101,256 | |||||||||||
Energy (3.5%): | |||||||||||
Continental Resources, 4.50%, 4/15/23, Callable 1/15/23 @ 100 (a) | 894,000 | 938,807 | |||||||||
Ecopetrol SA, 5.88%, 9/18/23 (a) | 622,000 | 688,697 | |||||||||
LUKOIL International Finance BV, 6.13%, 11/9/20 (a) (b) | 2,815,000 | 2,928,782 | |||||||||
Marathon Petroleum Corp., 3.40%, 12/15/20, Callable 11/15/20 @ 100 (a) | 1,040,000 | 1,052,990 | |||||||||
Pioneer Natural Resource Co. 7.50%, 1/15/20 (a) | 1,135,000 | 1,164,328 | |||||||||
3.45%, 1/15/21, Callable 12/15/20 @ 100 (a) | 1,825,000 | 1,848,835 | |||||||||
Valero Energy Corp., 4.00%, 4/1/29, Callable 1/1/29 @ 100 (a) | 480,000 | 503,064 | |||||||||
9,125,503 | |||||||||||
Financials (11.1%): | |||||||||||
Alleghany Corp., 5.63%, 9/15/20 (a) | 800,000 | 829,552 | |||||||||
Bank of America Corp. 2.25%, 4/21/20, MTN (a) | 1,300,000 | 1,300,104 | |||||||||
2.33%(LIBOR03M+63bps), 10/1/21, Callable 10/1/20 @ 100 (a) (c) | 754,000 | 752,628 | |||||||||
4.20%, 8/26/24 (a) | 1,220,000 | 1,296,750 | |||||||||
Capital One Financial Corp. 2.50%, 5/12/20, Callable 4/12/20 @ 100 (a) | 590,000 | 590,578 | |||||||||
3.45%, 4/30/21, Callable 3/30/21 @ 100 (a) | 3,500,000 | 3,563,385 | |||||||||
3.30%, 10/30/24, Callable 9/30/24 @ 100 (a) | 1,189,000 | 1,219,427 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory INCORE Low Duration Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 | �� |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Citigroup, Inc. 3.52%(LIBOR03M+107bps), 12/8/21, Callable 11/8/21 @ 100 (a) (c) | $ | 1,500,000 | $ | 1,515,915 | |||||||
4.45%, 9/29/27 (a) | 694,000 | 747,750 | |||||||||
Fifth Third Bancorp, 3.65%, 1/25/24, Callable 12/25/23 @ 100 (a) | 1,319,000 | 1,385,781 | |||||||||
KeyBank NA, 1.60%, 8/22/19 (a) | 3,000,000 | 2,996,369 | |||||||||
Level 3 Financing, Inc., 5.38%, 1/15/24, Callable 8/5/19 @ 102.69 (a) | 325,000 | 332,238 | |||||||||
Marsh & McLennan Cos., Inc., 2.35%, 3/6/20, Callable 2/6/20 @ 100 (a) | 335,000 | 334,839 | |||||||||
Morgan Stanley 2.65%, 1/27/20 (a) | 1,355,000 | 1,356,572 | |||||||||
4.88%, 11/1/22 (a) | 1,125,000 | 1,203,390 | |||||||||
Newcrest Finance Pty Ltd., 4.20%, 10/1/22 (a) (b) | 1,756,000 | 1,829,436 | |||||||||
SVB Financial Group, 5.38%, 9/15/20 (a) | 1,741,000 | 1,799,846 | |||||||||
The Goldman Sachs Group, Inc., 3.69%(LIBOR03M+117bps), 11/15/21, Callable 11/15/20 @ 100 (a) (c) | 1,500,000 | 1,512,090 | |||||||||
Unum Group, 3.00%, 5/15/21, Callable 4/15/21 @ 100 (a) | 3,000,000 | 3,023,700 | |||||||||
ZB NA, 3.50%, 8/27/21 (a) | 1,465,000 | 1,494,886 | |||||||||
Zions Bancorp NA, 3.35%, 3/4/22, Callable 2/4/22 @ 100 (a) | 910,000 | 925,889 | |||||||||
30,011,125 | |||||||||||
Health Care (5.1%): | |||||||||||
Abbott Laboratories, 2.90%, 11/30/21, Callable 10/30/21 @ 100 (a) | 1,835,000 | 1,864,764 | |||||||||
AbbVie, Inc., 2.30%, 5/14/21, Callable 4/14/21 @ 100 (a) | 2,137,000 | 2,131,123 | |||||||||
Agilent Technologies, Inc., 5.00%, 7/15/20 (a) | 1,500,000 | 1,536,030 | |||||||||
Amgen, Inc., 2.20%, 5/11/20 (a) | 2,705,000 | 2,699,698 | |||||||||
Biogen, Inc., 2.90%, 9/15/20 (a) | 2,623,000 | 2,636,036 | |||||||||
Celgene Corp., 2.88%, 2/19/21 (a) | 3,020,000 | 3,044,462 | |||||||||
13,912,113 | |||||||||||
Industrials (3.5%): | |||||||||||
Acuity Brands Lighting, Inc., 6.00%, 12/15/19 (a) | 1,330,000 | 1,349,445 | |||||||||
Aercap Holdings NV, 4.63%, 10/30/20 (a) | 2,015,000 | 2,068,115 | |||||||||
Honeywell International, Inc., 1.80%, 10/30/19 (a) (e) | 744,000 | 742,691 | |||||||||
IDEX Corp., 4.50%, 12/15/20, Callable 9/15/20 @ 100 (a) | 1,150,000 | 1,176,462 | |||||||||
Kansas City Southern, 2.35%, 5/15/20, Callable 4/15/20 @ 100 (a) | 1,756,000 | 1,753,085 | |||||||||
Northrop Grumman Corp., 2.93%, 1/15/25, Callable 11/15/24 @ 100 (a) | 1,098,000 | 1,117,907 | |||||||||
Spirit AeroSystems, Inc., 3.21%(LIBOR03M+80bps), 6/15/21, Callable 8/5/19 @ 100 (a) (c) | 1,000,000 | 992,570 | |||||||||
9,200,275 | |||||||||||
Information Technology (5.1%): | |||||||||||
Broadcom Corp., 3.00%, 1/15/22, Callable 12/15/21 @ 100 (a) | 3,244,000 | 3,253,602 | |||||||||
FLIR Systems, Inc., 3.13%, 6/15/21, Callable 5/15/21 @ 100 (a) | 2,050,000 | 2,062,198 | |||||||||
Lam Research Corp., 4.00%, 3/15/29, Callable 12/15/28 @ 100 | 616,000 | 656,434 | |||||||||
Lam Research Group, 2.80%, 6/15/21, Callable 5/15/21 @ 100 (a) | 2,928,000 | 2,950,633 | |||||||||
NetApp, Inc. 2.00%, 9/27/19 (a) (e) | 1,025,000 | 1,023,442 | |||||||||
3.38%, 6/15/21, Callable 4/15/21 @ 100 (a) | 1,310,000 | 1,325,917 | |||||||||
VMware, Inc., 2.30%, 8/21/20 (a) | 2,110,000 | 2,104,282 | |||||||||
13,376,508 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory INCORE Low Duration Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Materials (3.1%): | |||||||||||
Anglo American Capital PLC, 4.13%, 4/15/21 (a) (b) | $ | 3,275,000 | $ | 3,351,340 | |||||||
LYB International Finance II BV, 3.50%, 3/2/27, Callable 12/2/26 @ 100 (a) | 693,000 | 705,162 | |||||||||
Lyondellbasell Industries NV, 6.00%, 11/15/21, Callable 8/17/21 @ 100 (a) | 800,000 | 857,840 | |||||||||
Newmont Mining Corp., 5.13%, 10/1/19 (a) | 3,285,000 | 3,303,593 | |||||||||
8,217,935 | |||||||||||
Real Estate (3.1%): | |||||||||||
CubeSmart, LP, 4.80%, 7/15/22, Callable 4/15/22 @ 100 (a) | 2,731,000 | 2,878,364 | |||||||||
Healthcare Trust of America Holdings LP, 3.38%, 7/15/21, Callable 5/15/21 @ 100 (a) | 1,000,000 | 1,011,580 | |||||||||
Highwoods Realty LP, 3.20%, 6/15/21, Callable 4/15/21 @ 100 (a) | 2,200,000 | 2,216,390 | |||||||||
Ventas Realty, LP, 4.25%, 3/1/22, Callable 12/1/21 @ 100 (a) | 2,200,000 | 2,295,502 | |||||||||
8,401,836 | |||||||||||
Utilities (3.0%): | |||||||||||
Eversource Energy, 2.50%, 3/15/21, Callable 2/15/21 @ 100 (a) (e) | 1,950,000 | 1,954,992 | |||||||||
Exelon Corp. 3.50%, 6/1/22, Callable 5/1/22 @ 100 (a) | 2,117,000 | 2,168,231 | |||||||||
3.95%, 6/15/25, Callable 3/15/25 @ 100 (a) | 647,000 | 688,803 | |||||||||
3.40%, 4/15/26, Callable 1/15/26 @ 100 | 317,000 | 325,372 | |||||||||
Iberdrola Finance Ireland Ltd., 5.00%, 9/11/19 (a) (b) | 3,290,000 | 3,303,687 | |||||||||
8,441,085 | |||||||||||
Total Corporate Bonds (Cost $132,100,889) | 133,006,504 | ||||||||||
Residential Mortgage Backed Securities (3.9%) | |||||||||||
Bear Stearns Alt-A Trust , Series 2003-3, Class 2A, 4.45%, 10/25/33, Callable 7/25/19 @ 100 (a) (d) | 449,383 | 449,383 | |||||||||
Bear Stearns Alt-A Trust , Series 2004-6, Class 1A, 3.04% (LIBOR01M+64bps), 7/25/34, Callable 7/25/19 @ 100 (a) (c) | 111,327 | 111,323 | |||||||||
Credit Suisse First Boston Mortgage Securities Corp. , Series 2003-23, Class 2A8, 4.50%, 12/31/49 (a) | 2,405 | 2,478 | |||||||||
Credit Suisse First Boston Mortgage Securities Corp. , Series 2004-AR7, Class 4A1, 4.40%, 11/25/34, Callable 7/25/19 @ 100 (a) (d) | 353,025 | 353,025 | |||||||||
JPMorgan Mortgage Trust , Series 2017-1, Class A5, 3.50%, 1/25/47, Callable 4/25/34 @ 100 (a) (b) (d) | 888,060 | 901,706 | |||||||||
JPMorgan Mortgage Trust , Series 2017-3, Class 2A2, 2.50%, 8/25/47, Callable 9/25/29 @ 100 (a) (b) (d) | 2,258,738 | 2,247,231 | |||||||||
JPMorgan Mortgage Trust , Series 2016-3, Class 1A3, 3.50%, 10/25/46, Callable 3/25/28 @ 100 (a) (b) (d) | 1,286,199 | 1,304,964 | |||||||||
JPMorgan Mortgage Trust , Series 2016-4, Class A5, 3.50%, 10/25/46, Callable 10/25/39 @ 100 (a) (b) (d) | 617,568 | 626,579 | |||||||||
JPMorgan Mortgage Trust , Series 2004-S2, Class 1A3, 4.75%, 11/25/19, Callable 7/25/19 @ 100 (a) | 2,175 | 2,175 | |||||||||
JPMorgan Mortgage Trust , Series 2004-S1, Class 1A7, 5.00%, 9/25/34, Callable 7/25/19 @ 100 (a) | 2,405 | 2,405 | |||||||||
JPMorgan Mortgage Trust , Series 2014-5, Class A11, 2.98%, 10/25/29, Callable 12/25/24 @ 100 (a) (b) (d) | 1,903,028 | 1,913,000 |
See notes to financial statements.
7
Victory Variable Insurance Funds Victory INCORE Low Duration Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Madison Park Funding Ltd. , Series 2017-26A, Class AR, 3.78% (LIBOR03M+120bps), 7/29/30, Callable 10/29/19 @ 100 (a) (b) (c) | $ | 1,750,000 | $ | 1,749,349 | |||||||
Morgan Stanley Mortgage Loan Trust , Series 2005-6AR, Class 1A1, 2.68% (LIBOR01M+28bps), 11/25/35, Callable 7/25/19 @ 100 (a) (c) | 52,263 | 52,239 | |||||||||
Residential Asset Securities Corp. , Series 2005-KS1, Class M1, 3.08% (LIBOR01M+68bps), 2/25/35, Callable 7/25/19 @ 100 (a) (c) | 613,206 | 608,027 | |||||||||
Residential Funding Mortgage Securities I, Inc. , Series 2005-S3, Class A1, 4.75%, 3/25/20, Callable 7/25/19 @ 100 (a) | 1,534 | 1,534 | |||||||||
Wells Fargo Mortgage Backed Securities Trust , Series 2004-M, Class A7, 4.70%, 8/25/34, Callable 7/25/19 @ 100 (a) (d) | 113,339 | 113,339 | |||||||||
Wells Fargo Mortgage Backed Securities Trust , Series 2004-O, Class A1, 4.71%, 8/25/34, Callable 7/25/19 @ 100 (a) (d) | 78,483 | 78,483 | |||||||||
Wells Fargo Mortgage Backed Securities Trust , Series 2004-Z, Class 2A2, 4.97%, 12/25/34, Callable 7/25/19 @ 100 (a) (d) | 43,412 | 43,412 | |||||||||
Total Residential Mortgage Backed Securities (Cost $10,595,210) | 10,560,652 | ||||||||||
U.S. Government Mortgage Backed Agencies (15.1%) | |||||||||||
Federal Home Loan Mortgage Corp. | |||||||||||
5.00%, 6/15/23 – 8/1/40 (a) | 915,748 | 985,463 | |||||||||
5.50%, 10/25/23 (a) | 5,553 | 5,803 | |||||||||
Series 4207, Class JD, 1.50%, 5/15/28 (a) | 2,308,091 | 2,256,966 | |||||||||
Series 4430, Class NG, 2.50%, 2/15/38 (a) | 1,743,654 | 1,749,209 | |||||||||
7.00%, 9/1/38 (a) | 6,427 | 7,782 | |||||||||
Series 4320, Class AP, 3.50%, 7/15/39 (a) | 893,804 | 924,721 | |||||||||
Series 3713, Class PA, 2.00%, 2/15/40 – 4/15/44 (a) | 9,986,188 | 9,881,605 | |||||||||
Series 4049, Class AB, 2.75%, 12/15/41 (a) | 562,182 | 565,429 | |||||||||
16,376,978 | |||||||||||
Federal National Mortgage Association | |||||||||||
Series 2012-63, Class VG, 4.00%, 8/25/23 | 385,283 | 394,504 | |||||||||
Series 2010-156, Class DY, 3.50%, 1/25/26 – 3/25/44 (a) | 6,203,389 | 6,319,021 | |||||||||
6.00%, 2/1/37 (a) | 1,019,169 | 1,195,006 | |||||||||
Series 2013-33, Class UD, 2.50%, 4/25/39 – 5/25/40 (a) | 3,239,657 | 3,249,588 | |||||||||
Series 2011-21, Class PA, 4.50%, 5/25/40 (a) | 2,386,366 | 2,479,202 | |||||||||
Series 2011-101, Class LA, 3.00%, 10/25/40 (a) | 941,127 | 949,689 | |||||||||
5.00%, 2/1/41 – 10/1/41 (a) | 3,448,580 | 3,708,067 | |||||||||
18,295,077 | |||||||||||
Government National Mortgage Association | |||||||||||
Series 2016-156, Class AP, 2.25%, 12/20/42 (a) | 3,839,273 | 3,839,804 | |||||||||
Series 2018-22, Class JA, 3.00%, 1/20/44 (a) | 1,788,476 | 1,811,800 | |||||||||
5,651,604 | |||||||||||
Total U.S. Government Mortgage Backed Agencies (Cost $40,271,358) | 40,323,659 | ||||||||||
U.S. Treasury Obligations (17.6%) | |||||||||||
U.S. Treasury Bills | |||||||||||
2.14%, 11/14/19 (a) (f) | 30,921,000 | 30,684,023 | |||||||||
2.01%, 1/2/20 (a) (f) | 12,301,000 | 12,174,699 | |||||||||
U.S. Treasury Notes, 1.63%, 8/31/19 (a) (e) | 4,171,000 | 4,166,438 | |||||||||
Total U.S. Treasury Obligations (Cost $46,962,399) | 47,025,160 |
See notes to financial statements.
8
Victory Variable Insurance Funds Victory INCORE Low Duration Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Collateral for Securities Loaned^ (1.8%) | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 2.43% (g) | $ | 1,000,883 | $ | 1,000,883 | |||||||
Fidelity Investments Money Market Government Portfolio, Class I, 2.28% (g) | 1,289,252 | 1,289,252 | |||||||||
Fidelity Investments Prime Money Market Portfolio, Class I, 2.39% (g) | 33,482 | 33,482 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 2.48% (g) | 550,412 | 550,412 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 2.41% (g) | 750,545 | 750,545 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 2.42% (g) | 1,167,558 | 1,167,558 | |||||||||
Total Collateral for Securities Loaned (Cost $4,792,132) | 4,792,132 | ||||||||||
Total Investments (Cost $264,206,054) — 99.1% | 265,174,702 | ||||||||||
Other assets in excess of liabilities — 0.9% | 2,397,740 | ||||||||||
NET ASSETS — 100.00% | $ | 267,572,442 |
^ Purchased with cash collateral from securities on loan.
(a) All or a portion of these securities has been segregated as collateral for derivative instruments.
(b) Rule 144A security or other security that is restricted as to resale to institutional investors. The Fund's Adviser has deemed this security to be liquid based upon procedures approved by the Board of Trustees. As of June 30, 2019, the fair value of these securities was $30,337,163 and amounted to 11.3% of net assets.
(c) Variable or Floating-Rate Security. Rate disclosed is as of June 30, 2019.
(d) The rate for certain asset-backed and mortgage backed securities may vary based on factors relating to the pool of assets underlying the security. The rate disclosed is the rate in effect at June 30, 2019.
(e) All or a portion of this security is on loan.
(f) Rate represents the effective yield at June 30, 2019.
(g) Rate disclosed is the daily yield on June 30, 2019.
bps — Basis points
LIBOR — London InterBank Offered Rate
LIBOR01M — 1 Month US Dollar LIBOR, rate disclosed as of June 30, 2019, based on the last reset date of the security
LIBOR03M — 3 Month US Dollar LIBOR, rate disclosed as of June 30, 2019, based on the last reset date of the security
LLC — Limited Liability Company
LP — Limited Partnership
MTN — Medium Term Note
PLC — Public Limited Company
See notes to financial statements.
9
Victory Variable Insurance Funds Victory INCORE Low Duration Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Futures Contracts Purchased
Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||
2-Year U.S. Treasury Note Future | 562 | 9/30/19 | $ | 120,166,329 | $ | 120,930,935 | $ | 764,606 |
Futures Contracts Sold
Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||
10-Year U.S. Treasury Note Future | 67 | 9/19/19 | $ | 8,571,706 | $ | 8,573,910 | $ | (2,204 | ) | ||||||||||||||
5-Year U.S. Treasury Note Future | 282 | 9/30/19 | 33,106,039 | 33,320,077 | (214,038 | ) | |||||||||||||||||
$ | (216,242 | ) | |||||||||||||||||||||
Total unrealized appreciation | $ | 764,606 | |||||||||||||||||||||
Total unrealized depreciation | (216,242 | ) | |||||||||||||||||||||
Total net unrealized appreciation(depreciation) | $ | 548,364 |
Centrally Cleared
Credit Default Swap Agreements — Sell Protection (a)
Underlying Instrument | Fixed Deal Received Rate | Maturity Date | Payment Frequency | Implied Credit Spread at June 30, 2019 (b) | Notional Amount (c) | Value | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | |||||||||||||||||||||||||||
CDX North America High Yield Index; Series 32 | 5.00 | % | 6/20/24 | Daily | 3.21 | % | $ | 16,600,000 | $ | 1,256,067 | $ | 934,868 | $ | 321,199 | |||||||||||||||||||||
$ | 1,256,067 | $ | 934,868 | $ | 321,199 |
(a) When a credit event occurs as defined under the terms of the swap agreement, the Fund as a seller of credit protection will either (i) pay to the buyer of protection an amount equal to the par value of the defaulted reference entity and take delivery of the reference entity or (ii) pay a net amount equal to the par value of the defaulted reference entity less its recovery value.
(b) Implied credit spread, represented in absolute terms, utilized in determining the value of the credit default swap agreements as of period end will serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a referenced entity reflects the cost of buying/selling protection and may include payments required to be made to enter into the agreement. Generally, wider credit spreads represent a perceived deterioration of the referenced entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the swap agreement.
(c) The notional amount represents the maximum potential amount the Fund could be required to pay as a seller of credit protection if a credit event occurs, as defined under the terms of the swap agreement, for each security included in the CDX North America High Yield Index.
See notes to financial statements.
10
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2019 |
(Unaudited)
Victory INCORE Low Duration Bond VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $264,206,054) | $ | 265,174,702 | (a) | ||||
Cash and cash equivalents | 3,147,242 | ||||||
Deposits with brokers for futures contracts | 1,722,823 | ||||||
Deposits with brokers for swap agreements | 1,845,187 | ||||||
Interest and dividends receivable | 1,374,531 | ||||||
Receivable for investments sold | 5,468,412 | ||||||
Variation margin receivable on open swap agreements | 18,570 | ||||||
Receivable from Adviser | 113,544 | ||||||
Prepaid expenses | 8,367 | ||||||
Total Assets | 278,873,378 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 4,792,132 | ||||||
Investments purchased | 6,046,537 | ||||||
Capital shares redeemed | 245,368 | ||||||
Variation margin payable on open futures contracts | 24,484 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 99,306 | ||||||
Administration fees | 13,503 | ||||||
Custodian fees | 2,733 | ||||||
Transfer agent fees | 31,944 | ||||||
Chief Compliance Officer fees | 331 | ||||||
Other accrued expenses | 44,598 | ||||||
Total Liabilities | 11,300,936 | ||||||
NET ASSETS: | |||||||
Capital | 264,010,591 | ||||||
Total distributable earnings/(loss) | 3,561,851 | ||||||
Net Assets | $ | 267,572,442 | |||||
Shares Outstanding (unlimited shares authorized, with a par value of $0.001 per share): | 25,415,453 | ||||||
Net asset value: | $ | 10.53 |
(a) Includes $4,675,237 of securities on loan.
See notes to financial statements.
11
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2019 |
(Unaudited)
Victory INCORE Low Duration Bond VIP Series | |||||||
Investment Income: | |||||||
Interest | $ | 3,630,126 | |||||
Securities lending (net of fees) | 1,101 | ||||||
Total Income | 3,631,227 | ||||||
Expenses: | |||||||
Investment advisory fees | 589,661 | ||||||
Administration fees | 82,798 | ||||||
Custodian fees | 8,907 | ||||||
Transfer agent fees | 181,022 | ||||||
Trustees' fees | 11,330 | ||||||
Chief Compliance Officer fees | 917 | ||||||
Legal and audit fees | 17,751 | ||||||
Other expenses | 33,295 | ||||||
Total Expenses | 925,681 | ||||||
Expenses waived/reimbursed by Adviser | (231,149 | ) | |||||
Net Expenses | 694,532 | ||||||
Net Investment Income (Loss) | 2,936,695 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities | 257,346 | ||||||
Net realized gains (losses) from futures contracts | 428,864 | ||||||
Net realized gains (losses) from swap agreements | (2,446,926 | ) | |||||
Net change in unrealized appreciation/depreciation on investment securities | 3,678,336 | ||||||
Net change in unrealized appreciation/depreciation on futures contracts | (145,167 | ) | |||||
Net change in unrealized appreciation/depreciation on swap agreements | 1,803,693 | ||||||
Net realized/unrealized gains (losses) on investments | 3,576,146 | ||||||
Change in net assets resulting from operations | $ | 6,512,841 |
See notes to financial statements.
12
Victory Variable Insurance Funds | Statements of Changes in Net Assets |
Victory INCORE Low Duration Bond VIP Series | |||||||||||
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | ||||||||||
(Unaudited) | |||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 2,936,695 | $ | 5,274,270 | |||||||
Net realized gains (losses) from investments | (1,760,716 | ) | (154,847 | ) | |||||||
Net change in unrealized appreciation/depreciation on investments | 5,336,862 | (2,268,960 | ) | ||||||||
Change in net assets resulting from operations | 6,512,841 | 2,850,463 | |||||||||
Change in net assets resulting from distributions to shareholders | — | (1,374,412 | ) | ||||||||
Change in net assets resulting from capital transactions | (3,389,139 | ) | (29,333,670 | ) | |||||||
Change in net assets | 3,123,702 | (27,857,619 | ) | ||||||||
Net Assets: | |||||||||||
Beginning of period | 264,448,740 | 292,306,359 | |||||||||
End of period | $ | 267,572,442 | $ | 264,448,740 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 13,046,488 | $ | 20,030,792 | |||||||
Distributions reinvested | — | 1,374,412 | |||||||||
Cost of shares redeemed | (16,435,627 | ) | (50,738,874 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (3,389,139 | ) | $ | (29,333,670 | ) | |||||
Share Transactions: | |||||||||||
Issued | 1,255,748 | 1,955,580 | |||||||||
Reinvested | — | 134,219 | |||||||||
Redeemed | (1,583,077 | ) | (4,949,055 | ) | |||||||
Change in Shares | (327,329 | ) | (2,859,256 | ) |
See notes to financial statements.
13
Victory Variable Insurance Funds | Financial Highlights |
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholder From | ||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gains (Losses) on Investments | Total from Investment Activities | Net Investment Income | Total Distributions | ||||||||||||||||||||||
Victory INCORE Low Duration Bond VIP Series | |||||||||||||||||||||||||||
Six Months Ended 6/30/19 (unaudited) | $ | 10.27 | 0.12 | (d) | 0.14 | 0.26 | — | — | |||||||||||||||||||
Year Ended 12/31/18 | $ | 10.22 | 0.19 | (d) | (0.09 | ) | 0.10 | (0.05 | ) | (0.05 | ) | ||||||||||||||||
Year Ended 12/31/17 | $ | 10.20 | 0.15 | (d) | 0.02 | 0.17 | (0.15 | ) | (0.15 | ) | |||||||||||||||||
Year Ended 12/31/16 | $ | 10.13 | 0.12 | (d) | 0.09 | 0.21 | (0.14 | ) | (0.14 | ) | |||||||||||||||||
Year Ended 12/31/15 | $ | 10.22 | 0.14 | (d) | (0.09 | ) | 0.05 | (0.14 | ) | (0.14 | ) | ||||||||||||||||
Year Ended 12/31/14 | $ | 10.30 | 0.18 | (0.08 | ) | 0.10 | (0.18 | ) | (0.18 | ) |
(a) Not annualized for periods less than one year.
(b) Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(c) Annualized for periods less than one year.
(d) Per share net investment income (loss) has been calculated using the average daily shares method.
(e) Amount is less than $0.005 per share.
(f) The Fund received monies related to a nonrecurring refund from the prior Custodian. The corresponding impact to the total return was less than 0.005% for the period shown. (See Note 8)
(g) During the period, certain fees were reduced and/or reimbursed. If such fee reductions and/or reimbursements had not occurred, the ratios would have been as indicated.
(h) Portfolio turnover increased due to a change within the portfolio holdings during the year.
See notes to financial statements.
14
Victory Variable Insurance Funds | Financial Highlights — continued |
For a Share Outstanding Throughout Each Period
Ratios to Average Net Assets | Supplemental Data | ||||||||||||||||||||||||||||||||||
Capital contributions from prior custodian, Net (See Note 8) | Net Asset Value, End of Period | Total Return(a)(b) | Net Expenses(c) | Net Investment Income (Loss)(c) | Gross Expenses(c) | Net Assets, End of Period (000's) | Portfolio Turnover(a) | ||||||||||||||||||||||||||||
Victory INCORE Low Duration Bond VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended 6/30/19 (unaudited) | — | $ | 10.53 | 2.53 | % | 0.53 | % | 2.24 | % | 0.71 | %(g) | $ | 267,572 | 32 | % | ||||||||||||||||||||
Year Ended 12/31/18 | — | $ | 10.27 | 1.01 | % | 0.53 | % | 1.85 | % | 0.58 | %(g) | $ | 264,449 | 55 | % | ||||||||||||||||||||
Year Ended 12/31/17 | — | $ | 10.22 | 1.64 | % | 0.53 | % | 1.44 | % | 0.58 | %(g) | $ | 292,306 | 91 | %(h) | ||||||||||||||||||||
Year Ended 12/31/16 | — | (e) | $ | 10.20 | 2.04 | %(f) | 0.53 | % | 1.21 | % | 0.53 | % | $ | 273,151 | 55 | % | |||||||||||||||||||
Year Ended 12/31/15 | — | $ | 10.13 | 0.47 | % | 0.53 | % | 1.33 | % | 0.53 | % | $ | 276,164 | 38 | % | ||||||||||||||||||||
Year Ended 12/31/14 | — | $ | 10.22 | 0.92 | % | 0.55 | % | 1.74 | % | 0.55 | % | $ | 265,514 | 39 | % |
See notes to financial statements.
15
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2019 |
(Unaudited)
1. Organization:
Victory Variable Insurance Funds (the "Trust") was organized on February 11, 1998 as a Delaware statutory trust. The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end investment company. The Trust is comprised of nine funds and is authorized to issue an unlimited number of shares, which are units of beneficial interest with a par value of $0.001 per share.
The accompanying financial statements are those of the Victory INCORE Low Duration Bond VIP Series (the "Fund"). The Fund offers a single class of shares: Class I Shares. Sales of shares of the Fund may only be made to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. ("GIAC") that fund certain variable annuity and variable life insurance contracts issued by GIAC. GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America ("Guardian Life").
Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. The Fund follows the specialized accounting and reporting requirements under GAAP that are applicable to investment companies.
Investment Valuation:
The Fund records investments at fair value. Fair value is defined 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.
The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund's investments are summarized in the three broad levels listed below:
• Level 1 — quoted prices in active markets for identical securities
• Level 2 — other significant observable inputs (including quoted prices for similar securities or interest rates applicable to those securities, etc.)
• Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The inputs or methodologies used for valuation techniques are not necessarily an indication of the risk associated with entering into those investments.
Portfolio securities listed or traded on securities exchanges, including American Depositary Receipts ("ADRs") and Rights, are valued at the closing price on the exchange or system where the security is principally traded, if available, or at the Nasdaq Official Closing Price. If there have been no sales for that day on the exchange or system, then a security is valued at the last available bid quotation on the exchange or system where the security is principally traded. In each of these situations, valuations are typically categorized as Level 1 in the fair value hierarchy.
16
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Futures contracts are valued at the settlement price established each day by the board of trade or an exchange on which they are traded. These valuations are typically categorized as Level 1 in the fair value hierarchy.
Swap agreements are valued at the mean between the current bid and ask prices. These valuations are typically categorized as Level 2 in the fair value hierarchy.
Debt securities of United States ("U.S.") issuers (other than short-term investments maturing in 60 days or less), including corporate and municipal securities, are valued on the basis of bid valuations provided by dealers or an independent pricing service approved by the Trust's Board of Trustees (the "Board"). Short-term investments maturing in 60 days or less may be valued at amortized cost, which approximates market value. Under the amortized cost method, premium or discount, if any, is amortized or accreted, respectively, on a constant basis to the maturity of the security. In each of these situations, valuations are typically categorized as Level 2 in the fair value hierarchy.
Investments for which there are no such quotations, or for which quotations do not appear reliable, are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Board. These valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based on the observability of inputs used to determine the fair value.
A summary of the valuations as of June 30, 2019, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed in the Schedule of Portfolio Investments:
LEVEL 1 — Quoted Prices | LEVEL 2 — Other Significant Observable Inputs | Total | |||||||||||||||||||||||||
Investments in Securities | Other Financial Investments^ | Investments in Securities | Other Financial Investments^ | Investments in Securities | Other Financial Investments^ | ||||||||||||||||||||||
Victory INCORE Low Duration Bond VIP Series | |||||||||||||||||||||||||||
Asset Backed Securities | $ | — | $ | — | $ | 23,161,038 | $ | — | $ | 23,161,038 | $ | — | |||||||||||||||
Collateralized Mortgage Obligations | — | — | 6,305,557 | — | 6,305,557 | — | |||||||||||||||||||||
Corporate Bonds | — | — | 133,006,504 | — | 133,006,504 | — | |||||||||||||||||||||
Residential Mortgage Backed Securities | — | — | 10,560,652 | — | 10,560,652 | — | |||||||||||||||||||||
U.S. Government Mortgage Backed Agencies | — | — | 40,323,659 | — | 40,323,659 | — | |||||||||||||||||||||
U.S. Treasury Obligations | — | — | 47,025,160 | — | 47,025,160 | — | |||||||||||||||||||||
Futures Contracts | — | 548,364 | — | — | — | 548,364 | |||||||||||||||||||||
Credit Default Swap | — | — | — | 321,199 | — | 321,199 | |||||||||||||||||||||
Collateral for Securities Loaned | 4,792,132 | — | — | — | 4,792,132 | — | |||||||||||||||||||||
Total | $ | 4,792,132 | $ | 548,364 | $ | 260,382,570 | $ | 321,199 | $ | 265,174,702 | $ | 869,563 |
^ Other Financial instruments include any derivative instruments not reflected in the Schedule of Portfolio Investments as Investment Securities, such as futures contracts and swap agreements. These instruments are generally recorded in the financial statements at the unrealized gain or loss on the investment.
For the six months ended June 30, 2019, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
17
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Securities Purchased on a When-Issued Basis:
The Fund may purchase securities on a when-issued basis. When-issued securities are securities purchased for delivery beyond normal settlement periods at a stated price and/or yield, thereby involving the risk that the price and/or yield obtained may be more or less than those available in the market when delivery takes place. At the time the Fund makes the commitment to purchase a security on a when-issued basis, the Fund records the transaction and reflects the value of the security in determining net asset value. No interest accrues to the Fund until the transaction settles and payment takes place. Normally, the settlement date occurs within one month of the purchase. A segregated account is established and the Fund maintains cash and/or marketable securities at least equal in value to commitments for when-issued securities. If the Fund owns when-issued securities, these values are included in "Payable for investments purchased" on the accompanying Statement of Assets and Liabilities and the segregated assets are identified in the Schedule of Portfolio Investments.
Loans:
Floating rate loans in which the Fund invests are primarily "senior" loans. Senior floating rate loans typically hold a senior position in the capital structure of the borrower, are typically secured by specific collateral, and have a claim on the assets and/or stock of the borrower that is senior to that held by subordinated debtholders and stockholders of the borrower. While these protections may reduce risk, these investments still present significant credit risk. A significant portion of the Fund's floating rate investments may be issued in connection with highly leveraged transactions such as leveraged buyouts, leveraged recapitalization loans, and other types of acquisition financing. Obligations in these types of transactions are subject to greater credit risk (including default and bankruptcy) than many other investments and may be, or become, illiquid. See note below regarding below investment grade securities.
The Fund may purchase second lien loans (secured loans with a claim on collateral subordinate to a senior lender's claim on such collateral), fixed rate loans, unsecured loans, and other debt obligations.
Transactions in loans often settle on a delayed basis, and the Fund may not receive the proceeds from the sale of a loan or pay for a loan purchase for a substantial period of time after entering into the transactions.
Below Investment Grade Securities:
The Fund may invest in below investment grade securities (i.e. lower-quality, "junk" debt), which are subject to various risks. Lower-quality debt is considered to be speculative because it is less certain that the issuer will be able to pay interest or repay the principal than in the case of investment grade debt. These securities can involve a substantially greater risk of default than higher-rated securities, and their values can decline significantly over short periods of time. Lower-quality debt securities tend to be more sensitive to adverse news about their issuers, the market and the economy in general, than higher-quality debt securities. The market for these securities can be less liquid, especially during periods of recession or general market decline.
Investment Companies:
The Fund may invest in portfolios of open-end investment companies. These investment companies value securities in their portfolios for which market quotations are readily available at their market values (generally the last reported sale price) and all other securities and assets at their fair value by the methods established by the board of directors of the underlying funds.
Derivative Instruments:
Futures Contracts:
The Fund may enter into contracts for the future delivery of securities or foreign currencies and futures contracts based on a specific security, class of securities, foreign currency or an index, and purchase or sell options on any such futures contracts. A futures contract on a securities index is an agreement obligating either party to pay, and entitling the other party to receive, while the contract is outstanding,
18
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
cash payments based on the level of a specified securities index. No physical delivery of the underlying asset is made. The Fund may enter into futures contracts in an effort to hedge against market risks. The acquisition of put and call options on futures contracts will give the Fund the right (but not the obligation), for a specified price, to sell or to purchase the underlying futures contract, upon exercise of the option, at any time during the option period. Futures transactions involve brokerage costs and require the Fund to segregate assets to cover contracts that would require it to purchase securities or currencies. A good faith margin deposit, known as initial margin, of cash or government securities with a broker or custodian is required to initiate and maintain open positions in futures contracts. Subsequent payments, known as variation margin, are made or received by the Fund based on the change in the market value of the position and are recorded as unrealized appreciation or depreciation until the contract is closed out, at which time the gain or loss is realized. The Fund may lose the expected benefit of futures transactions if interest rates, exchange rates or securities prices change in an unanticipated manner. Such unanticipated changes may also result in lower overall performance than if the Fund had not entered into any futures transactions. In addition, the value of the Fund's futures positions may not prove to be perfectly or even highly correlated with the value of its portfolio securities or foreign currencies, limiting the Fund's ability to hedge effectively against interest rate, exchange rate and/or market risk and giving rise to additional risks. There is no assurance of liquidity in the secondary market for purposes of closing out futures positions. The collateral held by the Fund is presented on the Statement of Assets and Liabilities under Deposit with broker for futures contracts.
As of June 30, 2019, the Fund entered into Futures Contracts primarily for the strategy of hedging or other purposes, including but not limited to, providing liquidity and equitizing cash.
Credit Derivatives:
The Fund may enter into credit derivatives, including centrally-cleared credit default swaps on individual obligations or credit indices. The Fund may use these investments (i) as alternatives to direct long or short investment in a particular security or securities, (ii) to adjust the Fund's asset allocation or risk exposure, or (iii) for hedging purposes. The use by the Fund of credit default swaps may have the effect of creating a short position in a security. Credit derivatives can create investment leverage and may create additional investment risks that may subject the Fund to greater volatility than investments in more traditional securities, as described in the Fund's Statement of Additional Information.
Credit default swap ("CDS") agreements on credit indices involve one party making a stream of payments (referred to as the buyer of protection) to another party (the seller of protection) in exchange for the right to receive a specified return in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising the credit index. A credit index is a basket of credit instruments or exposures designed to be representative of a specific sector of the credit market as a whole. These indices are made up of reference credits that are judged by a poll of dealers to be the most liquid entities in the CDS.
The counterparty risk for cleared swap agreements is generally lower than uncleared over-the-counter swap agreements because generally a clearing organization becomes substituted for each counterparty to a centrally cleared swap agreement and, in effect, guarantees each party's performance under the contract as each party to a trade looks only to the clearing organization for performance of financial obligations. However, there can be no assurance that the clearing organization, or its members, will satisfy its obligations to the Fund.
The Fund may enter into CDS agreements either as a buyer or seller. The Fund may buy protection under a CDS to attempt to mitigate the risk of default or credit quality deterioration in one or more individual holdings or in a segment of the fixed income securities market. The Fund may sell protection under a CDS in an attempt to gain exposure to an underlying issuer's credit quality characteristics without investing directly in that issuer. For swaps entered with an individual counterparty, the Fund bears the risk of loss of the uncollateralized amount expected to be received under a CDS agreement in the event of the default or bankruptcy of the counterparty. CDS agreements are generally valued at
19
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
a price at which the counterparty to such agreement would terminate the agreement. The Fund may also enter into cleared swaps.
Upon entering into a cleared CDS, the Fund may be required to deposit with the broker an amount of cash or cash equivalents in the range of approximately 3% to 6% of the notional amount for CDS on high yield debt issuers (this amount is subject to change by the clearing organization that clears the trade). This amount, known as "initial margin," is in the nature of a performance bond or good faith deposit on the CDS and is returned to a Fund upon termination of the CDS, assuming all contractual obligations have been satisfied. Subsequent payments, known as "variation margin," to and from the broker will be made daily as the price of the CDS fluctuates, making the long and short positions in the CDS contract more or less valuable, a process known as "marking-to-market." The premium (discount) payments are built into the daily price of the CDS and thus are amortized through the variation margin. The variation margin payment also includes the daily portion of the periodic payment stream.
The maximum potential amount of future payments (undiscounted) that the Fund as a seller of protection could be required to make under a CDS agreement equals the notional amount of the agreement. Notional amounts of each individual CDS agreement outstanding as of period end for which the Fund is the seller of protection are disclosed on the Schedule of Portfolio Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, periodic interest payments, or net amounts received from the settlement of buy protection CDS agreements entered into by the Fund for the same referenced entity or entities.
As of June 30, 2019, the Fund entered into centrally cleared CDS agreements primarily for the strategy of asset allocation and risk exposure management.
Summary of Derivative Instruments:
The following table presents the effect of derivative instruments on the Statement of Assets and Liabilities, categorized by risk exposure, as of June 30, 2019.
Assets | Liabilities | ||||||||||||||||||
Variation Margin Receivable on Open Futures Contracts* | Variation Margin Receivable on Open Swap Agreements* | Variation Margin Payable on Open Futures Contracts* | Variation Margin Payable on Open Swap Agreements* | ||||||||||||||||
Credit Risk Exposure | $ | — | $ | 321,199 | $ | — | $ | — | |||||||||||
Interest Rate Risk Exposure | 764,606 | — | 216,242 | — |
* Includes cumulative appreciation (depreciation) of futures contracts and centrally cleared swap agreements as reported in the Schedule of Investments. Only current day's variation margin is reported within the Statement of Assets and Liabilities.
The following table presents the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the six months ended June 30, 2019.
Net Realized Gains (Losses) on Derivatives Recognized as a Result from Operations | Net Change in Unrealized Appreciation/Depreciation on Derivatives Recognized as a Result of Operations | ||||||||||||||||||
Net Realized Gains (Losses) from Futures Contracts | Net Realized Gains (Losses) from Swap Agreements | Net Change in Unrealized Appreciation/ Depreciation on Futures Contracts | Net Change in Unrealized Appreciation/ Depreciation on Swap Agreements | ||||||||||||||||
Credit Risk Exposure | $ | — | $ | (2,446,926 | ) | $ | — | $ | 1,803,693 | ||||||||||
Interest Rate Risk Exposure | 428,864 | — | (145,167 | ) | — |
20
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
All open derivative positions at period end are reflected on the Fund's Schedule of Portfolio Investments. The underlying face value of open derivative positions relative to the Fund's net assets at period end is generally representative of the notional amount of open positions to net assets throughout the period.
Investment Transactions and Related Income:
Changes in holdings of investments are accounted for no later than one business day following the trade date. For financial reporting purposes, however, investment transactions are accounted for on trade date on the last business day of the reporting period. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date. Gains or losses realized on sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds.
The Fund may receive other income from investment in loan assignments and/or unfunded commitments, including amendment fees, consent fees and commitment fees. These fees are recorded as income when received by the Fund. These amounts are included in Interest Income in the Statement of Operations.
Withholding taxes on interest, dividends and gains as a result of certain investments in ADRs by the Fund have been provided for in accordance with each investment's applicable country's tax rules and rates.
Securities Lending:
The Trust has entered into a Master Securities Lending Agreement ("MSLA") with Citibank, N.A. ("Citibank" or the "Agent"). Under the terms of the MSLA, the Fund may lend securities to certain broker-dealers and banks in exchange for collateral in the amount of at least 102% of the value of U.S. securities loaned or at least 105% of the value of non-U.S. securities loaned, marked-to-market daily. Any collateral shortfalls associated with increases in the valuation of the securities loaned are adjusted the next business day. The collateral can be received in the form of cash collateral and/or non-cash collateral. Non-cash collateral can include U.S. Government Securities, letters of credit and certificates of deposit. The cash collateral is invested in short-term instruments or cash equivalents as noted on the Fund's Schedule of Portfolio Investments. The Trust does not have effective control of the non-cash collateral and therefore it is not disclosed in the Fund's Schedule of Portfolio Investments. The Fund continues to benefit from interest or dividends on the securities loaned and may also earn a return from the collateral. The Fund pays various fees in connection with the investment of cash collateral. The Fund pays the Agent fees based on the investment income received from securities lending activities. Securities lending income is disclosed in the Fund's Statement of Operations. Although risk is mitigated by the collateral, the Fund could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them.
Securities lending transactions are entered into by the Fund under the MSLA, which permits the Fund, under certain circumstances such as an event of default, to offset amounts payable by the Fund to the same counterparty against amounts receivable from the counterparty to create a net payment due to or from the Fund.
The following table is a summary of the Fund's securities lending transactions which are subject to offset under the MSLA as of June 30, 2019. These transactions are accounted for as secured borrowings with an overnight and continuous contractual maturity for cash collateral, and greater than overnight and continuous contractual maturity for non-cash collateral.
Gross Amount of Recognized Assets (Value of | Value of Cash | Value of Non-cash Collateral Received by Maturity | |||||||||||||||||||||
Securities on Loan) | Collateral Received* | <30 Days | Between 30 & 90 Days | >90 Days | Net Amount | ||||||||||||||||||
$ | 4,675,237 | $ | 4,675,237 | $ | — | $ | — | $ | — | $ | — |
* Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by the Fund is disclosed in the Statement of Assets and Liabilities.
21
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Dividends to Shareholders:
Dividends from net investment income, if any, are declared and paid annually by the Fund. Distributable net realized gains, if any, are declared and distributed at least annually.
The amounts of dividends from net investment income and distributions from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these "book/tax" differences are permanent in nature (e.g., net operating loss and distributions reclassification), such amounts are reclassified within the components of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales) do not require reclassification. To the extent dividends and distributions exceed net investment income and net realized gains for tax purposes, they are reported as distributions of capital. Net investment losses incurred by the Fund may be reclassified as an offset to capital on the accompanying Statement of Assets and Liabilities.
Federal Income Taxes:
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes is required in the financial statements. The Fund has a tax year end of December 31.
Management of the Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Allocations:
Expenses directly attributable to the Fund are charged to the Fund, while expenses which are attributable to more than one fund in the Trust, or jointly with an affiliated trust, are allocated among the respective funds in the Trust and/or affiliated trust based upon net assets or another appropriate basis.
Affiliated Securities Transactions:
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Adviser and any applicable sub-adviser. Any such purchase or sale transaction must be effected without brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security's last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. For the six months ended June 30, 2019, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding securities maturing less than one year from acquisition) for the six months ended June 30, 2019 were as follows for the Fund:
Purchases (excluding U.S. Government Securities) | Sales (excluding U.S. Government Securities) | Purchases of U.S. Government Securities | Sales of U.S. Government Securities | ||||||||||||
$ | 24,790,787 | $ | 44,718,273 | $ | 48,274,200 | $ | 48,942,211 |
22
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
4. Fees and Transactions with Affiliates and Related Parties:
Investment advisory services are provided to the Fund by Victory Capital Management Inc. ("VCM" or the "Adviser"), a New York corporation registered as an investment adviser with the Securities and Exchange Commission ("SEC"). The Adviser is a wholly-owned indirect subsidiary of Victory Capital Holdings, Inc., a publicly traded Delaware corporation, and a wholly-owned direct subsidiary of Victory Capital Operating, LLC.
Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive 0.45% of the average daily net assets of the Fund. The Adviser may use its resources to assist with the Fund's distribution and marketing expenses.
VCM also serves as the Fund's administrator and fund accountant. Under an Administration and Fund Accounting Agreement, VCM is paid for its services an annual fee at a rate of 0.08% of the first $15 billion in average daily net assets of the Trust, Victory Portfolios and Victory Portfolios II (collectively, the "Victory Funds Complex"), 0.05% of the average daily net assets above $15 billion to $30 billion of the Victory Funds Complex and 0.04% of the average daily net assets over $30 billion of the Victory Funds Complex.
Citi Fund Services Ohio, Inc. ("Citi"), an affiliate of Citibank, N.A., acts as sub-administrator and sub-fund accountant to the Fund pursuant to a Sub-Administration and Sub-Fund Accounting Services Agreement between VCM and Citi. VCM pays Citi a fee for providing these services. The Trust reimburses VCM and Citi for all of their reasonable out-of-pocket expenses incurred in providing these services.
FIS Investor Services, LLC ("FIS") serves as the Fund's transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Chief Compliance Officer ("CCO") is an employee of the Adviser, which pays the compensation of the CCO and his support staff. The Trust has entered into an Agreement to provide compliance services with the Adviser, pursuant to which the Adviser furnishes its compliance personnel, including the services of the CCO, and other resources reasonably necessary to provide the Trust with compliance oversight services related to the design, administration and oversight of a compliance program for the Trust in accordance with Rule 38a-1 under the 1940 Act. The funds in the Victory Funds Complex, in the aggregate, compensate the Adviser for these services.
The Victory Funds Complex pays an annual retainer to each Independent Trustee, plus an additional annual retainer to the Chairman of the Board. The aggregate amount of the fees and expenses of the Independent Trustees are allocated amongst all the funds in the Victory Funds Complex and are presented in the Statement of Operations.
Shearman & Sterling LLP provides legal services to the Trust.
Victory Capital Advisers, Inc. (the "Distributor"), an affiliate of the Adviser, serves as distributor for the continuous offering of the shares of the Fund pursuant to a Distribution Agreement between the Distributor and the Trust.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2020. Under the terms of the agreement, the Adviser has agreed to waive fees or reimburse certain expenses to the extent that ordinary operating expenses incurred by the Fund in any fiscal year exceed the expense limit for the Fund. Such excess amounts will be the liability of the Adviser. Interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with GAAP, and other extraordinary expenses not incurred in the ordinary course of a Fund's business are excluded from the expense limits. For the six months ended June 30, 2019, the expense limit (excluding voluntary waivers) is 0.53%.
The Fund has agreed to repay fees and expenses that were waived or reimbursed by the Adviser for a period up to three fiscal years after such waiver or reimbursement was made to the extent such payments or repayments would not cause the expenses of a class to exceed the original expense limitation in place at time of the waiver or reimbursement or any expense limitation agreement in
23
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
place at the time of repayment. As of June 30, 2019, the following amounts are available to be repaid to the Adviser. Amounts repaid to the Adviser during the six months ended, if any, are reflected on the Statement of Operations as "Recoupment of prior expenses waived/reimbursed by Adviser".
Expires 12/31/2019 | Expires 12/31/2020 | Expires 12/31/2021 | Expires 12/31/2022 | ||||||||||||
$ | 1,866 | $ | 132,033 | $ | 155,683 | $ | 231,149 |
The Adviser may voluntarily waive or reimburse additional fees to assist the Fund in maintaining a competitive expense ratio. Voluntary waivers and reimbursements applicable to the Fund are not available to be recouped at a future time. There were no voluntary waivers or reimbursements for the six months ended June 30, 2019.
Certain officers and/or interested trustees of the Fund are also officers and/or employees of the Adviser, Administrator, Fund Accountant, Sub-Administrator, Sub-Fund Accountant and Legal Counsel.
5. Risks:
The Fund may be subject to other risks in addition to these identified risks.
An investment in the Fund's shares represents an indirect investment in the securities owned by the Fund, some of which will be traded on a national securities exchange or in the over-the-counter markets. The value of the securities in which the Fund invests, like other market investments, may move up or down, sometimes rapidly and unpredictably. The value of the securities in which the Fund invests may affect the value of the Fund's shares. An investment in the Fund's shares at any point in time may be worth less than the original investment, even after taking into account the reinvestment of the Fund's distributions.
The Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties for financial instruments entered into by the Fund. The Fund may be negatively impacted 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 bankruptcy or other reorganization proceeding and the Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund typically enters into transactions with counterparties whose credit ratings are investment grade, as determined by a nationally recognized statistical rating organization or, if unrated, judged by the Adviser to be of comparable quality.
The Funds will be subject to credit and interest rate risk with respect to fixed income securities. Credit risk refers to the ability of an issuer to make timely payments of interest and principal. Interest rates may rise or the rate of inflation may increase, impacting the value of investments in fixed income securities. A debt issuers' credit quality may be downgraded or an issuer may default. Interest rates may fluctuate due to changes in governmental fiscal policy initiatives and resulting market reaction to those initiatives.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2019, the Victory Funds Complex participated in a short-term, demand note "Line of Credit" agreement with Citibank. Under the agreement with Citibank, the Victory Funds Complex may have borrowed up to $250 million, of which $100 million was committed and $150 million was uncommitted. This agreement was in effect through July 26, 2019. Effective July 1, 2019, the current agreement was amended to include the USAA Mutual Funds Complex and has a new termination date of June 29, 2020. Under this amended agreement, the Victory Funds Complex and USAA Funds Complex, combined, may borrow up to $600 million, of which $300 million is committed and $300 million is uncommitted. $40 million of the Line of Credit is reserved for use by the Victory Floating Rate Fund, another series of the Victory Funds Complex, with that Fund paying the related commitment fees for that amount. The purpose of the agreement is to meet temporary or emergency
24
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
cash needs, including redemption requests that might otherwise require the untimely disposition of securities. With the agreement in affect for the six months ended June 30, 2019, Citibank received an annual commitment fee of 0.15% on $100 million for providing the Line of Credit. For the six months ended June 30, 2019, Citibank earned approximately $76 thousand in commitment fees from the Victory Funds Complex. Effective July 1, 2019, Citibank receives an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest on amounts borrowed, including the USAA Funds Complex, commencing July 1, 2019. Interest charged to the Fund during the period is presented on the Statement of Operations under line of credit fees.
The Fund did not utilize the Line of Credit during the six months ended June 30, 2019.
Interfund Lending:
The Trust and Adviser rely on an exemptive order granted by the SEC in March 2017 (the "Order"), permitting the establishment and operation of an Interfund Lending Facility (the "Facility"). The Facility allows the Fund to directly lend and borrow money to or from any other Victory Fund relying upon the Order at rates beneficial to both the borrowing and lending funds. Advances under the Facility are allowed for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities, and are subject to each Fund's borrowing restrictions. The interfund loan rate is determined, as specified in the Order, by averaging the current repurchase agreement rate and the current bank loan rate. As a Borrower, interest charged to the Fund during the period is presented on the Statement of Operations under interfund lending fees. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Income on interfund lending.
The Fund did not utilize the Facility during the six months ended June 30, 2019.
7. Federal Income Tax Information:
The tax character of current year distributions paid and the tax basis of the current components of accumulated earnings (deficit) will be determined at the end of the current tax year ending December 31, 2019.
The tax character of distributions paid during the most recent tax year ended December 31, 2018 was as follows (total distributions paid may differ from the Statement of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid).
Distributions paid from | |||||||||||
Ordinary Income | Net Long-Term Capital Gains | Total Distributions Paid | |||||||||
$ | 1,374,411 | $ | — | $ | 1,374,411 |
As of the most recent tax year ended December 31, 2018, the components of accumulated earnings (deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation (Depreciation)* | Total Accumulated Earnings (Deficit) | ||||||||||||||||||
$ | 5,011,777 | $ | — | $ | 5,011,777 | $ | (5,226,542 | ) | $ | (2,736,224 | ) | $ | (2,950,989 | ) |
* The difference between the book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to tax deferral of losses on wash sales.
25
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
As of the most recent tax year ended December 31, 2018, the Fund had short term and long term capital loss carryforwards of $1,492,605 and $3,733,937 respectively that were not subject to expiration.
During the most recent tax year ended December 31, 2018, the Fund did not utilize any capital loss carryforwards.
At June 30, 2019, the cost basis for federal income tax purposes, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) for investments were as follows:
Cost of Investments for Federal Tax Purposes | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||||||||||
$ | 264,222,704 | $ | 1,438,014 | $ | (486,016 | ) | $ | 951,998 |
8. Capital Contribution from Prior Custodian:
During 2016, the Fund received notification from the Fund's prior custodian, State Street Bank and Trust ("State Street"), concerning issues related to billing on certain categories of expenses during the approximately 16-year period from 1998 through October 31, 2014. The over-billing primarily related to categories of expenses that involved an allocation of general costs among multiple clients.
State Street paid the refunded amounts during January 2017. Based on billing information received during 2016 from State Street and an analysis of any expense limitation agreements that were in place during the period of the activities in question, including the application of any recoupment provisions in such agreements, the Adviser received a portion of the refund.
The portion of the refund retained by the Fund was accounted for as a capital contribution and is reflected on the Financial Highlights as "Capital Contribution from Prior Custodian, Net".
9. Fund Ownership:
Ownership of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2(a)(9) of the 1940 Act. As of June 30, 2019, the shareholders listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund.
Shareholder | Percent | ||||||
The Guardian Insurance & Annuity Company, Inc. | 100.0 | % |
10. Recent Accounting Pronouncements:
In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-08 "Premium Amortization on Purchased Callable Debt Securities" ("ASU 2017-08"), which shortens the premium amortization period for purchased non-contingently callable debt securities. ASU 2017-08 specifies that the premium amortization period ends at the earliest call date, for purchased non-contingently callable debt securities. The Fund has adopted and applied ASU 2017-08 on a modified retrospective basis through a cumulative-effect adjustment as of the beginning of the period of adoption. As a result of the adoption of ASU 2017-08, as of January 1, 2019, the amortized cost basis of investments was reduced by $33,823 and unrealized appreciation of investments was increased by $33,823. The adoption of ASU 2017-08 had no impact on beginning net assets, the current period results from operations, or any prior period information presented in the financial statements.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurements" ("ASU 2018-13"). This update makes certain removals from, changes to and additions to existing disclosure requirements for fair value measurements. ASU 2018-13 does not change fair value measurements already required or permitted by existing standards. ASU 2018-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As permitted, the Fund has early adopted ASU 2018-13 with the financial statements prepared as of June 30, 2019.
26
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
11. Subsequent Events:
The Fund has evaluated the need for additional disclosures or adjustments resulting from subsequent events through the date these financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have a material impact on the Fund's financial statements.
27
Victory Variable Insurance Funds | Supplemental Information June 30, 2019 |
(Unaudited)
Trustee and Officer Information
Board of Trustees:
Overall responsibility for management of the Trust rests with the Board. The Trust is managed by the Board in accordance with the laws of the State of Delaware. There are currently ten Trustees, nine of whom are not "interested persons" of the Trust within the meaning of that term under the 1940 Act ("Independent Trustees") and one of whom is an "interested person" of the Trust within the meaning of that term under the 1940 Act ("Interested Trustee"). The Trustees, in turn, elect the officers of the Trust to actively supervise its day-to-day operations.
The following tables list the Trustees, their ages, position with the Trust, commencement of service, principal occupations during the past five years and any directorships of other investment companies or companies whose securities are registered under the Securities Exchange Act of 1934, as amended, or who file reports under that Act. Each Trustee oversees nine portfolios in the Trust, 42 portfolios in Victory Portfolios and 20 portfolios in Victory Portfolios II, each a registered investment company that, together with the Trust, comprise the Victory Funds Complex. Each Trustee's address is c/o Victory Variable Insurance Funds, 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. Each Trustee has an indefinite term.
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Independent Trustees. | |||||||||||||||||||
David Brooks Adcock, 67 | Trustee | February 2005 | Consultant (since 2006). | Chair and Trustee, Turner Funds (December 2016-December 2017). | |||||||||||||||
Nigel D.T. Andrews, 72 | Vice Chair and Trustee | August 2002 | Retired. | Director, TCG BDC II, Inc. (since 2017); Director, TCG BDC I, Inc. (formerly Carlyle GMS Finance, Inc.) (since 2012); Director, Old Mutual US Asset Management (2002-2014). | |||||||||||||||
E. Lee Beard, 68* | Trustee | February 2005 | Retired (since 2015); Consultant, The Henlee Group, LLC (consulting) (2005-2015). | None. | |||||||||||||||
Dennis M. Bushe, 75 | Trustee | July 2016 | Retired. | Trustee, RS Investment Trust and RS Variable Products Trust (November 2011-July 2016). |
28
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Sally M. Dungan, 65 | Trustee | February 2011 | Chief Investment Officer, Tufts University (since 2002). | None. | |||||||||||||||
John L. Kelly, 66 | Trustee | February 2015 | Partner, McCarvill Capital Partners (September 2016-September 2017); Advisor, Endgate Commodities LLC (January 2016-April 2016); Managing Partner, Endgate Commodities LLC (August 2014-January 2016); Chief Operating Officer, Liquidnet Holdings, Inc. (December 2011- July 2014). | Director, Caledonia Mining Corporation (since May 2012). | |||||||||||||||
David L. Meyer, 62* | Trustee | December 2008 | Retired. | None. | |||||||||||||||
Gloria S. Nelund, 58 | Trustee | July 2016 | Chair, CEO and Co-Founder of TriLinc Global, LLC, an investment firm. | TriLinc Global Impact Fund, LLC (since 2012); Trustee, RS Investment Trust and RS Variable Products Trust (November 2007-July 2016). | |||||||||||||||
Leigh A. Wilson, 74 | Chair and Trustee | February 1998 | Private Investor. | Chair (since 2013), Caledonia Mining Corporation. | |||||||||||||||
Interested Trustee. | |||||||||||||||||||
David C. Brown, 47** | Trustee | May 2008 | Chairman and Chief Executive Officer (since 2013), Co-Chief Executive Officer (2011-2013), the Adviser; Chairman and Chief Executive Officer, Victory Capital Holdings, Inc. (since 2013). | None. |
* The Board has designated Mr. Meyer and Ms. Beard as its Audit Committee Financial Experts.
** Mr. Brown is an "Interested Person" by reason of his relationship with the Adviser.
The Statement of Additional Information includes additional information about the Trustees of the Trust and is available, without charge, by calling 800-539-3863.
29
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Officers:
The officers of the Trust, their ages, commencement of service and their principal occupations during the past five years, are detailed in the following table. Each officer serves until the earlier of his or her resignation, removal, retirement, death, or the election of a successor. The mailing address of each officer of the Trust is 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. The officers of the Trust receive no compensation directly from the Trust for performing the duties of their offices.
Name and Age | Position with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | ||||||||||||
Christopher K. Dyer, 57 | President | February 2006* | Director of Fund Administration, the Adviser. | ||||||||||||
Scott A. Stahorsky, 50 | Vice President | December 2014 | Manager, Fund Administration, the Adviser (since 2015); Senior Analyst, Fund Administration, the Adviser (prior to 2015). | ||||||||||||
Erin G. Wagner, 45 | Secretary | December 2014 | Associate General Counsel, the Adviser (since 2013). | ||||||||||||
Allan Shaer, 54 | Treasurer | May 2017 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc. (since 2016); Vice President, Mutual Fund Administration, JP Morgan Chase (2011-2016). | ||||||||||||
Christopher A. Ponte, 35 | Assistant Treasurer | December 2017 | Manager, Fund Administration, the Adviser (since 2017); Senior Analyst, Fund Administration, the Adviser (prior to 2017); Chief Financial Officer, Victory Capital Advisers, Inc. (since 2018). | ||||||||||||
Colin Kinney, 45 | Chief Compliance Officer | July 2017 | Chief Compliance Officer (since 2013) and Chief Risk Officer (2009-2017), the Adviser. | ||||||||||||
Chuck Booth, 59 | Anti-Money Laundering Compliance Officer and Identity Theft Officer | May 2015 | Director, Regulatory Administration and CCO Support Services, Citi Fund Services Ohio, Inc. | ||||||||||||
Jay G. Baris, 65 | Assistant Secretary | February 1998 | Partner, Shearman & Sterling LLP (since 2018); Partner, Morrison & Foerster LLP (2011- January 2018). |
* On December 3, 2014, Mr. Dyer resigned as Secretary of the Trust and accepted the position of President.
30
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Proxy Voting and Portfolio Holdings Information
Proxy Voting:
Information regarding the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 800-539-3863. The information is also included in the Fund's Statement of Additional Information, which is available on the SEC's website at www.sec.gov.
Information relating to how the Fund voted proxies relating to portfolio securities held during the most recent twelve months ended June 30 is available on the SEC's website at www.sec.gov.
Availability of Schedules of Portfolio Investments:
The Trust files a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-PORT. Prior to the implementation of Form N-PORT, the Trust filed a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-PORT and Forms N-Q are available on the SEC's website at www.sec.gov.
Expense Examples
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2019 through June 30, 2019.
The Actual Expense figures in the table below provide information about actual account values and actual expenses. You may use the information below, 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.
The Hypothetical Expense figures in the table below provide 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 this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 1/1/19 | Actual Ending Account Value 6/30/19 | Hypothetical Ending Account Value 6/30/19 | Actual Expenses Paid During Period 1/1/19-6/30/19* | Hypothetical Expenses Paid During Period 1/1/19-6/30/19* | Annualized Expense Ratio During Period 1/1/19-6/30/19 | ||||||||||||||||||
$ | 1,000.00 | $ | 1,025.30 | $ | 1,022.17 | $ | 2.66 | $ | 2.66 | 0.53 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 181/365 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
31
Privacy Policy
Protecting the Privacy of Information
The Trust respects your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information about investment goals and risk tolerance.
We do not disclose any information about you or about former customers to anyone except as permitted or required by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and printers and mailers that assist us in the distribution of investor materials. We may also disclose this information to companies that perform marketing services on our behalf. This allows us to continue to offer you Victory investment products and services that meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only in connection with the services for which we hired them. They are not permitted to use or share this information for any other purpose.
To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information.*
* You may have received communications regarding information about privacy policies from other financial institutions which gave you the opportunity to "opt-out" of certain information sharing with companies which are not affiliated with that financial institution. The Trust does not share information with other companies for purposes of marketing solicitations for products other than the Trust. Therefore, the Trust does not provide opt-out options to their shareholders.
Victory Funds
P.O. Box 182593
Columbus, Ohio 43218-2593
Visit our website at: | Call Victory at: | ||||||
www.vcm.com | 800-539-FUND (800-539-3863) |
VVIF-RS-ILDBVIP-SAR (6/19)
June 30, 2019
Semi Annual Report
Victory Variable Insurance Funds
Victory RS International VIP Series
Beginning January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports may no longer be sent by mail from the insurance company that issued your variable annuity and variable life insurance contract, unless you specifically request paper copies of the reports from your insurance company. Instead, the reports will be made available on www.victoryfunds.com. The insurance company that offers your contract may also make these reports available on a website, and such insurance company will notify you by mail each time a report is posted and provide you with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the insurance company electronically by following the instructions provided by the insurance company.
If offered by your insurance company, you may elect to receive all future reports in paper and free of charge from the insurance company. You can inform your insurance company that you wish to continue receiving paper copies of your reports. Your election to receive reports in paper will apply to all funds available under your contract.
www.vcm.com
News, Information And Education 24 Hours A Day, 7 Days A Week
The Victory Funds site gives fund shareholders, prospective shareholders, and investment professionals a convenient way to access fund information, get guidance, and track fund performance anywhere they can access the Internet. The site includes:
• Detailed performance records
• Daily share prices
• The latest fund news
• Investment resources to help you become a better investor
• A section dedicated to investment professionals
Whether you're a potential investor searching for the fund that matches your investment philosophy, a seasoned investor interested in planning tools, or an investment professional, www.vcm.com has what you seek. Visit us anytime. We're always open.
Victory Variable Insurance Funds
Table of Contents
Financial Statements | |||||||
Investment Objective & Portfolio Holdings | 3 | ||||||
Schedule of Portfolio Investments | 4 | ||||||
Statement of Assets and Liabilities | 9 | ||||||
Statement of Operations | 10 | ||||||
Statements of Changes in Net Assets | 11 | ||||||
Financial Highlights | 12 | ||||||
Notes to Financial Statements | 14 | ||||||
Supplemental Information | |||||||
Trustee and Officer Information | 23 | ||||||
Proxy Voting and Portfolio Holdings Information | 26 | ||||||
Expense Examples | 26 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Advisers, Inc. Victory Capital Management Inc. is the investment adviser to the Fund and receives fees from the Fund for performing services for the Fund.
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus of the Fund.
For additional information about any Victory Fund, including fees, expenses, and risks, view our prospectus online at www.vcm.com or call 800-539-3863. Read it carefully before you invest or send money.
The information in this semi annual report is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections, or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Past investment performance of the Fund, markets or securities mentioned herein should not be considered to be indicative of future results.
• NOT FDIC INSURED • NO BANK GUARANTEE
• MAY LOSE VALUE
Call Victory at:
800-539-FUND (800-539-3863)
Visit our website at:
www.vcm.com
1
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2
Victory Portfolios | June 30, 2019 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: The Victory RS International VIP Series seeks to provide long-term capital appreciation.
Portfolio Holdings*:
* Percentages are of total investments of the Fund.
3
Victory Variable Insurance Funds Victory RS International VIP Series | Schedule of Portfolio Investments June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Common Stocks (97.7%) | |||||||||||
Australia (6.5%): | |||||||||||
Financials (1.6%): | |||||||||||
Macquarie Group Ltd. | 27,833 | $ | 2,454,523 | ||||||||
Health Care (1.4%): | |||||||||||
CSL Ltd. | 14,105 | 2,135,384 | |||||||||
Materials (1.6%): | |||||||||||
BHP Billiton Ltd. | 85,122 | 2,473,854 | |||||||||
Real Estate (1.9%): | |||||||||||
Scentre Group | 1,073,896 | 2,897,598 | |||||||||
9,961,359 | |||||||||||
Belgium (0.6%): | |||||||||||
Information Technology (0.6%): | |||||||||||
Melexis NV | 12,493 | 844,514 | |||||||||
China (2.1%): | |||||||||||
Communication Services (1.2%): | |||||||||||
Tencent Holdings Ltd. | 39,300 | 1,777,978 | |||||||||
Financials (0.9%): | |||||||||||
China Merchants Bank Co. Ltd., Class H | 293,500 | 1,456,526 | |||||||||
3,234,504 | |||||||||||
Denmark (1.2%): | |||||||||||
Consumer Staples (1.2%): | |||||||||||
Royal Unibrew A/S | 24,357 | 1,781,165 | |||||||||
France (8.5%): | |||||||||||
Consumer Discretionary (3.6%): | |||||||||||
Cie Generale des Etablissements Michelin | 19,275 | 2,436,523 | |||||||||
LVMH Moet Hennessy Louis Vuitton SA | 7,044 | 2,993,802 | |||||||||
5,430,325 | |||||||||||
Energy (1.4%): | |||||||||||
Total SA | 39,152 | 2,195,610 | |||||||||
Financials (1.3%): | |||||||||||
AXA SA | 76,018 | 1,995,842 | |||||||||
Information Technology (1.3%): | |||||||||||
Cap Gemini SA | 15,450 | 1,920,445 | |||||||||
Materials (0.9%): | |||||||||||
Arkema SA | 15,222 | 1,414,734 | |||||||||
12,956,956 | |||||||||||
Germany (8.1%): | |||||||||||
Financials (2.2%): | |||||||||||
Allianz SE | 14,239 | 3,433,211 | |||||||||
Health Care (0.3%): | |||||||||||
Bayer AG | 6,962 | 482,760 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory RS International VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Industrials (2.3%): | |||||||||||
Siemens AG | 18,437 | $ | 2,194,450 | ||||||||
Washtec AG | 18,350 | 1,247,224 | |||||||||
3,441,674 | |||||||||||
Information Technology (1.6%): | |||||||||||
SAP SE | 18,308 | 2,509,221 | |||||||||
Real Estate (1.7%): | |||||||||||
Vonovia SE | 53,578 | 2,558,743 | |||||||||
12,425,609 | |||||||||||
Hong Kong (2.7%): | |||||||||||
Financials (0.9%): | |||||||||||
AIA Group Ltd. | 136,800 | 1,477,347 | |||||||||
Real Estate (1.3%): | |||||||||||
CK Asset Holdings Ltd. | 249,000 | 1,950,760 | |||||||||
Utilities (0.5%): | |||||||||||
HK Electric Investments & HK Electric Investments Ltd. | 749,500 | 767,456 | |||||||||
4,195,563 | |||||||||||
Ireland (1.1%): | |||||||||||
Industrials (1.1%): | |||||||||||
Experian PLC | 53,985 | 1,634,856 | |||||||||
Italy (4.4%): | |||||||||||
Financials (1.1%): | |||||||||||
Banca Generali SpA (a) | 57,734 | 1,661,991 | |||||||||
Health Care (0.8%): | |||||||||||
Recordati SpA | 30,419 | 1,267,542 | |||||||||
Utilities (2.5%): | |||||||||||
Enel SpA | 537,862 | 3,751,010 | |||||||||
6,680,543 | |||||||||||
Japan (20.7%): | |||||||||||
Communication Services (0.7%): | |||||||||||
Nippon Telegraph & Telephone Corp. | 23,800 | 1,108,989 | |||||||||
Consumer Discretionary (4.4%): | |||||||||||
Hikari Tsushin, Inc. | 8,200 | 1,791,675 | |||||||||
Toyota Motor Corp. | 55,100 | 3,420,194 | |||||||||
United Arrows Ltd. | 46,400 | 1,450,864 | |||||||||
6,662,733 | |||||||||||
Consumer Staples (1.8%): | |||||||||||
Ito En Ltd. | 93,300 | 2,065,043 | |||||||||
Matsumotokiyoshi Holdings Co. Ltd. | 24,900 | 731,486 | |||||||||
2,796,529 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory RS International VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Financials (2.5%): | |||||||||||
Jafco Co. Ltd. | 27,000 | $ | 992,078 | ||||||||
Mitsubishi UFJ Financial Group, Inc. | 306,200 | 1,458,626 | |||||||||
Tokio Marine Holdings, Inc. | 27,600 | 1,385,033 | |||||||||
3,835,737 | |||||||||||
Health Care (2.6%): | |||||||||||
Hoya Corp. | 28,000 | 2,152,218 | |||||||||
Shionogi & Co. Ltd. | 30,500 | 1,762,622 | |||||||||
3,914,840 | |||||||||||
Industrials (5.5%): | |||||||||||
EN-Japan, Inc. | 39,600 | 1,550,182 | |||||||||
Fuji Electric Co. Ltd. | 45,500 | 1,577,101 | |||||||||
Hitachi Construction Machinery Co. Ltd. | 48,000 | 1,255,935 | |||||||||
ITOCHU Corp. | 56,400 | 1,080,607 | |||||||||
Kyowa Exeo Corp. | 28,200 | 703,816 | |||||||||
Okuma Corp. | 17,000 | 876,785 | |||||||||
Sanwa Holdings Corp. | 127,100 | 1,370,154 | |||||||||
8,414,580 | |||||||||||
Information Technology (1.5%): | |||||||||||
Fujitsu Ltd. | 12,800 | 894,669 | |||||||||
Oracle Corp. Japan | 11,900 | 871,395 | |||||||||
Ulvac, Inc. | 16,500 | 525,813 | |||||||||
2,291,877 | |||||||||||
Materials (0.3%): | |||||||||||
DIC Corp. | 17,700 | 468,741 | |||||||||
Real Estate (0.5%): | |||||||||||
Sumitomo Realty & Development | 19,500 | 697,705 | |||||||||
Utilities (0.9%): | |||||||||||
Chubu Electric Power Co., Inc. | 96,600 | 1,357,162 | |||||||||
31,548,893 | |||||||||||
Macau (0.9%): | |||||||||||
Consumer Discretionary (0.9%): | |||||||||||
Wynn Macau Ltd. | 641,600 | 1,436,371 | |||||||||
Netherlands (5.1%): | |||||||||||
Communication Services (1.8%): | |||||||||||
Koninklijke KPN NV | 888,238 | 2,726,887 | |||||||||
Financials (1.4%): | |||||||||||
ING Groep NV | 183,815 | 2,128,710 | |||||||||
Industrials (1.9%): | |||||||||||
Wolters Kluwer NV | 40,323 | 2,932,784 | |||||||||
7,788,381 | |||||||||||
Norway (2.1%): | |||||||||||
Energy (0.7%): | |||||||||||
Aker BP ASA | 38,702 | 1,116,677 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory RS International VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Financials (1.4%): | |||||||||||
SpareBank 1 SMN | 184,590 | $ | 2,116,452 | ||||||||
3,233,129 | |||||||||||
Russian Federation (0.7%): | |||||||||||
Materials (0.7%): | |||||||||||
Evraz PLC | 120,690 | 1,021,720 | |||||||||
Spain (2.4%): | |||||||||||
Communication Services (1.4%): | |||||||||||
Telefonica SA | 266,786 | 2,193,289 | |||||||||
Financials (1.0%): | |||||||||||
Banco Santander SA | 313,279 | 1,451,560 | |||||||||
3,644,849 | |||||||||||
Sweden (2.5%): | |||||||||||
Industrials (2.5%): | |||||||||||
Atlas Copco AB, Class B | 99,233 | 2,854,267 | |||||||||
Epiroc AB, Class B | 96,162 | 954,301 | |||||||||
3,808,568 | |||||||||||
Switzerland (11.3%): | |||||||||||
Consumer Staples (3.7%): | |||||||||||
Nestle SA, Registered Shares | 54,086 | 5,601,399 | |||||||||
Financials (2.3%): | |||||||||||
Cembra Money Bank AG | 12,726 | 1,228,584 | |||||||||
UBS Group AG, Registered Shares | 185,658 | 2,207,496 | |||||||||
3,436,080 | |||||||||||
Health Care (5.3%): | |||||||||||
Novartis AG | 39,819 | 3,636,637 | |||||||||
Roche Holding AG | 16,030 | 4,509,289 | |||||||||
8,145,926 | |||||||||||
17,183,405 | |||||||||||
United Kingdom (16.8%): | |||||||||||
Consumer Discretionary (0.9%): | |||||||||||
Next PLC | 19,437 | 1,360,841 | |||||||||
Consumer Staples (4.2%): | |||||||||||
Britvic PLC | 124,468 | 1,404,033 | |||||||||
Diageo PLC | 58,572 | 2,520,452 | |||||||||
Unilever PLC | 41,073 | 2,549,109 | |||||||||
6,473,594 | |||||||||||
Energy (3.4%): | |||||||||||
BP PLC | 281,374 | 1,959,876 | |||||||||
Royal Dutch Shell PLC, Class A | 97,808 | 3,191,580 | |||||||||
5,151,456 |
See notes to financial statements.
7
Victory Variable Insurance Funds Victory RS International VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Financials (3.6%): | |||||||||||
Close Brothers Group PLC | 55,012 | $ | 987,146 | ||||||||
HSBC Holdings PLC | 252,385 | 2,106,051 | |||||||||
Legal & General Group PLC | 692,849 | 2,373,237 | |||||||||
5,466,434 | |||||||||||
Health Care (1.2%): | |||||||||||
Smith & Nephew PLC | 82,353 | 1,787,907 | |||||||||
Industrials (1.1%): | |||||||||||
RELX PLC | 67,534 | 1,637,674 | |||||||||
Materials (2.4%): | |||||||||||
Croda International PLC | 12,071 | 785,017 | |||||||||
Rio Tinto PLC | 47,518 | 2,940,449 | |||||||||
3,725,466 | |||||||||||
25,603,372 | |||||||||||
Total Common Stocks (Cost $127,967,289) | 148,983,757 | ||||||||||
Exchange-Traded Funds (1.0%) | |||||||||||
United States (1.0%): | |||||||||||
iShares MSCI EAFE ETF | 23,059 | 1,515,668 | |||||||||
Total Exchange-Traded Funds (Cost $1,509,212) | 1,515,668 | ||||||||||
Collateral for Securities Loaned^ (0.0%) (b) | |||||||||||
United States (0.0%): (b) | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 2.43% (c) | 10,170 | 10,170 | |||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 2.28% (c) | 13,100 | 13,100 | |||||||||
Fidelity Investments Prime Money Market Portfolio, Class I, 2.39% (c) | 340 | 340 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 2.48% (c) | 5,593 | 5,593 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 2.41% (c) | 7,626 | 7,626 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 2.42% (c) | 11,863 | 11,863 | |||||||||
Total Collateral for Securities Loaned (Cost $48,692) | 48,692 | ||||||||||
Total Investments (Cost $129,525,193) — 98.7% | 150,548,117 | ||||||||||
Other assets in excess of liabilities — 1.3% | 1,918,376 | ||||||||||
NET ASSETS — 100.00% | $ | 152,466,493 |
^ Purchased with cash collateral from securities on loan.
(a) All or a portion of this security is on loan.
(b) Amount represents less than 0.05% of net assets.
(c) Rate disclosed is the daily yield on June 30, 2019.
ETF — Exchange-Traded Fund
PLC — Public Limited Company
See notes to financial statements.
8
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2019 |
(Unaudited)
Victory RS International VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $129,525,193) | $ | 150,548,117 | (a) | ||||
Foreign currency, at value (Cost $71,316) | 72,832 | ||||||
Cash and cash equivalents | 2,238,642 | ||||||
Interest and dividends receivable | 197,487 | ||||||
Receivable for capital shares issued | 1,364 | ||||||
Receivable for investments sold | 617,537 | ||||||
Reclaims receivable | 619,227 | ||||||
Receivable from Adviser | 3,530 | ||||||
Prepaid expenses | 4,518 | ||||||
Total Assets | 154,303,254 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 48,692 | ||||||
Investments purchased | 1,592,500 | ||||||
Capital shares redeemed | 57,456 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 98,848 | ||||||
Administration fees | 7,582 | ||||||
Custodian fees | 4,555 | ||||||
Transfer agent fees | 50 | ||||||
Chief Compliance Officer fees | 204 | ||||||
Other accrued expenses | 26,874 | ||||||
Total Liabilities | 1,836,761 | ||||||
NET ASSETS: | |||||||
Capital | 117,613,751 | ||||||
Total distributable earnings/(loss) | 34,852,742 | ||||||
Net Assets | $ | 152,466,493 | |||||
Shares Outstanding (unlimited shares authorized, with a par value of $0.001 per share): | 8,493,862 | ||||||
Net asset value: | $ | 17.95 |
(a) Includes $46,030 of securities on loan.
See notes to financial statements.
9
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2019 |
(Unaudited)
Victory RS International VIP Series | |||||||
Investment Income: | |||||||
Dividends | $ | 3,922,893 | |||||
Interest | 12,273 | ||||||
Securities lending (net of fees) | 21,067 | ||||||
Foreign tax withholding | (445,381 | ) | |||||
Total Income | 3,510,852 | ||||||
Expenses: | |||||||
Investment advisory fees | 599,115 | ||||||
Administration fees | 47,320 | ||||||
Custodian fees | 14,651 | ||||||
Transfer agent fees | 176 | ||||||
Trustees' fees | 6,554 | ||||||
Chief Compliance Officer fees | 523 | ||||||
Legal and audit fees | 11,311 | ||||||
Other expenses | 26,866 | ||||||
Total Expenses | 706,516 | ||||||
Expenses waived/reimbursed by Adviser | (9,793 | ) | |||||
Net Expenses | 696,723 | ||||||
Net Investment Income (Loss) | 2,814,129 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities and foreign currency translations | 1,711,198 | ||||||
Net change in unrealized appreciation/depreciation on investment securities and foreign currency translations | 17,654,767 | ||||||
Net realized/unrealized gains (losses) on investments | 19,365,965 | ||||||
Change in net assets resulting from operations | $ | 22,180,094 |
See notes to financial statements.
10
Victory Variable Insurance Funds | Statements of Changes in Net Assets |
Victory RS International VIP Series | |||||||||||
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | ||||||||||
(Unaudited) | |||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 2,814,129 | $ | 3,661,623 | |||||||
Net realized gains (losses) from investments | 1,711,198 | 9,269,743 | |||||||||
Net change in unrealized appreciation/depreciation on investments | 17,654,767 | (30,264,562 | ) | ||||||||
Change in net assets resulting from operations | 22,180,094 | (17,333,196 | ) | ||||||||
Change in net assets resulting from distributions to shareholders | — | (2,621,141 | ) | ||||||||
Change in net assets resulting from capital transactions | (12,237,132 | ) | (19,040,351 | ) | |||||||
Change in net assets | 9,942,962 | (38,994,688 | ) | ||||||||
Net Assets: | |||||||||||
Beginning of period | 142,523,531 | 181,518,219 | |||||||||
End of period | $ | 152,466,493 | $ | 142,523,531 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 527,530 | $ | 6,913,816 | |||||||
Distributions reinvested | — | 2,621,141 | |||||||||
Cost of shares redeemed | (12,764,662 | ) | (28,575,308 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (12,237,132 | ) | $ | (19,040,351 | ) | |||||
Share Transactions: | |||||||||||
Issued | 30,617 | 400,845 | |||||||||
Reinvested | — | 169,597 | |||||||||
Redeemed | (747,811 | ) | (1,650,290 | ) | |||||||
Change in Shares | (717,194 | ) | (1,079,848 | ) |
See notes to financial statements.
11
Victory Variable Insurance Funds | Financial Highlights |
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholder From | ||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gains (Losses) on Investments | Total from Investment Activities | Net Investment Income | Net Realized Gains from Investments | Total Distributions | Capital contributions from prior custodian, Net (See Note 8) | ||||||||||||||||||||||||||||
Victory RS International VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended 6/30/19 (unaudited) | $ | 15.47 | 0.32 | (d) | 2.16 | 2.48 | — | — | — | — | |||||||||||||||||||||||||
Year Ended 12/31/18 | $ | 17.64 | 0.38 | (d) | (2.26 | ) | (1.88 | ) | (0.15 | ) | (0.14 | ) | (0.29 | ) | — | ||||||||||||||||||||
Year Ended 12/31/17 | $ | 14.31 | 0.31 | (d) | 3.36 | 3.67 | (0.34 | ) | — | (0.34 | ) | — | |||||||||||||||||||||||
Year Ended 12/31/16 | $ | 14.39 | 0.30 | (d) | (0.10 | ) | 0.20 | (0.31 | ) | — | (0.31 | ) | 0.03 | ||||||||||||||||||||||
Year Ended 12/31/15 | $ | 14.63 | 0.31 | (d) | (0.19 | ) | 0.12 | (0.32 | ) | (0.04 | ) | (0.36 | ) | — | |||||||||||||||||||||
Year Ended 12/31/14 | $ | 17.26 | 0.39 | (1.30 | ) | (0.91 | ) | (0.35 | ) | (1.37 | ) | (1.72 | ) | — |
(a) Not annualized for periods less than one year.
(b) Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(c) Annualized for periods less than one year.
(d) Per share net investment income (loss) has been calculated using the average daily shares method.
(e) The Fund received monies related to a nonrecurring refund from the prior Custodian. The corresponding impact to the total return was 0.23% for the period shown. (See Note 8)
(f) During the period, certain fees were reduced and/or reimbursed. If such fee reductions and/or reimbursements had not occurred, the ratios would have been as indicated.
See notes to financial statements.
12
For a Share Outstanding Throughout Each Period
Victory Variable Insurance Funds | Financial Highlights — continued |
Ratios to Average Net Assets | Supplemental Data | ||||||||||||||||||||||||||||||
Net Asset Value, End of Period | Total Return(a)(b) | Net Expenses(c) | Net Investment Income (Loss)(c) | Gross Expenses(c) | Net Assets, End of Period (000's) | Portfolio Turnover(a) | |||||||||||||||||||||||||
Victory RS International VIP Series | |||||||||||||||||||||||||||||||
Six Months Ended 6/30/19 (unaudited) | $ | 17.95 | 16.03 | % | 0.93 | % | 3.76 | % | 0.94 | %(f) | $ | 152,466 | 16 | % | |||||||||||||||||
Year Ended 12/31/18 | $ | 15.47 | (10.66 | )% | 0.93 | % | 2.20 | % | 0.94 | %(f) | $ | 142,524 | 44 | % | |||||||||||||||||
Year Ended 12/31/17 | $ | 17.64 | 25.68 | % | 0.93 | % | 1.93 | % | 0.95 | %(f) | $ | 181,518 | 57 | % | |||||||||||||||||
Year Ended 12/31/16 | $ | 14.31 | 1.60 | %(e) | 0.90 | % | 2.13 | % | 0.90 | % | $ | 175,026 | 110 | % | |||||||||||||||||
Year Ended 12/31/15 | $ | 14.39 | 0.84 | % | 0.92 | % | 2.00 | % | 0.92 | % | $ | 185,028 | 117 | % | |||||||||||||||||
Year Ended 12/31/14 | $ | 14.63 | (5.30 | )% | 0.92 | % | 2.23 | % | 0.92 | % | $ | 203,530 | 193 | % |
See notes to financial statements.
13
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2019 |
(Unaudited)
1. Organization:
Victory Variable Insurance Funds (the "Trust") was organized on February 11, 1998 as a Delaware statutory trust. The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end investment company. The Trust is comprised of nine funds and is authorized to issue an unlimited number of shares, which are units of beneficial interest with a par value of $0.001 per share.
The accompanying financial statements are those of the Victory RS International VIP Series (the "Fund"). The Fund offers a single class of shares: Class I Shares. Sales of shares of the Fund may only be made to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. ("GIAC") that fund certain variable annuity and variable life insurance contracts issued by GIAC. GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America ("Guardian Life").
Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. The Fund follows the specialized accounting and reporting requirements under GAAP that are applicable to investment companies.
Investment Valuation:
The Fund records investments at fair value. Fair value is defined 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.
The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund's investments are summarized in the three broad levels listed below:
• Level 1 — quoted prices in active markets for identical securities
• Level 2 — other significant observable inputs (including quoted prices for similar securities or interest rates applicable to those securities, etc.)
• Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The inputs or methodologies used for valuation techniques are not necessarily an indication of the risk associated with entering into those investments.
Portfolio securities listed or traded on securities exchanges, including exchange-traded funds ("ETFs"), American Depositary Receipts ("ADRs") and Rights, are valued at the closing price on the exchange or system where the security is principally traded, if available, or at the Nasdaq Official Closing Price. If there have been no sales for that day on the exchange or system, then a security is valued at the last available bid quotation on the exchange or system where the security is principally traded. In each of these situations, valuations are typically categorized as Level 1 in the fair value hierarchy.
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Investments in open-end investment companies are valued at net asset value. These valuations are typically categorized as Level 1 in the fair value hierarchy.
Investments for which there are no such quotations, or for which quotations do not appear reliable, are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Trust's Board of Trustees (the "Board"). These valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based on the observability of inputs used to determine the fair value.
In accordance with procedures adopted by the Board, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time the exchange on which they are traded closes and the time the Fund's net asset value is calculated. The Fund uses a systematic valuation model, provided daily by an independent third party to fair value their international equity securities. These valuations are considered as Level 2 in the fair value hierarchy.
A summary of the valuations as of June 30, 2019, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed in the Schedule of Portfolio Investments:
LEVEL 1 — Quoted Prices | LEVEL 2 — Other Significant Observable Inputs | Total | |||||||||||||
Investments in Securities | Investments in Securities | Investments in Securities | |||||||||||||
Common Stocks | $ | — | $ | 148,983,757 | $ | 148,983,757 | |||||||||
Exchange-Traded Funds | 1,515,668 | — | 1,515,668 | ||||||||||||
Collateral for Securities Loaned | 48,692 | — | 48,692 | ||||||||||||
Total | $ | 1,564,360 | $ | 148,983,757 | $ | 150,548,117 |
For the six months ended June 30, 2019, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
Investment Companies:
The Fund may invest in ETFs. ETFs are a type of index fund, the shares of which are bought and sold on a securities exchange. An ETF trades like a common stock and represents a fixed portfolio of securities designed to track the performance and dividend yield of a particular domestic or foreign market index. The Fund may purchase shares of an ETF to temporarily gain exposure to a portion of the U.S. or a foreign market whie awaiting purchase of underlying securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities they are designed to track, although the lack of liquidity of an ETF could result in it being more volatile. Additionally, ETFs have fees and expenses that reduce their value.
Foreign Exchange Currency Contracts:
The Fund may enter into foreign exchange currency contracts to convert U.S. dollars to and from various foreign currencies. A foreign exchange currency contract is an obligation by the Fund to purchase or sell a specific currency at a future date at a price (in U.S. dollars) set at the time of the contract. The Fund does not engage in "cross-currency" foreign exchange contracts (i.e., contracts to purchase or sell one foreign currency in exchange for another foreign currency). The Fund's foreign exchange currency contracts might be considered spot contracts (typically a contract of one week or less) or forward contracts (typically a contract term over one week). A spot contract is entered into for purposes of hedging against foreign currency fluctuations relating to a specific portfolio transaction, such as the delay between a security transaction trade date and settlement date. Forward contracts are entered into for purposes of hedging portfolio holdings or concentrations of such holdings. The Fund enters into foreign exchange currency contracts solely for spot or forward hedging purposes,
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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and not for speculative purposes (i.e., the Fund does not enter into such contracts solely for the purpose of earning foreign currency gains). Each foreign exchange currency contract is adjusted daily by the prevailing spot or forward rate of the underlying currency, and any appreciation or depreciation is recorded for financial statement purposes as unrealized until the contract settlement date, at which time the Fund records realized gains or losses equal to the difference between the value of a contract at the time it was opened and the value at the time it was closed. The Fund could be exposed to risk if a counterparty is unable to meet the terms of a foreign exchange currency contract or if the value of the foreign currency changes unfavorably. In addition, the use of foreign exchange currency contracts does not eliminate fluctuations in the underlying prices of the securities. As of June 30, 2019, the Fund had no open forward foreign exchange currency contracts.
Investment Transactions and Related Income:
Changes in holdings of investments are accounted for no later than one business day following the trade date. For financial reporting purposes, however, investment transactions are accounted for on trade date on the last business day of the reporting period. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date. Gains or losses realized on sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds.
Withholding taxes on interest, dividends and gains as a result of certain investments in ADRs by the Fund have been provided for in accordance with each investment's applicable country's tax rules and rates.
Securities Lending:
The Trust has entered into a Master Securities Lending Agreement ("MSLA") with Citibank, N.A. ("Citibank" or the "Agent"). Under the terms of the MSLA, the Fund may lend securities to certain broker-dealers and banks in exchange for collateral in the amount of at least 102% of the value of U.S. securities loaned or at least 105% of the value of non-U.S. securities loaned, marked-to-market daily. Any collateral shortfalls associated with increases in the valuation of the securities loaned are adjusted the next business day. The collateral can be received in the form of cash collateral and/or non-cash collateral. Non-cash collateral can include U.S. Government Securities, letters of credit and certificates of deposit. The cash collateral is invested in short-term instruments or cash equivalents as noted on the Fund's Schedule of Portfolio Investments. The Trust does not have effective control of the non-cash collateral and therefore it is not disclosed in the Fund's Schedule of Portfolio Investments. The Fund continues to benefit from interest or dividends on the securities loaned and may also earn a return from the collateral. The Fund pays various fees in connection with the investment of cash collateral. The Fund pays the Agent fees based on the investment income received from securities lending activities. Securities lending income is disclosed in the Fund's Statement of Operations. Although risk is mitigated by the collateral, the Fund could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them.
Securities lending transactions are entered into by the Fund under the MSLA, which permits the Fund, under certain circumstances such as an event of default, to offset amounts payable by the Fund to the same counterparty against amounts receivable from the counterparty to create a net payment due to or from the Fund.
The following table is a summary of the Fund's securities lending transactions which are subject to offset under the MSLA as of June 30, 2019. These transactions are accounted for as secured borrowings with an overnight and continuous contractual maturity for cash collateral, and greater than overnight and continuous contractual maturity for non-cash collateral.
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Gross Amount of Recognized Assets (Value of | Value of Cash | Value of Non-cash Collateral Received by Maturity | |||||||||||||||||||||
Securities on Loan) | Collateral Received* | <30 Days | Between 30 & 90 Days | >90 Days | Net Amount | ||||||||||||||||||
$ | 46,030 | $ | 46,030 | $ | — | $ | — | $ | — | $ | — |
* Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by the Fund is disclosed in the Statement of Assets and Liabilities.
Foreign Currency Translations:
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities of the Fund denominated in a foreign currency are translated into U.S. dollars at current exchange rates. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars at the exchange rates on the date of the transactions. The Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are disclosed as net change in unrealized appreciation/depreciation on investments and foreign currency translations on the Statement of Operations. Any realized gains or losses from these fluctuations are disclosed as net realized gains or losses from investments and foreign currency translations on the Statement of Operations.
Foreign Taxes:
The Fund may be subject to foreign taxes related to foreign income received (a portion of which may be reclaimable), capital gains on the sale of securities, and certain foreign currency transactions. All foreign taxes are recorded in accordance with the applicable regulations and rates that exist in the foreign jurisdictions in which the Fund invests.
Dividends to Shareholders:
Dividends from net investment income, if any, are declared and paid annually by the Fund. Distributable net realized gains, if any, are declared and distributed at least annually.
The amounts of dividends from net investment income and distributions from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these "book/tax" differences are permanent in nature (e.g., net operating loss and distribution reclassification), such amounts are reclassified within the components of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales) do not require reclassification. To the extent dividends and distributions exceed net investment income and net realized gains for tax purposes, they are reported as distributions of capital. Net investment losses incurred by the Fund may be reclassified as an offset to capital on the accompanying Statement of Assets and Liabilities.
Federal Income Taxes:
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes is required in the financial statements. The Fund has a tax year end of December 31.
Management of the Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
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Allocations:
Expenses directly attributable to the Fund are charged to the Fund, while expenses which are attributable to more than one fund in the Trust, or jointly with an affiliated trust, are allocated among the respective funds in the Trust and/or affiliated trust based upon net assets or another appropriate basis.
Affiliated Securities Transactions:
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Adviser and any applicable sub-adviser. Any such purchase or sale transaction must be effected without brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security's last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. For the six months ended June 30, 2019, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding securities maturing less than one year from acquisition) for the six months ended June 30, 2019 were as follows for the Fund:
Purchases | Sales | ||||||
$ | 23,835,229 | $ | 33,602,861 |
For the six months ended June 30, 2019, there were no purchases or sales of U.S. Government Securities.
4. Fees and Transactions with Affiliates and Related Parties:
Investment advisory services are provided to the Fund by Victory Capital Management Inc. ("VCM" or the "Adviser"), a New York corporation registered as an investment adviser with the Securities and Exchange Commission ("SEC"). The Adviser is a wholly-owned indirect subsidiary of Victory Capital Holdings, Inc., a publicly traded Delaware corporation, and a wholly-owned direct subsidiary of Victory Capital Operating, LLC.
Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive 0.80% of the average daily net assets of the Fund. The Adviser may use its resources to assist with the Fund's distribution and marketing expenses.
VCM also serves as the Fund's administrator and fund accountant. Under an Administration and Fund Accounting Agreement, VCM is paid for its services an annual fee at a rate of 0.08% of the first $15 billion in average daily net assets of the Trust, Victory Portfolios and Victory Portfolios II (collectively, the "Victory Funds Complex"), 0.05% of the average daily net assets above $15 billion to $30 billion of the Victory Funds Complex and 0.04% of the average daily net assets over $30 billion of the Victory Funds Complex.
Citi Fund Services Ohio, Inc. ("Citi"), an affiliate of Citibank, N.A., acts as sub-administrator and sub-fund accountant to the Fund pursuant to a Sub-Administration and Sub-Fund Accounting Services Agreement between VCM and Citi. VCM pays Citi a fee for providing these services. The Trust reimburses VCM and Citi for all of their reasonable out-of-pocket expenses incurred in providing these services.
FIS Investor Services, LLC ("FIS") serves as the Fund's transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Chief Compliance Officer ("CCO") is an employee of the Adviser, which pays the compensation of the CCO and his support staff. The Trust has entered into an Agreement to provide compliance services with the Adviser, pursuant to which the Adviser furnishes its compliance personnel, including the services of the CCO, and other resources reasonably necessary to provide the Trust with compliance oversight services related to the design, administration and oversight of a compliance program for the
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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Trust in accordance with Rule 38a-1 under the 1940 Act. The funds in the Victory Funds Complex, in the aggregate, compensate the Adviser for these services.
The Victory Funds Complex pays an annual retainer to each Independent Trustee, plus an additional annual retainer to the Chairman of the Board. The aggregate amount of the fees and expenses of the Independent Trustees are allocated amongst all the funds in the Victory Funds Complex and are presented in the Statement of Operations.
Shearman & Sterling LLP provides legal services to the Trust.
Victory Capital Advisers, Inc. (the "Distributor"), an affiliate of the Adviser, serves as distributor for the continuous offering of the shares of the Fund pursuant to a Distribution Agreement between the Distributor and the Trust.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2020. Under the terms of the agreement, the Adviser has agreed to waive fees or reimburse certain expenses to the extent that ordinary operating expenses incurred by the Fund in any fiscal year exceed the expense limit for the Fund. Such excess amounts will be the liability of the Adviser. Interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with GAAP, and other extraordinary expenses not incurred in the ordinary course of a Fund's business are excluded from the expense limits. For the six months ended June 30, 2019, the expense limit (excluding voluntary waivers) is 0.93%.
The Fund has agreed to repay fees and expenses that were waived or reimbursed by the Adviser for a period up to three fiscal years after such waiver or reimbursement was made to the extent such payments or repayments would not cause the expenses of a class to exceed the original expense limitation in place at time of the waiver or reimbursement or any expense limitation agreement in place at the time of repayment. As of June 30, 2019, the following amounts are available to be repaid to the Adviser. Amounts repaid to the Adviser during the six months ended, if any, are reflected on the Statement of Operations as "Recoupment of prior expenses waived/reimbursed by Adviser".
Expires 12/31/2020 | Expires 12/31/2021 | Expires 12/31/2022 | |||||||||
$ | 39,115 | $ | 15,196 | $ | 9,793 |
The Adviser may voluntarily waive or reimburse additional fees to assist the Fund in maintaining a competitive expense ratio. Voluntary waivers and reimbursements applicable to the Fund are not available to be recouped at a future time. There were no voluntary waivers or reimbursements for the six months ended June 30, 2019.
Certain officers and/or interested trustees of the Fund are also officers and/or employees of the Adviser, Administrator, Fund Accountant, Sub-Administrator, Sub-Fund Accountant and Legal Counsel.
5. Risks:
The Fund may be subject to other risks in addition to these identified risks.
An investment in the Fund's shares represents an indirect investment in the securities owned by the Fund, some of which will be traded on a national securities exchange or in the over-the-counter markets. The value of the securities in which the Fund invests, like other market investments, may move up or down, sometimes rapidly and unpredictably. The value of the securities in which the Fund invests may affect the value of the Fund's shares. An investment in the Fund's shares at any point in time may be worth less than the original investment, even after taking into account the reinvestment of the Fund's distributions.
The Fund will be subject to foreign securities risk. Foreign securities are (including ADRs and other depository receipts) are subject to political, regulatory, and economic risks not present in domestic investments. In addition, when the Fund buys securities denominated in a foreign currency, there are special risks such as changes in currency exchange rates and the risk that a foreign government could regulate foreign exchange transactions. In addition, to the extent investments are made in a limited number of countries, events in those countries will have a more significant impact on the Fund.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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The Fund will be subject to emerging market risk. Risk of investment in emerging markets include greater political and economic instability, greater volatility in currency exchange rates, less developed securities markets, possible trade barriers, currency transfer restrictions, a more limited number of potential buyers and issuers, an emerging market country's dependence on revenue from particular commodities or international aid, less governmental supervision and regulation, unavailability of currency hedging techniques, differences in auditing and financial reporting standards and less developed legal systems.
The Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties for financial instruments entered into by the Fund. The Fund may be negatively impacted 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 bankruptcy or other reorganization proceeding and the Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund typically enters into transactions with counterparties whose credit ratings are investment grade, as determined by a nationally recognized statistical rating organization or, if unrated, judged by the Adviser to be of comparable quality.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2019, the Victory Funds Complex participated in a short-term, demand note "Line of Credit" agreement with Citibank. Under the agreement with Citibank, the Victory Funds Complex may have borrowed up to $250 million, of which $100 million was committed and $150 million was uncommitted. This agreement was in effect through July 26, 2019. Effective July 1, 2019, the current agreement was amended to include the USAA Mutual Funds Complex and has a new termination date of June 29, 2020. Under this amended agreement, the Victory Funds Complex and USAA Funds Complex, combined, may borrow up to $600 million, of which $300 million is committed and $300 million is uncommitted. $40 million of the Line of Credit is reserved for use by the Victory Floating Rate Fund, another series of the Victory Funds Complex, with that Fund paying the related commitment fees for that amount. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. With the agreement in affect for the six months ended June 30, 2019, Citibank received an annual commitment fee of 0.15% on $100 million for providing the Line of Credit. For the six months ended June 30, 2019, Citibank earned approximately $76 thousand in commitment fees from the Victory Funds Complex. Effective July 1, 2019, Citibank receives an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest on amounts borrowed, including the USAA Funds Complex, commencing July 1, 2019. Interest charged to the Fund during the period is presented on the Statement of Operations under line of credit fees.
The Fund did not utilize the Line of Credit during the six months ended June 30, 2019.
Interfund Lending:
The Trust and Adviser rely on an exemptive order granted by the SEC in March 2017 (the "Order"), permitting the establishment and operation of an Interfund Lending Facility (the "Facility"). The Facility allows the Fund to directly lend and borrow money to or from any other Victory Fund relying upon the Order at rates beneficial to both the borrowing and lending funds. Advances under the Facility are allowed for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities, and are subject to each Fund's borrowing restrictions. The interfund loan rate is determined, as specified in the Order, by averaging the current repurchase agreement rate and the current bank loan rate. As a Borrower, interest charged to the Fund during the period is presented on the Statement of Operations under interfund lending fees. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Income on interfund lending.
The Fund did not utilize the Facility during the six months ended June 30, 2019.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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7. Federal Income Tax Information:
The tax character of current year distributions paid and the tax basis of the current components of accumulated earnings (deficit) will be determined at the end of the current tax year ending December 31, 2019.
The tax character of distributions paid during the most recent tax year ended December 31, 2018 was as follows (total distributions paid may differ from the Statement of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid).
Distributions paid from | |||||||||||||||
Ordinary Income | Net Long-Term Capital Gains | Total Distributions Paid | |||||||||||||
$ | 1,384,165 | $ | 1,236,976 | $ | 2,621,141 |
As of the most recent tax year ended December 31, 2018, the components of accumulated earnings (deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Unrealized Appreciation (Depreciation)* | Total Accumulated Earnings (Deficit) | |||||||||||||||
$ | 3,274,057 | $ | 8,853,691 | $ | 12,127,748 | $ | 544,900 | $ | 12,672,648 |
* The difference between the book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to tax deferral of losses on wash sales.
During the most recent tax year ended December 31, 2018, the Fund did not utilize any capital loss carryforwards.
At June 30, 2019, the cost basis for federal income tax purposes, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) for investments were as follows:
Cost of Investments for Federal Tax Purposes | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||||||||||
$ | 133,103,060 | $ | 25,272,970 | $ | (7,827,913 | ) | $ | 17,445,057 |
8. Capital Contribution from Prior Custodian:
During 2016, the Fund received notification from the Fund's prior custodian, State Street Bank and Trust ("State Street"), concerning issues related to billing on certain categories of expenses during the approximately 16-year period from 1998 through October 31, 2014. The over-billing primarily related to categories of expenses that involved an allocation of general costs among multiple clients.
State Street paid the refunded amounts during January 2017. Based on billing information received during 2016 from State Street and an analysis of any expense limitation agreements that were in place during the period of the activities in question, including the application of any recoupment provisions in such agreements, the Adviser received a portion of the refund.
The portion of the refund retained by the Fund was accounted for as a capital contribution and is reflected on the Financial Highlights as "Capital Contribution from Prior Custodian, Net".
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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9. Fund Ownership:
Ownership of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2(a)(9) of the 1940 Act. As of June 30, 2019, the shareholders listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund.
Shareholder | Percent | ||||||
The Guardian Insurance & Annuity Company, Inc. | 99.8 | % |
10. Recent Accounting Pronouncements:
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-13, "Fair Value Measurements" ("ASU 2018-13"). This update makes certain removals from, changes to and additions to existing disclosure requirements for fair value measurements. ASU 2018-13 does not change fair value measurements already required or permitted by existing standards. ASU 2018-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As permitted, the Fund has early adopted ASU 2018-13 with the financial statements prepared as of June 30, 2019.
11. Subsequent Events:
The Fund has evaluated the need for additional disclosures or adjustments resulting from subsequent events through the date these financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have a material impact on the Fund's financial statements.
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Victory Variable Insurance Funds | Supplemental Information June 30, 2019 |
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Trustee and Officer Information
Board of Trustees:
Overall responsibility for management of the Trust rests with the Board. The Trust is managed by the Board in accordance with the laws of the State of Delaware. There are currently ten Trustees, nine of whom are not "interested persons" of the Trust within the meaning of that term under the 1940 Act ("Independent Trustees") and one of whom is an "interested person" of the Trust within the meaning of that term under the 1940 Act ("Interested Trustee"). The Trustees, in turn, elect the officers of the Trust to actively supervise its day-to-day operations.
The following tables list the Trustees, their ages, position with the Trust, commencement of service, principal occupations during the past five years and any directorships of other investment companies or companies whose securities are registered under the Securities Exchange Act of 1934, as amended, or who file reports under that Act. Each Trustee oversees nine portfolios in the Trust, 42 portfolios in Victory Portfolios and 20 portfolios in Victory Portfolios II, each a registered investment company that, together with the Trust, comprise the Victory Funds Complex. Each Trustee's address is c/o Victory Variable Insurance Funds, 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. Each Trustee has an indefinite term.
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Independent Trustees. | |||||||||||||||||||
David Brooks Adcock, 67 | Trustee | February 2005 | Consultant (since 2006). | Chair and Trustee, Turner Funds (December 2016-December 2017). | |||||||||||||||
Nigel D.T. Andrews, 72 | Vice Chair and Trustee | August 2002 | Retired. | Director, TCG BDC II, Inc. (since 2017); Director, TCG BDC I, Inc. (formerly Carlyle GMS Finance, Inc.) (since 2012); Director, Old Mutual US Asset Management (2002-2014). | |||||||||||||||
E. Lee Beard, 68* | Trustee | February 2005 | Retired (since 2015); Consultant, The Henlee Group, LLC (consulting) (2005-2015). | None. | |||||||||||||||
Dennis M. Bushe, 75 | Trustee | July 2016 | Retired. | Trustee, RS Investment Trust and RS Variable Products Trust (November 2011-July 2016). |
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Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
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Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Sally M. Dungan, 65 | Trustee | February 2011 | Chief Investment Officer, Tufts University (since 2002). | None. | |||||||||||||||
John L. Kelly, 66 | Trustee | February 2015 | Partner, McCarvill Capital Partners (September 2016-September 2017); Advisor, Endgate Commodities LLC (January 2016-April 2016); Managing Partner, Endgate Commodities LLC (August 2014-January 2016); Chief Operating Officer, Liquidnet Holdings, Inc. (December 2011- July 2014). | Director, Caledonia Mining Corporation (since May 2012). | |||||||||||||||
David L. Meyer, 62* | Trustee | December 2008 | Retired. | None. | |||||||||||||||
Gloria S. Nelund, 58 | Trustee | July 2016 | Chair, CEO and Co-Founder of TriLinc Global, LLC, an investment firm. | TriLinc Global Impact Fund, LLC (since 2012); Trustee, RS Investment Trust and RS Variable Products Trust (November 2007-July 2016). | |||||||||||||||
Leigh A. Wilson, 74 | Chair and Trustee | February 1998 | Private Investor. | Chair (since 2013), Caledonia Mining Corporation. | |||||||||||||||
Interested Trustee. | |||||||||||||||||||
David C. Brown, 47** | Trustee | May 2008 | Chairman and Chief Executive Officer (since 2013), Co-Chief Executive Officer (2011-2013), the Adviser; Chairman and Chief Executive Officer, Victory Capital Holdings, Inc. (since 2013). | None. |
* The Board has designated Mr. Meyer and Ms. Beard as its Audit Committee Financial Experts.
** Mr. Brown is an "Interested Person" by reason of his relationship with the Adviser.
The Statement of Additional Information includes additional information about the Trustees of the Trust and is available, without charge, by calling 800-539-3863.
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Officers:
The officers of the Trust, their ages, commencement of service and their principal occupations during the past five years, are detailed in the following table. Each officer serves until the earlier of his or her resignation, removal, retirement, death, or the election of a successor. The mailing address of each officer of the Trust is 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. The officers of the Trust receive no compensation directly from the Trust for performing the duties of their offices.
Name and Age | Position with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | ||||||||||||
Christopher K. Dyer, 57 | President | February 2006* | Director of Fund Administration, the Adviser. | ||||||||||||
Scott A. Stahorsky, 50 | Vice President | December 2014 | Manager, Fund Administration, the Adviser (since 2015); Senior Analyst, Fund Administration, the Adviser (prior to 2015). | ||||||||||||
Erin G. Wagner, 45 | Secretary | December 2014 | Associate General Counsel, the Adviser (since 2013). | ||||||||||||
Allan Shaer, 54 | Treasurer | May 2017 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc. (since 2016); Vice President, Mutual Fund Administration, JP Morgan Chase (2011-2016). | ||||||||||||
Christopher A. Ponte, 35 | Assistant Treasurer | December 2017 | Manager, Fund Administration, the Adviser (since 2017); Senior Analyst, Fund Administration, the Adviser (prior to 2017); Chief Financial Officer, Victory Capital Advisers, Inc. (since 2018). | ||||||||||||
Colin Kinney, 45 | Chief Compliance Officer | July 2017 | Chief Compliance Officer (since 2013) and Chief Risk Officer (2009-2017), the Adviser. | ||||||||||||
Chuck Booth, 59 | Anti-Money Laundering Compliance Officer and Identity Theft Officer | May 2015 | Director, Regulatory Administration and CCO Support Services, Citi Fund Services Ohio, Inc. | ||||||||||||
Jay G. Baris, 65 | Assistant Secretary | February 1998 | Partner, Shearman & Sterling LLP (since 2018); Partner, Morrison & Foerster LLP (2011- January 2018). |
* On December 3, 2014, Mr. Dyer resigned as Secretary of the Trust and accepted the position of President.
25
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Proxy Voting and Portfolio Holdings Information
Proxy Voting:
Information regarding the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 800-539-3863. The information is also included in the Fund's Statement of Additional Information, which is available on the SEC's website at www.sec.gov.
Information relating to how the Fund voted proxies relating to portfolio securities held during the most recent twelve months ended June 30 is available on the SEC's website at www.sec.gov.
Availability of Schedules of Portfolio Investments:
The Trust files a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-PORT. Prior to the implementation of Form N-PORT, the Trust filed a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-PORT and Forms N-Q are available on the SEC's website at www.sec.gov.
Expense Examples
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2019 through June 30, 2019.
The Actual Expense figures in the table below provide information about actual account values and actual expenses. You may use the information below, 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.
The Hypothetical Expense figures in the table below provide 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 this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 1/1/19 | Actual Ending Account Value 6/30/19 | Hypothetical Ending Account Value 6/30/19 | Actual Expenses Paid During Period 1/1/19-6/30/19* | Hypothetical Expenses Paid During Period 1/1/19-6/30/19* | Annualized Expense Ratio During Period 1/1/19-6/30/19 | ||||||||||||||||||
$ | 1,000.00 | $ | 1,160.30 | $ | 1,020.18 | $ | 4.98 | $ | 4.66 | 0.93 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 181/365 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
26
Privacy Policy
Protecting the Privacy of Information
The Trust respects your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information about investment goals and risk tolerance.
We do not disclose any information about you or about former customers to anyone except as permitted or required by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and printers and mailers that assist us in the distribution of investor materials. We may also disclose this information to companies that perform marketing services on our behalf. This allows us to continue to offer you Victory investment products and services that meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only in connection with the services for which we hired them. They are not permitted to use or share this information for any other purpose.
To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information.*
* You may have received communications regarding information about privacy policies from other financial institutions which gave you the opportunity to "opt-out" of certain information sharing with companies which are not affiliated with that financial institution. The Trust does not share information with other companies for purposes of marketing solicitations for products other than the Trust. Therefore, the Trust does not provide opt-out options to their shareholders.
Victory Funds
P.O. Box 182593
Columbus, Ohio 43218-2593
Visit our website at: | Call Victory at: | ||||||
www.vcm.com | 800-539-FUND (800-539-3863) |
VVIF-RS-IVIP-SAR (6/19)
June 30, 2019
Semi Annual Report
Victory Variable Insurance Funds
Victory RS Large Cap Alpha VIP Series
Beginning January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports may no longer be sent by mail from the insurance company that issued your variable annuity and variable life insurance contract, unless you specifically request paper copies of the reports from your insurance company. Instead, the reports will be made available on www.victoryfunds.com. The insurance company that offers your contract may also make these reports available on a website, and such insurance company will notify you by mail each time a report is posted and provide you with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the insurance company electronically by following the instructions provided by the insurance company.
If offered by your insurance company, you may elect to receive all future reports in paper and free of charge from the insurance company. You can inform your insurance company that you wish to continue receiving paper copies of your reports. Your election to receive reports in paper will apply to all funds available under your contract.
www.vcm.com
News, Information And Education 24 Hours A Day, 7 Days A Week
The Victory Funds site gives fund shareholders, prospective shareholders, and investment professionals a convenient way to access fund information, get guidance, and track fund performance anywhere they can access the Internet. The site includes:
• Detailed performance records
• Daily share prices
• The latest fund news
• Investment resources to help you become a better investor
• A section dedicated to investment professionals
Whether you're a potential investor searching for the fund that matches your investment philosophy, a seasoned investor interested in planning tools, or an investment professional, www.vcm.com has what you seek. Visit us anytime. We're always open.
Victory Variable Insurance Funds
Table of Contents
Financial Statements | |||||||
Investment Objective & Portfolio Holdings | 3 | ||||||
Schedule of Portfolio Investments | 4 | ||||||
Statement of Assets and Liabilities | 7 | ||||||
Statement of Operations | 8 | ||||||
Statements of Changes in Net Assets | 9 | ||||||
Financial Highlights | 10 | ||||||
Notes to Financial Statements | 12 | ||||||
Supplemental Information | |||||||
Trustee and Officer Information | 20 | ||||||
Proxy Voting and Portfolio Holdings Information | 23 | ||||||
Expense Examples | 23 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Advisers, Inc. Victory Capital Management Inc. is the investment adviser to the Fund and receives fees from the Fund for performing services for the Fund.
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus of the Fund.
For additional information about any Victory Fund, including fees, expenses, and risks, view our prospectus online at www.vcm.com or call 800-539-3863. Read it carefully before you invest or send money.
The information in this semi annual report is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections, or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Past investment performance of the Fund, markets or securities mentioned herein should not be considered to be indicative of future results.
• NOT FDIC INSURED • NO BANK GUARANTEE
• MAY LOSE VALUE
Call Victory at:
800-539-FUND (800-539-3863)
Visit our website at:
www.vcm.com
1
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2
Victory Variable Insurance Funds | June 30, 2019 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: The Victory RS Large Cap Alpha VIP Series seeks to provide long-term capital appreciation.
Portfolio Holdings*:
* Percentages are of total investments of the Fund.
3
Victory Variable Insurance Funds Victory RS Large Cap Alpha VIP Series | Schedule of Portfolio Investments June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Common Stocks (96.5%) | |||||||||||
Banks (9.8%): | |||||||||||
Citigroup, Inc. | 459,820 | $ | 32,201,194 | ||||||||
The PNC Financial Services Group, Inc. | 173,820 | 23,862,010 | |||||||||
U.S. Bancorp | 376,700 | 19,739,080 | |||||||||
Wells Fargo & Co. | 341,050 | 16,138,486 | |||||||||
91,940,770 | |||||||||||
Capital Markets (4.4%): | |||||||||||
CBOE Holdings, Inc. | 265,960 | 27,561,435 | |||||||||
E*TRADE Financial Corp. | 311,010 | 13,871,046 | |||||||||
41,432,481 | |||||||||||
Communication Services (9.4%): | |||||||||||
Alphabet, Inc., Class A (a) | 34,445 | 37,297,046 | |||||||||
Facebook, Inc., Class A (a) | 263,330 | 50,822,690 | |||||||||
88,119,736 | |||||||||||
Consumer Discretionary (7.5%): | |||||||||||
Aramark | 809,850 | 29,203,191 | |||||||||
Booking Holdings, Inc. (a) | 12,260 | 22,983,945 | |||||||||
LKQ Corp. (a) | 690,050 | 18,362,231 | |||||||||
70,549,367 | |||||||||||
Consumer Staples (4.4%): | |||||||||||
Keurig Dr Pepper, Inc. (b) | 355,530 | 10,274,817 | |||||||||
Mondelez International, Inc., Class A | 573,010 | 30,885,239 | |||||||||
41,160,056 | |||||||||||
Energy (10.2%): | |||||||||||
Chevron Corp. | 160,140 | 19,927,822 | |||||||||
Devon Energy Corp. | 327,291 | 9,334,339 | |||||||||
Diamondback Energy, Inc. | 128,800 | 14,035,336 | |||||||||
Enterprise Products Partners LP | 998,490 | 28,826,406 | |||||||||
EQT Corp. | 1,059,400 | 16,749,114 | |||||||||
Noble Energy, Inc. | 312,120 | 6,991,488 | |||||||||
95,864,505 | |||||||||||
Health Care (9.1%): | |||||||||||
Allergan PLC | 85,807 | 14,366,666 | |||||||||
AstraZeneca PLC, ADR (b) | 261,210 | 10,782,749 | |||||||||
CVS Health Corp. | 173,575 | 9,458,102 | |||||||||
Humana, Inc. | 44,580 | 11,827,074 | |||||||||
UnitedHealth Group, Inc. | 69,295 | 16,908,673 | |||||||||
Zimmer Biomet Holdings, Inc. | 192,760 | 22,695,562 | |||||||||
86,038,826 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory RS Large Cap Alpha VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Industrials (6.5%): | |||||||||||
Air Canada (a) | 458,410 | $ | 13,895,137 | ||||||||
Eaton Corp. PLC, ADR | 253,240 | 21,089,827 | |||||||||
Parker-Hannifin Corp. | 89,210 | 15,166,592 | |||||||||
Union Pacific Corp. | 67,730 | 11,453,820 | |||||||||
61,605,376 | |||||||||||
Information Technology (6.5%): | |||||||||||
FleetCor Technologies, Inc. (a) | 101,040 | 28,377,084 | |||||||||
Visa, Inc., Class A | 190,040 | 32,981,442 | |||||||||
61,358,526 | |||||||||||
Insurance (12.1%): | |||||||||||
Aflac, Inc. | 672,310 | 36,849,311 | |||||||||
Brown & Brown, Inc. | 945,060 | 31,659,510 | |||||||||
Cincinnati Financial Corp. | 269,010 | 27,888,267 | |||||||||
RenaissanceRe Holdings Ltd., ADR | 100,900 | 17,961,209 | |||||||||
114,358,297 | |||||||||||
Materials (4.4%): | |||||||||||
Freeport-McMoRan, Inc. | 1,341,650 | 15,576,557 | |||||||||
Sealed Air Corp. (b) | 586,940 | 25,109,293 | |||||||||
40,685,850 | |||||||||||
Mortgage Real Estate Investment Trusts (1.5%): | |||||||||||
Agnc Investment Corp. | 811,730 | 13,653,299 | |||||||||
Real Estate (4.8%): | |||||||||||
Equity Commonwealth | 631,780 | 20,545,486 | |||||||||
Invitation Homes, Inc. | 934,280 | 24,973,304 | |||||||||
45,518,790 | |||||||||||
Utilities (5.9%): | |||||||||||
Exelon Corp. | 280,880 | 13,465,387 | |||||||||
FirstEnergy Corp. | 481,210 | 20,600,600 | |||||||||
Vistra Energy Corp. (a) (b) | 947,190 | 21,444,381 | |||||||||
55,510,368 | |||||||||||
Total Common Stocks (Cost $774,288,459) | 907,796,247 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory RS Large Cap Alpha VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Collateral for Securities Loaned^ (1.6%) | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 2.43% (c) | 3,185,114 | $ | 3,185,114 | ||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 2.28% (c) | 4,102,791 | 4,102,791 | |||||||||
Fidelity Investments Prime Money Market Portfolio, Class I, 2.39% (c) | 106,549 | 106,549 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 2.48% (c) | 1,751,579 | 1,751,579 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 2.41% (c) | 2,388,464 | 2,388,464 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 2.42% (c) | 3,715,524 | 3,715,524 | |||||||||
Total Collateral for Securities Loaned (Cost $15,250,021) | 15,250,021 | ||||||||||
Total Investments (Cost $789,538,480) — 98.1% | 923,046,268 | ||||||||||
Other assets in excess of liabilities — 1.9% | 17,399,668 | ||||||||||
NET ASSETS — 100.00% | $ | 940,445,936 |
^ Purchased with cash collateral from securities on loan.
(a) Non-income producing security.
(b) All or a portion of this security is on loan.
(c) Rate disclosed is the daily yield on June 30, 2019.
ADR — American Depositary Receipt
LP — Limited Partnership
PLC — Public Limited Company
See notes to financial statements.
6
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2019 |
(Unaudited)
Victory RS Large Cap Alpha VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $789,538,480) | $ | 923,046,268 | (a) | ||||
Cash and cash equivalents | 45,504,706 | ||||||
Interest and dividends receivable | 744,219 | ||||||
Receivable for investments sold | 13,370,541 | ||||||
Receivable from Adviser | 417,259 | ||||||
Prepaid expenses | 27,402 | ||||||
Total Assets | 983,110,395 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 15,250,021 | ||||||
Investments purchased | 25,885,247 | ||||||
Capital shares redeemed | 914,280 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 381,474 | ||||||
Administration fees | 46,830 | ||||||
Custodian fees | 6,703 | ||||||
Transfer agent fees | 107,935 | ||||||
Chief Compliance Officer fees | 1,225 | ||||||
Trustees' fees | 1,602 | ||||||
Other accrued expenses | 69,142 | ||||||
Total Liabilities | 42,664,459 | ||||||
NET ASSETS: | |||||||
Capital | 637,453,916 | ||||||
Total distributable earnings/(loss) | 302,992,020 | ||||||
Net Assets | $ | 940,445,936 | |||||
Shares Outstanding (unlimited shares authorized, with a par value of $0.001 per share): | 18,205,137 | ||||||
Net asset value: | $ | 51.66 |
(a) Includes $14,985,481 of securities on loan.
See notes to financial statements.
7
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2019 |
(Unaudited)
Victory RS Large Cap Alpha VIP Series | |||||||
Investment Income: | |||||||
Dividends | $ | 8,863,432 | |||||
Interest | 318,415 | ||||||
Securities lending (net of fees) | 12,767 | ||||||
Total Income | 9,194,614 | ||||||
Expenses: | |||||||
Investment advisory fees | 2,295,092 | ||||||
Administration fees | 290,028 | ||||||
Custodian fees | 20,411 | ||||||
Transfer agent fees | 624,985 | ||||||
Trustees' fees | 39,894 | ||||||
Chief Compliance Officer fees | 3,226 | ||||||
Legal and audit fees | 47,420 | ||||||
Other expenses | 53,438 | ||||||
Total Expenses | 3,374,494 | ||||||
Expenses waived/reimbursed by Adviser | (848,477 | ) | |||||
Net Expenses | 2,526,017 | ||||||
Net Investment Income (Loss) | 6,668,597 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities and foreign currency translations | 13,275,113 | ||||||
Net change in unrealized appreciation/depreciation on investment securities | 137,045,317 | ||||||
Net realized/unrealized gains (losses) on investments | 150,320,430 | ||||||
Change in net assets resulting from operations | $ | 156,989,027 |
See notes to financial statements.
8
Victory Variable Insurance Funds | Statements of Changes in Net Assets |
Victory RS Large Cap Alpha VIP Series | |||||||||||
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | ||||||||||
(Unaudited) | |||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 6,668,597 | $ | 11,067,077 | |||||||
Net realized gains (losses) from investments | 13,275,113 | 137,400,719 | |||||||||
Net change in unrealized appreciation/depreciation on investments | 137,045,317 | (229,244,068 | ) | ||||||||
Change in net assets resulting from operations | 156,989,027 | (80,776,272 | ) | ||||||||
Change in net assets resulting from distributions to shareholders | — | (99,131,571 | ) | ||||||||
Change in net assets resulting from capital transactions | (63,533,292 | ) | (33,842,009 | ) | |||||||
Change in net assets | 93,455,735 | (213,749,852 | ) | ||||||||
Net Assets: | |||||||||||
Beginning of period | 846,990,201 | 1,060,740,053 | |||||||||
End of period | $ | 940,445,936 | $ | 846,990,201 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 2,046,486 | $ | 17,538,132 | |||||||
Distributions reinvested | — | 99,131,571 | |||||||||
Cost of shares redeemed | (65,579,778 | ) | (150,511,712 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (63,533,292 | ) | $ | (33,842,009 | ) | |||||
Share Transactions: | |||||||||||
Issued | 41,884 | 327,122 | |||||||||
Reinvested | — | 2,271,183 | |||||||||
Redeemed | (1,331,467 | ) | (2,743,529 | ) | |||||||
Change in Shares | (1,289,583 | ) | (145,224 | ) |
See notes to financial statements.
9
Victory Variable Insurance Funds | Financial Highlights |
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholder From | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gains (Losses) on Investments | Total from Investment Activities | Net Investment Income | Net Realized Gains From Investments | Total Distributions | |||||||||||||||||||||||||
Victory RS Large Cap Alpha VIP Series | |||||||||||||||||||||||||||||||
Six Months Ended 06/30/19 (unaudited) | $ | 43.45 | 0.35 | (d) | 7.86 | 8.21 | — | — | — | ||||||||||||||||||||||
Year Ended 12/31/18 | $ | 54.01 | 0.60 | (d) | (5.44 | ) | (4.84 | ) | (0.02 | ) | (5.70 | ) | (5.72 | ) | |||||||||||||||||
Year Ended 12/31/17 | $ | 45.98 | 0.51 | (d) | 8.07 | 8.58 | (0.55 | ) | — | (0.55 | ) | ||||||||||||||||||||
Year Ended 12/31/16 | $ | 44.26 | 0.50 | (d) | 3.50 | 4.00 | (0.52 | ) | (1.76 | ) | (2.28 | ) | |||||||||||||||||||
Year Ended 12/31/15 | $ | 50.63 | 0.60 | (d) | (1.64 | ) | (1.04 | ) | (0.67 | ) | (4.66 | ) | (5.33 | ) | |||||||||||||||||
Year Ended 12/31/14 | $ | 51.52 | 0.73 | 6.21 | 6.94 | (0.71 | ) | (7.12 | ) | (7.83 | ) |
(a) Not annualized for periods less than one year.
(b) Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(c) Annualized for periods less than one year.
(d) Per share net investment income (loss) has been calculated using the average daily shares method.
(e) Amount is less than $0.005 per share.
(f) The Fund received monies related to a nonrecurring refund from the prior Custodian. The corresponding impact to the total return was less than 0.01% for the period shown. (See Note 8)
See notes to financial statements.
10
Victory Variable Insurance Funds | Financial Highlights — continued |
For a Share Outstanding Throughout Each Period
Ratios to Average Net Assets | Supplemental Data | ||||||||||||||||||||||||||||||||||
Capital contributions from prior custodian, Net (See Note 8) | Net Asset Value, End of Period | Total Return(a)(b) | Net Expenses(c) | Net Investment Income (Loss)(c) | Gross Expenses(c) | Net Assets, End of Period (000's) | Portfolio Turnover(a) | ||||||||||||||||||||||||||||
Victory RS Large Cap Alpha VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended 06/30/19 (unaudited) | — | $ | 51.66 | 18.90 | % | 0.55 | % | 1.45 | % | 0.73 | % | $ | 940,446 | 23 | % | ||||||||||||||||||||
Year Ended 12/31/18 | — | $ | 43.45 | (9.00 | )% | 0.55 | % | 1.10 | % | 0.62 | % | $ | 846,990 | 60 | % | ||||||||||||||||||||
Year Ended 12/31/17 | — | $ | 54.01 | 18.67 | % | 0.55 | % | 1.02 | % | 0.60 | % | $ | 1,060,740 | 56 | % | ||||||||||||||||||||
Year Ended 12/31/16 | — | (e) | $ | 45.98 | 9.03 | %(f) | 0.54 | % | 1.12 | % | 0.54 | % | $ | 1,020,600 | 84 | % | |||||||||||||||||||
Year Ended 12/31/15 | — | $ | 44.26 | (2.01 | )% | 0.55 | % | 1.20 | % | 0.55 | % | $ | 1,015,821 | 47 | % | ||||||||||||||||||||
Year Ended 12/31/14 | — | $ | 50.63 | 13.58 | % | 0.55 | % | 1.27 | % | 0.55 | % | $ | 1,148,698 | 56 | % |
See notes to financial statements.
11
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2019 |
(Unaudited)
1. Organization:
Victory Variable Insurance Funds (the "Trust") was organized on February 11, 1998 as a Delaware statutory trust. The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end investment company. The Trust is comprised of nine funds and is authorized to issue an unlimited number of shares, which are units of beneficial interest with a par value of $0.001 per share.
The accompanying financial statements are those of the Victory RS Large Cap Alpha VIP Series (the "Fund"). The Fund offers a single class of shares: Class I Shares. Sales of shares of the Fund may only be made to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. ("GIAC") that fund certain variable annuity and variable life insurance contracts issued by GIAC. GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America ("Guardian Life").
Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. The Fund follows the specialized accounting and reporting requirements under GAAP that are applicable to investment companies.
Investment Valuation:
The Fund records investments at fair value. Fair value is defined 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.
The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund's investments are summarized in the three broad levels listed below:
• Level 1 — quoted prices in active markets for identical securities
• Level 2 — other significant observable inputs (including quoted prices for similar securities or interest rates applicable to those securities, etc.)
• Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The inputs or methodologies used for valuation techniques are not necessarily an indication of the risk associated with entering into those investments.
Portfolio securities listed or traded on securities exchanges, including American Depositary Receipts ("ADRs") and Rights, are valued at the closing price on the exchange or system where the security is principally traded, if available, or at the Nasdaq Official Closing Price. If there have been no sales for that day on the exchange or system, then a security is valued at the last available bid quotation on the exchange or system where the security is principally traded. In each of these situations, valuations are typically categorized as Level 1 in the fair value hierarchy.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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Investments for which there are no such quotations, or for which quotations do not appear reliable, are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Trust's Board of Trustees (the "Board"). These valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based on the observability of inputs used to determine the fair value.
A summary of the valuations as of June 30, 2019, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed in the Schedule of Portfolio Investments:
LEVEL 1 — Quoted Prices | LEVEL 2 — Other Significant Observable Inputs | LEVEL 3 — Other Significant Unobservable Inputs | Total | ||||||||||||||||
Investments in Securities | Investments in Securities | Investments in Securities | Investments in Securities | ||||||||||||||||
Common Stocks | $ | 907,796,247 | $ | — | $ | — | $ | 907,796,247 | |||||||||||
Collateral for Securities Loaned | 15,250,021 | — | — | 15,250,021 | |||||||||||||||
Total | $ | 923,046,268 | $ | — | $ | — | $ | 923,046,268 |
For the six months ended June 30, 2019, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
Investment Transactions and Related Income:
Changes in holdings of investments are accounted for no later than one business day following the trade date. For financial reporting purposes, however, investment transactions are accounted for on trade date on the last business day of the reporting period. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date. Gains or losses realized on sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds.
Withholding taxes on interest, dividends and gains as a result of certain investments in ADRs by the Fund have been provided for in accordance with each investment's applicable country's tax rules and rates.
Securities Lending:
The Trust has entered into a Master Securities Lending Agreement ("MSLA") with Citibank, N.A. ("Citibank" or the "Agent"). Under the terms of the MSLA, the Fund may lend securities to certain broker-dealers and banks in exchange for collateral in the amount of at least 102% of the value of U.S. securities loaned or at least 105% of the value of non-U.S. securities loaned, marked-to-market daily. Any collateral shortfalls associated with increases in the valuation of the securities loaned are adjusted the next business day. The collateral can be received in the form of cash collateral and/or non-cash collateral. Non-cash collateral can include U.S. Government Securities, letters of credit and certificates of deposit. The cash collateral is invested in short-term instruments or cash equivalents as noted on the Fund's Schedule of Portfolio Investments. The Trust does not have effective control of the non-cash collateral and therefore it is not disclosed in the Fund's Schedule of Portfolio Investments. The Fund continues to benefit from interest or dividends on the securities loaned and may also earn a return from the collateral. The Fund pays various fees in connection with the investment of cash collateral. The Fund pays the Agent fees based on the investment income received from securities lending activities. Securities lending income is disclosed in the Fund's Statement of Operations. Although risk is mitigated by the collateral, the Fund could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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Securities lending transactions are entered into by the Fund under the MSLA, which permits the Fund, under certain circumstances such as an event of default, to offset amounts payable by the Fund to the same counterparty against amounts receivable from the counterparty to create a net payment due to or from the Fund.
The following table is a summary of the Fund's securities lending transactions which are subject to offset under the MSLA as of June 30, 2019. These transactions are accounted for as secured borrowings with an overnight and continuous contractual maturity for cash collateral, and greater than overnight and continuous contractual maturity for non-cash collateral.
Gross Amount of Recognized Assets (Value of | Value of Cash | Value of Non-cash Collateral Received by Maturity | |||||||||||||||||||||
Securities on Loan) | Collateral Received* | <30 Days | Between 30 & 90 Days | >90 Days | Net Amount | ||||||||||||||||||
$ | 14,985,481 | $ | 14,985,481 | $ | — | $ | — | $ | — | $ | — |
* Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by the Fund is disclosed in the Statement of Assets and Liabilities.
Dividends to Shareholders:
Dividends from net investment income, if any, are declared and paid annually by the Fund. Distributable net realized gains, if any, are declared and distributed at least annually.
The amounts of dividends from net investment income and distributions from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these "book/tax" differences are permanent in nature (e.g., net operating loss and distribution reclassification), such amounts are reclassified within the components of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales) do not require reclassification. To the extent dividends and distributions exceed net investment income and net realized gains for tax purposes, they are reported as distributions of capital. Net investment losses incurred by the Fund may be reclassified as an offset to capital on the accompanying Statement of Assets and Liabilities.
Federal Income Taxes:
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes is required in the financial statements. The Fund has a tax year end of December 31.
Management of the Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Allocations:
Expenses directly attributable to the Fund are charged to the Fund, while expenses which are attributable to more than one fund in the Trust, or jointly with an affiliated trust, are allocated among the respective funds in the Trust and/or affiliated trust based upon net assets or another appropriate basis.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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Affiliated Securities Transactions:
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Adviser and any applicable sub-adviser. Any such purchase or sale transaction must be effected without brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security's last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. For the six months ended June 30, 2019, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding securities maturing less than one year from acquisition) for the six months ended June 30, 2019 were as follows for the Fund:
Purchases | Sales | ||||||
$ | 203,544,471 | $ | 280,953,045 |
For the six months ended June 30, 2019, there were no purchases or sales of U.S. Government Securities.
4. Fees and Transactions with Affiliates and Related Parties:
Investment advisory services are provided to the Fund by Victory Capital Management Inc. ("VCM" or the "Adviser"), a New York corporation registered as an investment adviser with the Securities and Exchange Commission ("SEC"). The Adviser is a wholly-owned indirect subsidiary of Victory Capital Holdings, Inc., a publicly traded Delaware corporation, and a wholly-owned direct subsidiary of Victory Capital Operating, LLC.
Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive 0.50% of the average daily net assets of the Fund. The Adviser may use its resources to assist with the Fund's distribution and marketing expenses.
VCM also serves as the Fund's administrator and fund accountant. Under an Administration and Fund Accounting Agreement, VCM is paid for its services an annual fee at a rate of 0.08% of the first $15 billion in average daily net assets of the Trust, Victory Portfolios and Victory Portfolios II (collectively, the "Victory Funds Complex"), 0.05% of the average daily net assets above $15 billion to $30 billion of the Victory Funds Complex and 0.04% of the average daily net assets over $30 billion of the Victory Funds Complex.
Citi Fund Services Ohio, Inc. ("Citi"), an affiliate of Citibank, N.A., acts as sub-administrator and sub-fund accountant to the Fund pursuant to a Sub-Administration and Sub-Fund Accounting Services Agreement between VCM and Citi. VCM pays Citi a fee for providing these services. The Trust reimburses VCM and Citi for all of their reasonable out-of-pocket expenses incurred in providing these services.
FIS Investor Services, LLC ("FIS") serves as the Fund's transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Chief Compliance Officer ("CCO") is an employee of the Adviser, which pays the compensation of the CCO and his support staff. The Trust has entered into an Agreement to provide compliance services with the Adviser, pursuant to which the Adviser furnishes its compliance personnel, including the services of the CCO, and other resources reasonably necessary to provide the Trust with compliance oversight services related to the design, administration and oversight of a compliance program for the Trust in accordance with Rule 38a-1 under the 1940 Act. The funds in the Victory Funds Complex, in the aggregate, compensate the Adviser for these services.
The Victory Funds Complex pays an annual retainer to each Independent Trustee, plus an additional annual retainer to the Chairman of the Board. The aggregate amount of the fees and expenses of the
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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Independent Trustees are allocated amongst all the funds in the Victory Funds Complex and are presented in the Statement of Operations.
Shearman & Sterling LLP provides legal services to the Trust.
Victory Capital Advisers, Inc. (the "Distributor"), an affiliate of the Adviser, serves as distributor for the continuous offering of the shares of the Fund pursuant to a Distribution Agreement between the Distributor and the Trust.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2020. Under the terms of the agreement, the Adviser has agreed to waive fees or reimburse certain expenses to the extent that ordinary operating expenses incurred by the Fund in any fiscal year exceed the expense limit for the Fund. Such excess amounts will be the liability of the Adviser. Interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with GAAP, and other extraordinary expenses not incurred in the ordinary course of a Fund's business are excluded from the expense limits. For the six months ended June 30, 2019, the expense limit (excluding voluntary waivers) is 0.55%.
The Fund has agreed to repay fees and expenses that were waived or reimbursed by the Adviser for a period up to three fiscal years after such waiver or reimbursement was made to the extent such payments or repayments would not cause the expenses of a class to exceed the original expense limitation in place at time of the waiver or reimbursement or any expense limitation agreement in place at the time of repayment. As of June 30, 2019, the following amounts are available to be repaid to the Adviser. Amounts repaid to the Adviser during the six months ended, if any, are reflected on the Statement of Operations as "Recoupment of prior expenses waived/reimbursed by Adviser".
Expires 12/31/2020 | Expires 12/31/2021 | Expires 12/31/2022 | |||||||||
$ | 522,796 | $ | 690,695 | $ | 848,477 |
The Adviser may voluntarily waive or reimburse additional fees to assist the Fund in maintaining a competitive expense ratio. Voluntary waivers and reimbursements applicable to the Fund are not available to be recouped at a future time. There were no voluntary waivers or reimbursements for the year ended June 30, 2019.
Certain officers and/or interested trustees of the Fund are also officers and/or employees of the Adviser, Administrator, Fund Accountant, Sub-Administrator, Sub-Fund Accountant and Legal Counsel.
5. Risks:
The Fund may be subject to other risks in addition to these identified risks.
An investment in the Fund's shares represents an indirect investment in the securities owned by the Fund, some of which will be traded on a national securities exchange or in the over-the-counter markets. The value of the securities in which the Fund invests, like other market investments, may move up or down, sometimes rapidly and unpredictably. The value of the securities in which the Fund invests may affect the value of the Fund's shares. An investment in the Fund's shares at any point in time may be worth less than the original investment, even after taking into account the reinvestment of the Fund's distributions.
The Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties for financial instruments entered into by the Fund. The Fund may be negatively impacted 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 bankruptcy or other reorganization proceeding and the Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund typically enters into transactions with counterparties whose credit ratings are investment grade, as determined by a nationally recognized statistical rating organization or, if unrated, judged by the Adviser to be of comparable quality.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2019, the Victory Funds Complex participated in a short-term, demand note "Line of Credit" agreement with Citibank. Under the agreement with Citibank, the Victory Funds Complex may have borrowed up to $250 million, of which $100 million was committed and $150 million was uncommitted. This agreement was in effect through July 26, 2019. Effective July 1, 2019, the current agreement was amended to include the USAA Mutual Funds Complex and has a new termination date of June 29, 2020. Under this amended agreement, the Victory Funds Complex and USAA Funds Complex, combined, may borrow up to $600 million, of which $300 million is committed and $300 million is uncommitted. $40 million of the Line of Credit is reserved for use by the Victory Floating Rate Fund, another series of the Victory Funds Complex, with that Fund paying the related commitment fees for that amount. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. With the agreement in affect for the six months ended June 30, 2019, Citibank received an annual commitment fee of 0.15% on $100 million for providing the Line of Credit. For the six months ended June 30, 2019, Citibank earned approximately $76 thousand in commitment fees from the Victory Funds Complex. Effective July 1, 2019, Citibank receives an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest on amounts borrowed, including the USAA Funds Complex, commencing July 1, 2019. Interest charged to the Fund during the period is presented on the Statement of Operations under line of credit fees.
The Fund did not utilize the Line of Credit during the six months ended June 30, 2019.
Interfund Lending:
The Trust and Adviser rely on an exemptive order granted by the SEC in March 2017 (the "Order"), permitting the establishment and operation of an Interfund Lending Facility (the "Facility"). The Facility allows the Fund to directly lend and borrow money to or from any other Victory Fund relying upon the Order at rates beneficial to both the borrowing and lending funds. Advances under the Facility are allowed for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities, and are subject to each Fund's borrowing restrictions. The interfund loan rate is determined, as specified in the Order, by averaging the current repurchase agreement rate and the current bank loan rate. As a Borrower, interest charged to the Fund during the period is presented on the Statement of Operations under interfund lending fees. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Income on interfund lending.
The Fund did not utilize the Facility during the six months ended June 30, 2019.
7. Federal Income Tax Information:
The tax character of current year distributions paid and the tax basis of the current components of accumulated earnings (deficit) will be determined at the end of the current tax year ending December 31, 2019.
The tax character of distributions paid during the most recent tax year ended December 31, 2018 was as follows (total distributions paid may differ from the Statement of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid).
Distributions paid from | |||||||||||
Ordinary Income | Net Long-Term Capital Gains | Total Distributions Paid | |||||||||
$ | 11,515,218 | $ | 87,616,353 | $ | 99,131,571 |
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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As of the most recent tax year ended December 31, 2018, the components of accumulated earnings (deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Unrealized Appreciation (Depreciation)* | Total Accumulated Earnings (Deficit) | |||||||||||||||
$ | 10,660,966 | $ | 137,576,831 | $ | 148,237,797 | $ | (2,234,804 | ) | $ | 146,002,993 |
*The difference between the book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to tax deferral of losses on wash sales.
During the most recent tax year ended December 31, 2018, the Fund did not utilize capital loss carryforwards.
At June 30, 2019, the cost basis for federal income tax purposes, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) for investments were as follows:
Cost of Investments for Federal Tax Purposes | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||||||||||
$ | 787,048,377 | $ | 157,908,304 | $ | (21,910,413 | ) | $ | 135,997,891 |
8. Capital Contribution from Prior Custodian:
During 2016, the Fund received notification from the Fund's prior custodian, State Street Bank and Trust ("State Street"), concerning issues related to billing on certain categories of expenses during the approximately 16-year period from 1998 through October 31, 2014. The over-billing primarily related to categories of expenses that involved an allocation of general costs among multiple clients.
State Street paid the refunded amounts during January 2017. Based on billing information received during 2016 from State Street and an analysis of any expense limitation agreements that were in place during the period of the activities in question, including the application of any recoupment provisions in such agreements, the Adviser received a portion of the refund.
The portion of the refund retained by the Fund was accounted for as a capital contribution and is reflected on the Financial Highlights as "Capital Contribution from Prior Custodian, Net".
9. Fund Ownership:
Ownership of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2(a)(9) of the 1940 Act. As of June 30, 2019, the shareholders listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund.
Shareholder | Percent | ||||||
The Guardian Insurance & Annuity Company, Inc. | 99.8 | % |
10. Recent Accounting Pronouncements:
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-13, "Fair Value Measurements" ("ASU 2018-13"). This update makes certain removals from, changes to and additions to existing disclosure requirements for fair value measurements. ASU 2018-13 does not change fair value measurements already required or permitted by existing standards. ASU 2018-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As permitted, the Fund has early adopted ASU 2018-13 with the financial statements prepared as of June 30, 2019.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
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11. Subsequent Events:
The Fund has evaluated the need for additional disclosures or adjustments resulting from subsequent events through the date these financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have a material impact on the Fund's financial statements.
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Victory Variable Insurance Funds | Supplemental Information June 30, 2019 |
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Trustee and Officer Information
Board of Trustees:
Overall responsibility for management of the Trust rests with the Board. The Trust is managed by the Board in accordance with the laws of the State of Delaware. There are currently ten Trustees, nine of whom are not "interested persons" of the Trust within the meaning of that term under the 1940 Act ("Independent Trustees") and one of whom is an "interested person" of the Trust within the meaning of that term under the 1940 Act ("Interested Trustee"). The Trustees, in turn, elect the officers of the Trust to actively supervise its day-to-day operations.
The following tables list the Trustees, their ages, position with the Trust, commencement of service, principal occupations during the past five years and any directorships of other investment companies or companies whose securities are registered under the Securities Exchange Act of 1934, as amended, or who file reports under that Act. Each Trustee oversees nine portfolios in the Trust, 42 portfolios in Victory Portfolios and 20 portfolios in Victory Portfolios II, each a registered investment company that, together with the Trust, comprise the Victory Funds Complex. Each Trustee's address is c/o Victory Variable Insurance Funds, 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. Each Trustee has an indefinite term.
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Independent Trustees. | |||||||||||||||||||
David Brooks Adcock, 67 | Trustee | February 2005 | Consultant (since 2006). | Chair and Trustee, Turner Funds (December 2016-December 2017). | |||||||||||||||
Nigel D.T. Andrews, 72 | Vice Chair and Trustee | August 2002 | Retired. | Director, TCG BDC II, Inc. (since 2017); Director, TCG BDC I, Inc. (formerly Carlyle GMS Finance, Inc.) (since 2012); Director, Old Mutual US Asset Management (2002-2014). | |||||||||||||||
E. Lee Beard, 68* | Trustee | February 2005 | Retired (since 2015); Consultant, The Henlee Group, LLC (consulting) (2005-2015). | None. | |||||||||||||||
Dennis M. Bushe, 75 | Trustee | July 2016 | Retired. | Trustee, RS Investment Trust and RS Variable Products Trust (November 2011-July 2016). |
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Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
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Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Sally M. Dungan, 65 | Trustee | February 2011 | Chief Investment Officer, Tufts University (since 2002). | None. | |||||||||||||||
John L. Kelly, 66 | Trustee | February 2015 | Partner, McCarvill Capital Partners (September 2016-September 2017); Advisor, Endgate Commodities LLC (January 2016-April 2016); Managing Partner, Endgate Commodities LLC (August 2014-January 2016); Chief Operating Officer, Liquidnet Holdings, Inc. (December 2011- July 2014). | Director, Caledonia Mining Corporation (since May 2012). | |||||||||||||||
David L. Meyer, 62* | Trustee | December 2008 | Retired. | None. | |||||||||||||||
Gloria S. Nelund, 58 | Trustee | July 2016 | Chair, CEO and Co-Founder of TriLinc Global, LLC, an investment firm. | TriLinc Global Impact Fund, LLC (since 2012); Trustee, RS Investment Trust and RS Variable Products Trust (November 2007-July 2016). | |||||||||||||||
Leigh A. Wilson, 74 | Chair and Trustee | February 1998 | Private Investor. | Chair (since 2013), Caledonia Mining Corporation. | |||||||||||||||
Interested Trustee. | |||||||||||||||||||
David C. Brown, 47** | Trustee | May 2008 | Chairman and Chief Executive Officer (since 2013), Co-Chief Executive Officer (2011-2013), the Adviser; Chairman and Chief Executive Officer, Victory Capital Holdings, Inc. (since 2013). | None. |
* The Board has designated Mr. Meyer and Ms. Beard as its Audit Committee Financial Experts.
** Mr. Brown is an "Interested Person" by reason of his relationship with the Adviser.
The Statement of Additional Information includes additional information about the Trustees of the Trust and is available, without charge, by calling 800-539-3863.
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Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
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Officers:
The officers of the Trust, their ages, commencement of service and their principal occupations during the past five years, are detailed in the following table. Each officer serves until the earlier of his or her resignation, removal, retirement, death, or the election of a successor. The mailing address of each officer of the Trust is 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. The officers of the Trust receive no compensation directly from the Trust for performing the duties of their offices.
Name and Age | Position with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | ||||||||||||
Christopher K. Dyer, 57 | President | February 2006* | Director of Fund Administration, the Adviser. | ||||||||||||
Scott A. Stahorsky, 50 | Vice President | December 2014 | Manager, Fund Administration, the Adviser (since 2015); Senior Analyst, Fund Administration, the Adviser (prior to 2015). | ||||||||||||
Erin G. Wagner, 45 | Secretary | December 2014 | Associate General Counsel, the Adviser (since 2013). | ||||||||||||
Allan Shaer, 54 | Treasurer | May 2017 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc. (since 2016); Vice President, Mutual Fund Administration, JP Morgan Chase (2011-2016). | ||||||||||||
Christopher A. Ponte, 35 | Assistant Treasurer | December 2017 | Manager, Fund Administration, the Adviser (since 2017); Senior Analyst, Fund Administration, the Adviser (prior to 2017); Chief Financial Officer, Victory Capital Advisers, Inc. (since 2018). | ||||||||||||
Colin Kinney, 45 | Chief Compliance Officer | July 2017 | Chief Compliance Officer (since 2013) and Chief Risk Officer (2009-2017), the Adviser. | ||||||||||||
Chuck Booth, 59 | Anti-Money Laundering Compliance Officer and Identity Theft Officer | May 2015 | Director, Regulatory Administration and CCO Support Services, Citi Fund Services Ohio, Inc. | ||||||||||||
Jay G. Baris, 65 | Assistant Secretary | February 1998 | Partner, Shearman & Sterling LLP (since 2018); Partner, Morrison & Foerster LLP (2011- January 2018). |
* On December 3, 2014, Mr. Dyer resigned as Secretary of the Trust and accepted the position of President.
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Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
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Proxy Voting and Portfolio Holdings Information
Proxy Voting:
Information regarding the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 800-539-3863. The information is also included in the Fund's Statement of Additional Information, which is available on the SEC's website at www.sec.gov.
Information relating to how the Fund voted proxies relating to portfolio securities held during the most recent twelve months ended June 30 is available on the SEC's website at www.sec.gov.
Availability of Schedules of Portfolio Investments:
The Trust files a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-PORT. Prior to the implementation of Form N-PORT, the Trust filed a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-PORT and Forms N-Q are available on the SEC's website at www.sec.gov.
Expense Examples
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2019 through June 30, 2019.
The Actual Expense figures in the table below provide information about actual account values and actual expenses. You may use the information below, 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.
The Hypothetical Expense figures in the table below provide 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 this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 1/1/19 | Actual Ending Account Value 6/30/19 | Hypothetical Ending Account Value 6/30/19 | Actual Expenses Paid During Period 1/1/19-6/30/19* | Hypothetical Expenses Paid During Period 1/1/19-6/30/19* | Annualized Expense Ratio During Period 1/1/19-6/30/19 | ||||||||||||||||||
$ | 1,000.00 | $ | 1,189.00 | $ | 1,022.07 | $ | 2.99 | $ | 2.76 | 0.55 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 181/365 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
23
Privacy Policy
Protecting the Privacy of Information
The Trust respects your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information about investment goals and risk tolerance.
We do not disclose any information about you or about former customers to anyone except as permitted or required by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and printers and mailers that assist us in the distribution of investor materials. We may also disclose this information to companies that perform marketing services on our behalf. This allows us to continue to offer you Victory investment products and services that meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only in connection with the services for which we hired them. They are not permitted to use or share this information for any other purpose.
To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information.*
* You may have received communications regarding information about privacy policies from other financial institutions which gave you the opportunity to "opt-out" of certain information sharing with companies which are not affiliated with that financial institution. The Trust does not share information with other companies for purposes of marketing solicitations for products other than the Trust. Therefore, the Trust does not provide opt-out options to their shareholders.
Victory Funds
P.O. Box 182593
Columbus, Ohio 43218-2593
Visit our website at: | Call Victory at: | ||||||
www.vcm.com | 800-539-FUND (800-539-3863) |
VVIF-RS-LCAVIP-SAR (6/19)
June 30, 2019
Semi Annual Report
Victory Variable Insurance Funds
Victory RS Small Cap Growth Equity VIP Series
Beginning January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports may no longer be sent by mail from the insurance company that issued your variable annuity and variable life insurance contract, unless you specifically request paper copies of the reports from your insurance company. Instead, the reports will be made available on www.victoryfunds.com. The insurance company that offers your contract may also make these reports available on a website, and such insurance company will notify you by mail each time a report is posted and provide you with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the insurance company electronically by following the instructions provided by the insurance company.
If offered by your insurance company, you may elect to receive all future reports in paper and free of charge from the insurance company. You can inform your insurance company that you wish to continue receiving paper copies of your reports. Your election to receive reports in paper will apply to all funds available under your contract.
www.vcm.com
News, Information And Education 24 Hours A Day, 7 Days A Week
The Victory Funds site gives fund shareholders, prospective shareholders, and investment professionals a convenient way to access fund information, get guidance, and track fund performance anywhere they can access the Internet. The site includes:
• Detailed performance records
• Daily share prices
• The latest fund news
• Investment resources to help you become a better investor
• A section dedicated to investment professionals
Whether you're a potential investor searching for the fund that matches your investment philosophy, a seasoned investor interested in planning tools, or an investment professional, www.vcm.com has what you seek. Visit us anytime. We're always open.
Victory Variable Insurance Funds
Table of Contents
Financial Statements | |||||||
Investment Objective & Portfolio Holdings | 3 | ||||||
Schedule of Portfolio Investments | 4 | ||||||
Statement of Assets and Liabilities | 8 | ||||||
Statement of Operations | 9 | ||||||
Statements of Changes in Net Assets | 10 | ||||||
Financial Highlights | 12 | ||||||
Notes to Financial Statements | 14 | ||||||
Supplemental Information | |||||||
Trustee and Officer Information | 21 | ||||||
Proxy Voting and Portfolio Holdings Information | 24 | ||||||
Expense Examples | 24 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Advisers, Inc. Victory Capital Management Inc. is the investment adviser to the Fund and receives fees from the Fund for performing services for the Fund.
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus of the Fund.
For additional information about any Victory Fund, including fees, expenses, and risks, view our prospectus online at www.vcm.com or call 800-539-3863. Read it carefully before you invest or send money.
The information in this semi annual report is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections, or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Past investment performance of the Fund, markets or securities mentioned herein should not be considered to be indicative of future results.
• NOT FDIC INSURED • NO BANK GUARANTEE
• MAY LOSE VALUE
Call Victory at:
800-539-FUND (800-539-3863)
Visit our website at:
www.vcm.com
1
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2
Victory Variable Insurance Funds | June 30, 2019 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: The Victory RS Small Cap Growth Equity VIP Series seeks to provide long-term capital growth.
Portfolio Holdings*:
* Percentages are of total investments of the Fund.
3
Victory Variable Insurance Funds Victory RS Small Cap Growth Equity VIP Series | Schedule of Portfolio Investments June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Common Stocks (98.7%) | |||||||||||
Biotechnology (17.7%): | |||||||||||
Aimmune Therapeutics, Inc. (a) (b) | 29,720 | $ | 618,770 | ||||||||
Amicus Therapeutics, Inc. (a) | 102,039 | 1,273,447 | |||||||||
Apellis Pharmaceuticals, Inc. (a) | 44,400 | 1,125,096 | |||||||||
Arena Pharmaceuticals, Inc. (a) (b) | 19,440 | 1,139,767 | |||||||||
Ascendis Pharma A/S, ADR (a) | 9,370 | 1,078,956 | |||||||||
Audentes Therapeutics, Inc. (a) | 24,600 | 931,356 | |||||||||
Bluebird Bio, Inc. (a) (b) | 7,952 | 1,011,494 | |||||||||
Blueprint Medicines Corp. (a) | 13,476 | 1,271,191 | |||||||||
Bridgebio Pharma, Inc. (a) | 16,900 | 455,793 | |||||||||
Celyad SA, ADR (a) (d) | 16,810 | 192,811 | |||||||||
Cytomx Therapeutics, Inc. (a) | 51,400 | 576,708 | |||||||||
Epizyme, Inc. (a) (b) | 45,710 | 573,661 | |||||||||
Equillium, Inc. (a) (d) | 35,207 | 199,272 | |||||||||
Fate Therapeutics, Inc. (a) (b) | 73,420 | 1,490,425 | |||||||||
Gossamer Bio, Inc. (a) (b) | 26,960 | 597,973 | |||||||||
Invitae Corp. (a) | 56,490 | 1,327,515 | |||||||||
Iovance Biotherapeutics, Inc. (a) (b) | 54,574 | 1,338,154 | |||||||||
Kura Oncology, Inc. (a) | 51,260 | 1,009,309 | |||||||||
Ligand Pharmaceuticals, Inc., Class B (a) (b) | 8,598 | 981,462 | |||||||||
Mirati Therapeutics, Inc. (a) (b) | 6,880 | 708,640 | |||||||||
Myovant Sciences Ltd. (a) | 59,783 | 541,036 | |||||||||
Sage Therapeutics, Inc. (a) (b) | 5,446 | 997,108 | |||||||||
19,439,944 | |||||||||||
Communication Services (2.6%): | |||||||||||
Bandwidth, Inc., Class A (a) (b) | 17,800 | 1,335,356 | |||||||||
QuinStreet, Inc. (a) | 68,040 | 1,078,434 | |||||||||
Yelp, Inc. (a) | 13,360 | 456,645 | |||||||||
2,870,435 | |||||||||||
Communications Equipment (1.0%): | |||||||||||
Acacia Communications, Inc. (a) | 22,340 | 1,053,554 | |||||||||
Consumer Discretionary (13.2%): | |||||||||||
Arco Platform Ltd., ADR, Class A (a) | 25,760 | 1,127,773 | |||||||||
Dineequity, Inc. (b) | 22,320 | 2,130,890 | |||||||||
Eldorado Resorts, Inc. (a) (b) | 23,840 | 1,098,309 | |||||||||
G-III Apparel Group Ltd. (a) | 30,390 | 894,074 | |||||||||
Grand Canyon Education, Inc. (a) | 5,859 | 685,620 | |||||||||
Monro Muffler Brake, Inc. (b) | 18,250 | 1,556,725 | |||||||||
Ollie's Bargain Outlet Holdings, Inc. (a) | 9,498 | 827,371 | |||||||||
Planet Fitness, Inc., Class A (a) | 15,900 | 1,151,796 | |||||||||
Red Rock Resorts, Inc., Class A | 39,410 | 846,527 | |||||||||
Shake Shack, Inc., Class A (a) | 15,740 | 1,136,428 | |||||||||
Steven Madden Ltd. | 33,873 | 1,149,988 | |||||||||
Strategic Education, Inc. | 10,120 | 1,801,360 | |||||||||
14,406,861 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory RS Small Cap Growth Equity VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Consumer Staples (4.1%): | |||||||||||
BJ's Wholesale Club Holdings, Inc. (a) | 55,640 | $ | 1,468,896 | ||||||||
Freshpet, Inc. (a) (b) | 17,326 | 788,506 | |||||||||
Nomad Foods Ltd., ADR (a) | 106,560 | 2,276,121 | |||||||||
4,533,523 | |||||||||||
Electronic Equipment, Instruments & Components (1.0%): | |||||||||||
Littelfuse, Inc. | 5,959 | 1,054,207 | |||||||||
Energy (1.4%): | |||||||||||
Matador Resources Co. (a) (b) | 26,760 | 531,989 | |||||||||
Newpark Resources, Inc. (a) (b) | 136,639 | 1,013,861 | |||||||||
1,545,850 | |||||||||||
Financials (6.5%): | |||||||||||
eHealth, Inc. (a) | 14,320 | 1,232,952 | |||||||||
Essent Group Ltd. (a) | 20,950 | 984,441 | |||||||||
Firstcash, Inc. (b) | 17,470 | 1,747,349 | |||||||||
Kemper Corp. | 22,520 | 1,943,251 | |||||||||
LendingTree, Inc. (a) (b) | 2,480 | 1,041,674 | |||||||||
Primerica, Inc. | 1,740 | 208,713 | |||||||||
7,158,380 | |||||||||||
Health Care Equipment & Supplies (5.8%): | |||||||||||
Cryoport, Inc. (a) | 30,380 | 556,562 | |||||||||
Glaukos Corp. (a) | 12,210 | 920,634 | |||||||||
Insulet Corp. (a) (b) | 12,040 | 1,437,335 | |||||||||
Irhythm Technologies, Inc. (a) | 6,310 | 498,995 | |||||||||
Masimo Corp. (a) | 13,440 | 2,000,141 | |||||||||
Penumbra, Inc. (a) (b) | 5,730 | 916,800 | |||||||||
Silk Road Medical, Inc. (a) | 420 | 20,353 | |||||||||
6,350,820 | |||||||||||
Health Care Providers & Services (2.2%): | |||||||||||
Hanger, Inc. (a) | 37,510 | 718,317 | |||||||||
HealthEquity, Inc. (a) | 8,580 | 561,132 | |||||||||
LHC Group, Inc. (a) | 9,780 | 1,169,492 | |||||||||
2,448,941 | |||||||||||
Health Care Technology (0.3%): | |||||||||||
Inspire Medical System, Inc. (a) (b) | 5,790 | 351,164 | |||||||||
Industrials (11.9%): | |||||||||||
Advanced Disposal Services, Inc. (a) | 24,030 | 766,797 | |||||||||
Altra Industrial Motion Corp. | 23,830 | 855,020 | |||||||||
Armstrong World Industries, Inc. | 5,580 | 542,376 | |||||||||
Axon Enterprise, Inc. (a) (b) | 23,350 | 1,499,304 | |||||||||
Azul SA, ADR (a) (b) | 29,080 | 972,435 | |||||||||
Generac Holdings, Inc. (a) (b) | 13,910 | 965,493 | |||||||||
Harsco Corp. (a) | 66,480 | 1,824,212 | |||||||||
Proto Labs, Inc. (a) | 6,050 | 701,921 | |||||||||
Simpson Manufacturing Co., Inc. | 16,350 | 1,086,621 | |||||||||
Siteone Landscape Supply, Inc. (a) (b) | 26,220 | 1,817,046 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory RS Small Cap Growth Equity VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Trex Co., Inc. (a) (b) | 15,120 | $ | 1,084,104 | ||||||||
Watts Water Technologies, Inc., Class A | 8,190 | 763,144 | |||||||||
12,878,473 | |||||||||||
IT Services (10.0%): | |||||||||||
Euronet Worldwide, Inc. (a) | 16,283 | 2,739,453 | |||||||||
Evo Payments, Inc. (a) | 41,210 | 1,299,351 | |||||||||
InterXion Holding NV, ADR (a) | 30,580 | 2,326,832 | |||||||||
Liveramp Holdings, Inc. (a) | 18,430 | 893,486 | |||||||||
Wix.com Ltd., ADR (a) | 17,510 | 2,488,171 | |||||||||
WNS Holdings Ltd., ADR (a) | 20,776 | 1,229,939 | |||||||||
10,977,232 | |||||||||||
Materials (2.5%): | |||||||||||
Ashland Global Holdings, Inc. | 19,140 | 1,530,626 | |||||||||
Ingevity Corp. (a) (b) | 11,560 | 1,215,765 | |||||||||
2,746,391 | |||||||||||
Pharmaceuticals (1.3%): | |||||||||||
GW Pharmaceuticals PLC, ADR (a) (b) | 8,450 | 1,456,696 | |||||||||
Semiconductors & Semiconductor Equipment (6.5%): | |||||||||||
Advanced Energy Industries, Inc. (a) | 15,990 | 899,757 | |||||||||
Cabot Microelectronics Corp. | 12,740 | 1,402,419 | |||||||||
Inphi Corp. (a) | 27,740 | 1,389,774 | |||||||||
MKS Instruments, Inc. | 11,650 | 907,419 | |||||||||
Monolithic Power Systems, Inc. (b) | 8,567 | 1,163,227 | |||||||||
Silicon Laboratories, Inc. (a) | 13,470 | 1,392,798 | |||||||||
7,155,394 | |||||||||||
Software (10.7%): | |||||||||||
ACI Worldwide, Inc. (a) | 40,410 | 1,387,679 | |||||||||
Cornerstone OnDemand, Inc. (a) | 38,230 | 2,214,664 | |||||||||
Coupa Software, Inc. (a) | 20,000 | 2,532,201 | |||||||||
Envestnet, Inc. (a) | 16,140 | 1,103,492 | |||||||||
Everbridge, Inc. (a) | 15,720 | 1,405,682 | |||||||||
Q2 Holdings, Inc. (a) | 10,690 | 816,288 | |||||||||
RingCentral, Inc., Class A (a) | 19,378 | 2,226,920 | |||||||||
11,686,926 | |||||||||||
Total Common Stocks (Cost $84,039,734) | 108,114,791 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory RS Small Cap Growth Equity VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Collateral for Securities Loaned^ (18.2%) | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 2.43% (c) | 4,173,302 | $ | 4,173,302 | ||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 2.28% (c) | 5,375,691 | 5,375,691 | |||||||||
Fidelity Investments Prime Money Market Portfolio, Class I, 2.39% (c) | 139,606 | 139,606 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 2.48% (c) | 2,295,010 | 2,295,010 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 2.41% (c) | 3,129,490 | 3,129,490 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 2.42% (c) | 4,868,274 | 4,868,274 | |||||||||
Total Collateral for Securities Loaned (Cost $19,981,373) | 19,981,373 | ||||||||||
Total Investments (Cost $104,021,107) — 116.9% | 128,096,164 | ||||||||||
Liabilities in excess of other assets — (16.9)% | (18,479,117 | ) | |||||||||
NET ASSETS — 100.00% | $ | 109,617,047 |
^ Purchased with cash collateral from securities on loan.
(a) Non-income producing security.
(b) All or a portion of this security is on loan.
(c) Rate disclosed is the daily yield on June 30, 2019.
(d) The Fund's Adviser has deemed these securiiesy to be illiquid based upon procedures approved by the Board of Trustees. As of June 30, 2019, illiquid securities were 0.4% of the Fund's net assets.
ADR — American Depositary Receipt
PLC — Public Limited Company
See notes to financial statements.
7
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2019 |
(Unaudited)
Victory RS Small Cap Growth Equity VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $104,021,107) | $ | 128,096,164 | (a) | ||||
Cash and cash equivalents | 2,273,651 | ||||||
Interest and dividends receivable | 34,201 | ||||||
Receivable for investments sold | 79,707 | ||||||
Receivable from Adviser | 29,687 | ||||||
Prepaid expenses | 2,863 | ||||||
Total Assets | 130,516,273 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 19,981,373 | ||||||
Investments purchased | 779,236 | ||||||
Capital shares redeemed | 43,964 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 65,847 | ||||||
Administration fees | 5,408 | ||||||
Custodian fees | 788 | ||||||
Transfer agent fees | 11,013 | ||||||
Chief Compliance Officer fees | 135 | ||||||
Other accrued expenses | 11,462 | ||||||
Total Liabilities | 20,899,226 | ||||||
NET ASSETS: | |||||||
Capital | 58,075,882 | ||||||
Total distributable earnings/(loss) | 51,541,165 | ||||||
Net Assets | $ | 109,617,047 | |||||
Shares Outstanding (unlimited shares authorized, with a par value of $0.001 per share): | 5,438,596 | ||||||
Net asset value: | $ | 20.16 |
(a) Includes $19,826,642 of securities on loan.
See notes to financial statements.
8
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2019 |
(Unaudited)
Victory RS Small Cap Growth Equity VIP Series | |||||||
Investment Income: | |||||||
Dividends | $ | 166,002 | |||||
Interest | 23,669 | ||||||
Securities lending (net of fees) | 15,425 | ||||||
Total Income | 205,096 | ||||||
Expenses: | |||||||
Investment advisory fees | 387,407 | ||||||
Administration fees | 32,633 | ||||||
Custodian fees | 2,912 | ||||||
Transfer agent fees | 68,447 | ||||||
Trustees' fees | 4,517 | ||||||
Chief Compliance Officer fees | 364 | ||||||
Legal and audit fees | 8,715 | ||||||
Other expenses | 10,099 | ||||||
Total Expenses | 515,094 | ||||||
Expenses waived/reimbursed by Adviser | (60,043 | ) | |||||
Net Expenses | 455,051 | ||||||
Net Investment Income (Loss) | (249,955 | ) | |||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities | 6,626,837 | ||||||
Net change in unrealized appreciation/depreciation on investment securities | 21,377,000 | ||||||
Net realized/unrealized gains (losses) on investments | 28,003,837 | ||||||
Change in net assets resulting from operations | $ | 27,753,882 |
See notes to financial statements.
9
Victory Variable Insurance Funds | Statements of Changes in Net Assets |
Victory RS Small Cap Growth Equity VIP Series | |||||||||||
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | ||||||||||
(Unaudited) | |||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | (249,955 | ) | $ | (500,451 | ) | |||||
Net realized gains (losses) from investments | 6,626,837 | 22,267,262 | |||||||||
Net change in unrealized appreciation/depreciation on investments | 21,377,000 | (28,678,125 | ) | ||||||||
Change in net assets resulting from operations | 27,753,882 | (6,911,314 | ) | ||||||||
Change in net assets resulting from distributions to shareholders | — | (16,485,913 | ) | ||||||||
Change in net assets resulting from capital transactions | (7,192,809 | ) | 982,954 | ||||||||
Change in net assets | 20,561,073 | (22,414,273 | ) | ||||||||
Net Assets: | |||||||||||
Beginning of period | 89,055,974 | 111,470,247 | |||||||||
End of period | $ | 109,617,047 | $ | 89,055,974 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 1,876,324 | $ | 6,277,058 | |||||||
Distributions reinvested | — | 16,485,913 | |||||||||
Cost of shares redeemed | (9,069,133 | ) | (21,780,017 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (7,192,809 | ) | $ | 982,954 | ||||||
Share Transactions: | |||||||||||
Issued | 101,161 | 284,919 | |||||||||
Reinvested | — | 1,088,898 | |||||||||
Redeemed | (487,143 | ) | (991,856 | ) | |||||||
Change in Shares | (385,982 | ) | 381,961 |
See notes to financial statements.
10
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11
Victory Variable Insurance Funds | Financial Highlights |
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholder From | ||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gains (Losses) on Investments | Total from Investment Activities | Net Realized Gains From Investments | Total Distributions | ||||||||||||||||||||||
Victory RS Small Cap Growth Equity VIP Series | |||||||||||||||||||||||||||
Six Months Ended 6/30/19 (unaudited) | $ | 15.29 | (0.04 | )(d) | 4.91 | 4.87 | — | — | |||||||||||||||||||
Year Ended 12/31/18 | $ | 20.48 | (0.10 | )(d) | (1.62 | ) | (1.72 | ) | (3.47 | ) | (3.47 | ) | |||||||||||||||
Year Ended 12/31/17 | $ | 14.82 | (0.05 | )(d) | 5.71 | 5.66 | — | — | |||||||||||||||||||
Year Ended 12/31/16 | $ | 14.61 | (0.05 | )(d) | 0.25 | 0.20 | — | — | |||||||||||||||||||
Year Ended 12/31/15 | $ | 17.47 | (0.10 | )(d) | 0.24 | 0.14 | (3.00 | ) | (3.00 | ) | |||||||||||||||||
Year Ended 12/31/14 | $ | 18.87 | (0.10 | ) | 1.98 | 1.88 | (3.28 | ) | (3.28 | ) |
(a) Not annualized for periods less than one year.
(b) Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(c) Annualized for periods less than one year.
(d) Per share net investment income (loss) has been calculated using the average daily shares method.
(e) The Fund received monies related to a nonrecurring refund from the prior Custodian. The corresponding impact to the total return was less than 0.01% for the period shown. (See Note 8)
(f) During the period, certain fees were reduced and/or reimbursed. If such fee reductions and/or reimbursements had not occurred, the ratios would have been as indicated.
See notes to financial statements.
12
Victory Variable Insurance Funds | Financial Highlights — continued |
For a Share Outstanding Throughout Each Period
Ratios to Average Net Assets | Supplemental Data | ||||||||||||||||||||||||||||||||||
Capital contributions from prior custodian, Net (See Note 8) | Net Asset Value, End of Period | Total Return(a)(b) | Net Expenses(c) | Net Investment Income (Loss)(c) | Gross Expenses(c) | Net Assets, End of Period (000's) | Portfolio Turnover(a) | ||||||||||||||||||||||||||||
Victory RS Small Cap Growth Equity VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended 6/30/19 (unaudited) | — | $ | 20.16 | 31.85 | % | 0.88 | % | (0.48 | )% | 1.00 | %(f) | $ | 109,617 | 45 | % | ||||||||||||||||||||
Year Ended 12/31/18 | — | $ | 15.29 | (8.25 | )% | 0.88 | % | (0.44 | )% | 0.89 | %(f) | $ | 89,056 | 76 | % | ||||||||||||||||||||
Year Ended 12/31/17 | — | $ | 20.48 | 38.19 | % | 0.87 | % | (0.30 | )% | 0.87 | % | $ | 111,470 | 71 | % | ||||||||||||||||||||
Year Ended 12/31/16 | 0.01 | $ | 14.82 | 1.44 | %(e) | 0.88 | % | (0.39 | )% | 0.88 | % | $ | 97,242 | 91 | % | ||||||||||||||||||||
Year Ended 12/31/15 | — | $ | 14.61 | 0.62 | % | 0.88 | % | (0.54 | )% | 0.88 | % | $ | 106,962 | 88 | % | ||||||||||||||||||||
Year Ended 12/31/14 | — | $ | 17.47 | 10.13 | % | 0.86 | % | (0.60 | )% | 0.86 | % | $ | 118,144 | 95 | % |
See notes to financial statements.
13
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2019 |
(Unaudited)
1. Organization:
Victory Variable Insurance Funds (the "Trust") was organized on February 11, 1998 as a Delaware statutory trust. The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end investment company. The Trust is comprised of nine funds and is authorized to issue an unlimited number of shares, which are units of beneficial interest with a par value of $0.001 per share.
The accompanying financial statements are those of the Victory RS Small Cap Growth Equity VIP Series (the "Fund"). The Fund offers a single class of shares: Class I Shares. Sales of shares of the Fund may only be made to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. ("GIAC") that fund certain variable annuity and variable life insurance contracts issued by GIAC. GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America ("Guardian Life").
Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. The Fund follows the specialized accounting and reporting requirements under GAAP that are applicable to investment companies.
Investment Valuation:
The Fund records investments at fair value. Fair value is defined 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.
The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund's investments are summarized in the three broad levels listed below:
• Level 1 — quoted prices in active markets for identical securities
• Level 2 — other significant observable inputs (including quoted prices for similar securities or interest rates applicable to those securities, etc.)
• Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The inputs or methodologies used for valuation techniques are not necessarily an indication of the risk associated with entering into those investments.
Portfolio securities listed or traded on securities exchanges, including American Depositary Receipts ("ADRs") and Rights, are valued at the closing price on the exchange or system where the security is principally traded, if available, or at the Nasdaq Official Closing Price. If there have been no sales for that day on the exchange or system, then a security is valued at the last available bid quotation on the exchange or system where the security is principally traded. In each of these situations, valuations are typically categorized as Level 1 in the fair value hierarchy.
14
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Investments for which there are no such quotations, or for which quotations do not appear reliable, are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Trust's Board of Trustees (the "Board"). These valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based on the observability of inputs used to determine the fair value.
A summary of the valuations as of June 30, 2019, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed in the Schedule of Portfolio Investments:
LEVEL 1 — Quoted Prices | LEVEL 2 — Other Significant Observable Inputs | LEVEL 3 — Other Significant Unobservable Inputs | Total | ||||||||||||||||
Investments in Securities | Investments in Securities | Investments in Securities | Investments in Securities | ||||||||||||||||
Common Stocks | $ | 108,114,791 | $ | — | $ | — | $ | 108,114,791 | |||||||||||
Collateral for Securities Loaned | 19,981,373 | — | — | 19,981,373 | |||||||||||||||
Total | $ | 128,096,164 | $ | — | $ | — | $ | 128,096,164 |
For the six months ended June 30, 2019, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
Investment Transactions and Related Income:
Changes in holdings of investments are accounted for no later than one business day following the trade date. For financial reporting purposes, however, investment transactions are accounted for on trade date on the last business day of the reporting period. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date. Gains or losses realized on sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds.
Withholding taxes on interest, dividends and gains as a result of certain investments in ADRs by the Fund have been provided for in accordance with each investment's applicable country's tax rules and rates.
Securities Lending:
The Trust has entered into a Master Securities Lending Agreement ("MSLA") with Citibank, N.A. ("Citibank" or the "Agent"). Under the terms of the MSLA, the Fund may lend securities to certain broker-dealers and banks in exchange for collateral in the amount of at least 102% of the value of U.S. securities loaned or at least 105% of the value of non-U.S. securities loaned, marked-to-market daily. Any collateral shortfalls associated with increases in the valuation of the securities loaned are adjusted the next business day. The collateral can be received in the form of cash collateral and/or non-cash collateral. Non-cash collateral can include U.S. Government Securities, letters of credit and certificates of deposit. The cash collateral is invested in short-term instruments or cash equivalents as noted on the Fund's Schedule of Portfolio Investments. The Trust does not have effective control of the non-cash collateral and therefore it is not disclosed in the Fund's Schedule of Portfolio Investments. The Fund continues to benefit from interest or dividends on the securities loaned and may also earn a return from the collateral. The Fund pays various fees in connection with the investment of cash collateral. The Fund pays the Agent fees based on the investment income received from securities lending activities. Securities lending income is disclosed in the Fund's Statement of Operations. Although risk is mitigated by the collateral, the Fund could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them.
Securities lending transactions are entered into by the Fund under the MSLA, which permits the Fund, under certain circumstances such as an event of default, to offset amounts payable by the Fund to the same counterparty against amounts receivable from the counterparty to create a net payment due to or from the Fund.
15
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
The following table is a summary of the Fund's securities lending transactions which are subject to offset under the MSLA as of June 30, 2019. These transactions are accounted for as secured borrowings with an overnight and continuous contractual maturity for cash collateral, and greater than overnight and continuous contractual maturity for non-cash collateral.
Gross Amount of Recognized Assets (Value of | Value of Cash | Value of Non-cash Collateral Received by Maturity | |||||||||||||||||||||
Securities on Loan) | Collateral Received* | <30 Days | Between 30 & 90 days | >90 Days | Net Amount | ||||||||||||||||||
$ | 19,826,642 | $ | 19,826,642 | $ | — | $ | — | $ | — | $ | — |
* Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by the Fund is disclosed in the Statement of Assets and Liabilities.
Dividends to Shareholders:
Dividends from net investment income, if any, are declared and paid annually by the Fund. Distributable net realized gains, if any, are declared and distributed at least annually.
The amounts of dividends from net investment income and distributions from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these "book/tax" differences are permanent in nature (e.g., net operating loss and distribution reclassification), such amounts are reclassified within the components of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales) do not require reclassification. To the extent dividends and distributions exceed net investment income and net realized gains for tax purposes, they are reported as distributions of capital. Net investment losses incurred by the Fund may be reclassified as an offset to capital on the accompanying Statement of Assets and Liabilities.
Federal Income Taxes:
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes is required in the financial statements. The Fund has a tax year end of December 31.
Management of the Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Allocations:
Expenses directly attributable to the Fund are charged to the Fund, while expenses which are attributable to more than one fund in the Trust, or jointly with an affiliated trust, are allocated among the respective funds in the Trust and/or affiliated trust based upon net assets or another appropriate basis.
Affiliated Securities Transactions:
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Adviser and any applicable sub-adviser. Any such purchase or sale transaction must be effected without brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security's last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. For the six months ended June 30, 2019, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
16
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding securities maturing less than one year from acquisition) for the six months ended June 30, 2019 were as follows for the Fund:
Purchases | Sales | ||||||
$ | 45,265,489 | $ | 52,781,475 |
For the six months ended June 30, 2019, there were no purchases or sales of U.S. Government Securities.
4. Fees and Transactions with Affiliates and Related Parties:
Investment advisory services are provided to the Fund by Victory Capital Management Inc. ("VCM" or the "Adviser"), a New York corporation registered as an investment adviser with the Securities and Exchange Commission ("SEC"). The Adviser is a wholly-owned indirect subsidiary of Victory Capital Holdings, Inc., a publicly traded Delaware corporation, and a wholly-owned direct subsidiary of Victory Capital Operating, LLC.
Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive 0.75% of the average daily net assets of the Fund. The Adviser may use its resources to assist with the Fund's distribution and marketing expenses.
VCM also serves as the Fund's administrator and fund accountant. Under an Administration and Fund Accounting Agreement, VCM is paid for its services an annual fee at a rate of 0.08% of the first $15 billion in average daily net assets of the Trust, Victory Portfolios and Victory Portfolios II (collectively, the "Victory Funds Complex"), 0.05% of the average daily net assets above $15 billion to $30 billion of the Victory Funds Complex and 0.04% of the average daily net assets over $30 billion of the Victory Funds Complex.
Citi Fund Services Ohio, Inc. ("Citi"), an affiliate of Citibank, N.A., acts as sub-administrator and sub-fund accountant to the Fund pursuant to a Sub-Administration and Sub-Fund Accounting Services Agreement between VCM and Citi. VCM pays Citi a fee for providing these services. The Trust reimburses VCM and Citi for all of their reasonable out-of-pocket expenses incurred in providing these services.
FIS Investor Services, LLC ("FIS") serves as the Fund's transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Chief Compliance Officer ("CCO") is an employee of the Adviser, which pays the compensation of the CCO and his support staff. The Trust has entered into an Agreement to provide compliance services with the Adviser, pursuant to which the Adviser furnishes its compliance personnel, including the services of the CCO, and other resources reasonably necessary to provide the Trust with compliance oversight services related to the design, administration and oversight of a compliance program for the Trust in accordance with Rule 38a-1 under the 1940 Act. The funds in the Victory Funds Complex, in the aggregate, compensate the Adviser for these services.
The Victory Funds Complex pays an annual retainer to each Independent Trustee, plus an additional annual retainer to the Chairman of the Board. The aggregate amount of the fees and expenses of the Independent Trustees are allocated amongst all the funds in the Victory Funds Complex and are presented in the Statement of Operations.
Shearman & Sterling LLP provides legal services to the Trust.
Victory Capital Advisers, Inc. (the "Distributor"), an affiliate of the Adviser, serves as distributor for the continuous offering of the shares of the Fund pursuant to a Distribution Agreement between the Distributor and the Trust.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2020. Under the terms of the agreement, the Adviser has agreed to waive fees or reimburse certain expenses to the extent that ordinary operating expenses incurred by the Fund in any fiscal year exceed the expense limit for the Fund. Such excess amounts will be the liability of the Adviser. Interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with GAAP, and other extraordinary expenses not incurred in the ordinary course of a Fund's business are excluded from the expense limits. For the six months ended June 30, 2019, the expense limit (excluding voluntary waivers) is 0.88%.
17
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
The Fund has agreed to repay fees and expenses that were waived or reimbursed by the Adviser for a period up to three fiscal years after such waiver or reimbursement was made to the extent such payments or repayments would not cause the expenses of a class to exceed the original expense limitation in place at time of the waiver or reimbursement or any expense limitation agreement in place at the time of repayment. As of June 30, 2019, the following amounts are available to be repaid to the Adviser. Amounts repaid to the Adviser during the six months ended, if any, are reflected on the Statement of Operations as "Recoupment of prior expenses waived/reimbursed by Adviser".
Expires 12/31/2019 | Expires 12/31/2021 | Expires 12/31/2022 | |||||||||
$ | 1,642 | $ | 5,628 | $ | 60,043 |
The Adviser may voluntarily waive or reimburse additional fees to assist the Fund in maintaining a competitive expense ratio. Voluntary waivers and reimbursements applicable to the Fund are not available to be recouped at a future time. There were no voluntary waivers or reimbursements for the year ended June 30, 2019.
Certain officers and/or interested trustees of the Fund are also officers and/or employees of the Adviser, Administrator, Fund Accountant, Sub-Administrator, Sub-Fund Accountant and Legal Counsel.
5. Risks:
The Fund may be subject to other risks in addition to these identified risks.
An investment in the Fund's shares represents an indirect investment in the securities owned by the Fund, some of which will be traded on a national securities exchange or in the over-the-counter markets. The value of the securities in which the Fund invests, like other market investments, may move up or down, sometimes rapidly and unpredictably. The value of the securities in which the Fund invests may affect the value of the Fund's shares. An investment in the Fund's shares at any point in time may be worth less than the original investment, even after taking into account the reinvestment of the Fund's distributions.
The Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties for financial instruments entered into by the Fund. The Fund may be negatively impacted 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 bankruptcy or other reorganization proceeding and the Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund typically enters into transactions with counterparties whose credit ratings are investment grade, as determined by a nationally recognized statistical rating organization or, if unrated, judged by the Adviser to be of comparable quality.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2019, the Victory Funds Complex participated in a short-term, demand note "Line of Credit" agreement with Citibank. Under the agreement with Citibank, the Victory Funds Complex may have borrowed up to $250 million, of which $100 million was committed and $150 million was uncommitted. This agreement was in effect through July 26, 2019. Effective July 1, 2019, the current agreement was amended to include the USAA Mutual Funds Complex and has a new termination date of June 29, 2020. Under this amended agreement, the Victory Funds Complex and USAA Funds Complex, combined, may borrow up to $600 million, of which $300 million is committed and $300 million is uncommitted. $40 million of the Line of Credit is reserved for use by the Victory Floating Rate Fund, another series of the Victory Funds Complex, with that Fund paying the related commitment fees for that amount. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. With the agreement in affect for the six months ended June 30, 2019, Citibank received an annual commitment fee of 0.15% on $100 million for providing the Line of Credit. For the six months
18
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
ended June 30, 2019, Citibank earned approximately $76 thousand in commitment fees from the Victory Funds Complex. Effective July 1, 2019, Citibank receives an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest on amounts borrowed, including the USAA Funds Complex, commencing July 1, 2019. Interest charged to the Fund during the period is presented on the Statement of Operations under line of credit fees.
The Fund did not utilize the Line of Credit during the six months ended June 30, 2019.
Interfund Lending:
The Trust and Adviser rely on an exemptive order granted by the SEC in March 2017 (the "Order"), permitting the establishment and operation of an Interfund Lending Facility (the "Facility"). The Facility allows the Fund to directly lend and borrow money to or from any other Victory Fund relying upon the Order at rates beneficial to both the borrowing and lending funds. Advances under the Facility are allowed for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities, and are subject to each Fund's borrowing restrictions. The interfund loan rate is determined, as specified in the Order, by averaging the current repurchase agreement rate and the current bank loan rate. As a Borrower, interest charged to the Fund during the period is presented on the Statement of Operations under interfund lending fees. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Income on interfund lending.
The Fund did not participate in the Facility during the six months ended June 30, 2019.
7. Federal Income Tax Information:
The tax character of current year distributions paid and the tax basis of the current components of accumulated earnings (deficit) will be determined at the end of the current tax year ending December 31, 2019.
The tax character of distributions paid during the most recent tax year ended December 31, 2018 was as follows (total distributions paid may differ from the Statement of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid).
Distributions paid from | |||||||||||
Ordinary Income | Net Long-Term Capital Gains | Total Distributions Paid | |||||||||
$ | 411,847 | $ | 16,074,066 | $ | 16,485,913 |
As of the most recent tax year ended December 31, 2018, the components of accumulated earnings (deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Unrealized Appreciation (Depreciation)* | Total Accumulated Earnings (Deficit) | |||||||||||||||
$ | 90,732 | $ | 21,803,368 | $ | 21,894,100 | $ | 1,893,183 | $ | 23,787,283 |
*The difference between the book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to tax deferral of losses on wash sales.
During the most recent tax year ended December 31, 2018, the Fund did not utilize any capital loss carryforwards.
19
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
At the six months ended June 30, 2019, the cost basis for federal income tax purposes, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) for investments were as follows:
Cost of Investments for Federal Tax Purposes | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||||||||||
$ | 104,564,153 | $ | 27,416,428 | $ | (3,844,417 | ) | $ | 23,532,011 |
8. Capital Contribution from Prior Custodian:
During 2016, the Fund received notification from the Fund's prior custodian, State Street Bank and Trust ("State Street"), concerning issues related to billing on certain categories of expenses during the approximately 16-year period from 1998 through October 31, 2014. The over-billing primarily related to categories of expenses that involved an allocation of general costs among multiple clients.
State Street paid the refunded amounts during January 2017. Based on billing information received during 2016 from State Street and an analysis of any expense limitation agreements that were in place during the period of the activities in question, including the application of any recoupment provisions in such agreements, the Adviser received a portion of the refund.
The portion of the refund retained by the Fund was accounted for as a capital contribution and is reflected on the Financial Highlights as "Capital Contribution from Prior Custodian, Net".
9. Fund Ownership:
Ownership of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2(a)(9) of the 1940 Act. As of June 30, 2019, the shareholders listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund.
Shareholder | Percent | ||||||
The Guardian Insurance & Annuity Company, Inc. | 99.9 | % |
10. Recent Accounting Pronouncements:
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-13, "Fair Value Measurements" ("ASU 2018-13"). This update makes certain removals from, changes to and additions to existing disclosure requirements for fair value measurements. ASU 2018-13 does not change fair value measurements already required or permitted by existing standards. ASU 2018-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As permitted, the Fund has early adopted ASU 2018-13 with the financial statements prepared as of June 30, 2019.
11. Subsequent Events:
The Fund has evaluated the need for additional disclosures or adjustments resulting from subsequent events through the date these financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have a material impact on the Fund's financial statements.
20
Victory Variable Insurance Funds | Supplemental Information June 30, 2019 |
(Unaudited)
Trustee and Officer Information
Board of Trustees:
Overall responsibility for management of the Trust rests with the Board. The Trust is managed by the Board in accordance with the laws of the State of Delaware. There are currently ten Trustees, nine of whom are not "interested persons" of the Trust within the meaning of that term under the 1940 Act ("Independent Trustees") and one of whom is an "interested person" of the Trust within the meaning of that term under the 1940 Act ("Interested Trustee"). The Trustees, in turn, elect the officers of the Trust to actively supervise its day-to-day operations.
The following tables list the Trustees, their ages, position with the Trust, commencement of service, principal occupations during the past five years and any directorships of other investment companies or companies whose securities are registered under the Securities Exchange Act of 1934, as amended, or who file reports under that Act. Each Trustee oversees nine portfolios in the Trust, 42 portfolios in Victory Portfolios and 20 portfolios in Victory Portfolios II, each a registered investment company that, together with the Trust, comprise the Victory Funds Complex. Each Trustee's address is c/o Victory Variable Insurance Funds, 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. Each Trustee has an indefinite term.
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Independent Trustees. | |||||||||||||||||||
David Brooks Adcock, 67 | Trustee | February 2005 | Consultant (since 2006). | Chair and Trustee, Turner Funds (December 2016-December 2017). | |||||||||||||||
Nigel D.T. Andrews, 72 | Vice Chair and Trustee | August 2002 | Retired. | Director, TCG BDC II, Inc. (since 2017); Director, TCG BDC I, Inc. (formerly Carlyle GMS Finance, Inc.) (since 2012); Director, Old Mutual US Asset Management (2002-2014). | |||||||||||||||
E. Lee Beard, 68* | Trustee | February 2005 | Retired (since 2015); Consultant, The Henlee Group, LLC (consulting) (2005-2015). | None. | |||||||||||||||
Dennis M. Bushe, 75 | Trustee | July 2016 | Retired. | Trustee, RS Investment Trust and RS Variable Products Trust (November 2011-July 2016). |
21
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Sally M. Dungan, 65 | Trustee | February 2011 | Chief Investment Officer, Tufts University (since 2002). | None. | |||||||||||||||
John L. Kelly, 66 | Trustee | February 2015 | Partner, McCarvill Capital Partners (September 2016-September 2017); Advisor, Endgate Commodities LLC (January 2016-April 2016); Managing Partner, Endgate Commodities LLC (August 2014-January 2016); Chief Operating Officer, Liquidnet Holdings, Inc. (December 2011-July 2014). | Director, Caledonia Mining Corporation (since May 2012). | |||||||||||||||
David L. Meyer, 62* | Trustee | December 2008 | Retired. | None. | |||||||||||||||
Gloria S. Nelund, 58 | Trustee | July 2016 | Chair, CEO and Co-Founder of TriLinc Global, LLC, an investment firm. | TriLinc Global Impact Fund, LLC (since 2012); Trustee, RS Investment Trust and RS Variable Products Trust (November 2007-July 2016). | |||||||||||||||
Leigh A. Wilson, 74 | Chair and Trustee | February 1998 | Private Investor. | Chair (since 2013), Caledonia Mining Corporation. | |||||||||||||||
Interested Trustee. | |||||||||||||||||||
David C. Brown, 47** | Trustee | May 2008 | Chairman and Chief Executive Officer (since 2013), Co-Chief Executive Officer (2011-2013), the Adviser; Chairman and Chief Executive Officer, Victory Capital Holdings, Inc. (since 2013). | None. |
* The Board has designated Mr. Meyer and Ms. Beard as its Audit Committee Financial Experts.
** Mr. Brown is an "Interested Person" by reason of his relationship with the Adviser.
The Statement of Additional Information includes additional information about the Trustees of the Trust and is available, without charge, by calling 800-539-3863.
22
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Officers:
The officers of the Trust, their ages, commencement of service and their principal occupations during the past five years, are detailed in the following table. Each officer serves until the earlier of his or her resignation, removal, retirement, death, or the election of a successor. The mailing address of each officer of the Trust is 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. The officers of the Trust receive no compensation directly from the Trust for performing the duties of their offices.
Name and Age | Position with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | ||||||||||||
Christopher K. Dyer, 57 | President | February 2006* | Director of Fund Administration, the Adviser. | ||||||||||||
Scott A. Stahorsky, 50 | Vice President | December 2014 | Manager, Fund Administration, the Adviser (since 2015); Senior Analyst, Fund Administration, the Adviser (prior to 2015). | ||||||||||||
Erin G. Wagner, 45 | Secretary | December 2014 | Associate General Counsel, the Adviser (since 2013). | ||||||||||||
Allan Shaer, 54 | Treasurer | May 2017 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc. (since 2016); Vice President, Mutual Fund Administration, JP Morgan Chase (2011-2016). | ||||||||||||
Christopher A. Ponte, 35 | Assistant Treasurer | December 2017 | Manager, Fund Administration, the Adviser (since 2017); Senior Analyst, Fund Administration, the Adviser (prior to 2017); Chief Financial Officer, Victory Capital Advisers, Inc. (since 2018). | ||||||||||||
Colin Kinney, 45 | Chief Compliance Officer | July 2017 | Chief Compliance Officer (since 2013) and Chief Risk Officer (2009-2017), the Adviser. | ||||||||||||
Chuck Booth, 59 | Anti-Money Laundering Compliance Officer and Identity Theft Officer | May 2015 | Director, Regulatory Administration and CCO Support Services, Citi Fund Services Ohio, Inc. | ||||||||||||
Jay G. Baris, 65 | Assistant Secretary | February 1998 | Partner, Shearman & Sterling LLP (since 2018); Partner, Morrison & Foerster LLP (2011-January 2018). |
* On December 3, 2014, Mr. Dyer resigned as Secretary of the Trust and accepted the position of President.
23
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Proxy Voting and Portfolio Holdings Information
Proxy Voting:
Information regarding the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 800-539-3863. The information is also included in the Fund's Statement of Additional Information, which is available on the SEC's website at www.sec.gov.
Information relating to how the Fund voted proxies relating to portfolio securities held during the most recent twelve months ended June 30 is available on the SEC's website at www.sec.gov.
Availability of Schedules of Portfolio Investments:
The Trust files a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-PORT. Prior to the implementation of Form N-PORT, the Trust filed a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-PORT and Forms N-Q are available on the SEC's website at www.sec.gov.
Expense Examples
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2019 through June 30, 2019.
The Actual Expense figures in the table below provide information about actual account values and actual expenses. You may use the information below, 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.
The Hypothetical Expense figures in the table below provide 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 this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 1/1/19 | Actual Ending Account Value 6/30/19 | Hypothetical Ending Account Value 6/30/19 | Actual Expenses Paid During Period 1/1/19-6/30/19* | Hypothetical Expenses Paid During Period 1/1/19-6/30/19* | Annualized Expense Ratio During Period 1/1/19-6/30/19 | ||||||||||||||||||
$ | 1,000.00 | $ | 1,318.50 | $ | 1,020.43 | $ | 5.06 | $ | 4.41 | 0.88 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 181/365 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
24
Privacy Policy
Protecting the Privacy of Information
The Trust respects your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information about investment goals and risk tolerance.
We do not disclose any information about you or about former customers to anyone except as permitted or required by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and printers and mailers that assist us in the distribution of investor materials. We may also disclose this information to companies that perform marketing services on our behalf. This allows us to continue to offer you Victory investment products and services that meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only in connection with the services for which we hired them. They are not permitted to use or share this information for any other purpose.
To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information.*
* You may have received communications regarding information about privacy policies from other financial institutions which gave you the opportunity to "opt-out" of certain information sharing with companies which are not affiliated with that financial institution. The Trust does not share information with other companies for purposes of marketing solicitations for products other than the Trust. Therefore, the Trust does not provide opt-out options to their shareholders.
Victory Funds
P.O. Box 182593
Columbus, Ohio 43218-2593
Visit our website at: | Call Victory at: | ||||||
www.vcm.com | 800-539-FUND (800-539-3863) |
VVIF-RS-SCGEVIP-SAR (6/19)
June 30, 2019
Semi Annual Report
Victory Variable Insurance Funds
Victory S&P 500 Index VIP Series
Beginning January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports may no longer be sent by mail from the insurance company that issued your variable annuity and variable life insurance contract, unless you specifically request paper copies of the reports from your insurance company. Instead, the reports will be made available on www.victoryfunds.com. The insurance company that offers your contract may also make these reports available on a website, and such insurance company will notify you by mail each time a report is posted and provide you with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the insurance company electronically by following the instructions provided by the insurance company.
If offered by your insurance company, you may elect to receive all future reports in paper and free of charge from the insurance company. You can inform your insurance company that you wish to continue receiving paper copies of your reports. Your election to receive reports in paper will apply to all funds available under your contract.
www.vcm.com
News, Information And Education 24 Hours A Day, 7 Days A Week
The Victory Funds site gives fund shareholders, prospective shareholders, and investment professionals a convenient way to access fund information, get guidance, and track fund performance anywhere they can access the Internet. The site includes:
• Detailed performance records
• Daily share prices
• The latest fund news
• Investment resources to help you become a better investor
• A section dedicated to investment professionals
Whether you're a potential investor searching for the fund that matches your investment philosophy, a seasoned investor interested in planning tools, or an investment professional, www.vcm.com has what you seek. Visit us anytime. We're always open.
Victory Variable Insurance Funds
Table of Contents
Financial Statements | |||||||
Investment Objective & Portfolio Holdings | 3 | ||||||
Schedule of Portfolio Investments | 4 | ||||||
Statement of Assets and Liabilities | 15 | ||||||
Statement of Operations | 16 | ||||||
Statements of Changes in Net Assets | 17 | ||||||
Financial Highlights | 18 | ||||||
Notes to Financial Statements | 20 | ||||||
Supplemental Information | |||||||
Trustee and Officer Information | 28 | ||||||
Proxy Voting and Portfolio Holdings Information | 31 | ||||||
Expense Examples | 31 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Advisers, Inc. Victory Capital Management Inc. is the investment adviser to the Fund and receives fees from the Fund for performing services for the Fund.
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus of the Fund.
For additional information about any Victory Fund, including fees, expenses, and risks, view our prospectus online at www.vcm.com or call 800-539-3863. Read it carefully before you invest or send money.
The information in this semi annual report is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections, or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Past investment performance of the Fund, markets or securities mentioned herein should not be considered to be indicative of future results.
• NOT FDIC INSURED • NO BANK GUARANTEE
• MAY LOSE VALUE
Call Victory at:
800-539-FUND (800-539-3863)
Visit our website at:
www.vcm.com
1
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2
Victory Portfolios | June 30, 2019 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: The Victory S&P 500 Index VIP Series seeks to track the investment performance of the S&P 500 Index.
Portfolio Holdings*:
* Percentages are of total investments of the Fund.
3
Victory Variable Insurance Funds Victory S&P 500 Index VIP Series | Schedule of Portfolio Investments June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Common Stocks (98.9%) | |||||||||||
Communication Services (10.1%): | |||||||||||
Activision Blizzard, Inc. | 3,705 | $ | 174,876 | ||||||||
Alphabet, Inc., Class C (a) | 1,482 | 1,601,909 | |||||||||
Alphabet, Inc., Class A (a) | 1,448 | 1,567,894 | |||||||||
AT&T, Inc. (b) | 35,294 | 1,182,702 | |||||||||
CBS Corp., Class B | 1,702 | 84,930 | |||||||||
CenturyLink, Inc. | 4,640 | 54,566 | |||||||||
Charter Communications, Inc., Class A (a) | 832 | 328,790 | |||||||||
Comcast Corp., Class A | 21,905 | 926,143 | |||||||||
Discovery Communications, Inc., Class A (a) | 763 | 23,424 | |||||||||
Discovery Communications, Inc., Class C (a) | 1,744 | 49,617 | |||||||||
DISH Network Corp. (a) | 1,116 | 42,866 | |||||||||
Electronic Arts, Inc. (a) | 1,435 | 145,308 | |||||||||
Facebook, Inc., Class A (a) | 11,619 | 2,242,467 | |||||||||
Fox Corp., Class A | 1,714 | 62,801 | |||||||||
Fox Corp., Class B | 785 | 28,676 | |||||||||
Netflix, Inc. (a) | 2,114 | 776,514 | |||||||||
News Corp., Class A | 1,864 | 25,145 | |||||||||
News Corp., Class B | 599 | 8,362 | |||||||||
Omnicom Group, Inc. | 1,065 | 87,277 | |||||||||
Take-Two Interactive Software, Inc. (a) | 544 | 61,760 | |||||||||
The Interpublic Group of Co., Inc. | 1,872 | 42,288 | |||||||||
The Walt Disney Co. | 8,443 | 1,178,981 | |||||||||
TripAdvisor, Inc. (a) | 501 | 23,191 | |||||||||
Twitter, Inc. (a) | 3,531 | 123,232 | |||||||||
Verizon Communications, Inc. | 20,001 | 1,142,657 | |||||||||
Viacom, Inc., Class B | 1,710 | 51,078 | |||||||||
12,037,454 | |||||||||||
Consumer Discretionary (10.0%): | |||||||||||
Advance Auto Parts, Inc. | 347 | 53,487 | |||||||||
Amazon.com, Inc. (a) | 2,000 | 3,787,261 | |||||||||
Aptiv PLC | 1,247 | 100,795 | |||||||||
AutoZone, Inc. (a) | 119 | 130,837 | |||||||||
Best Buy Co., Inc. | 1,124 | 78,377 | |||||||||
Booking Holdings, Inc. (a) | 209 | 391,814 | |||||||||
BorgWarner, Inc. | 1,002 | 42,064 | |||||||||
Capri Holdings Ltd. (a) | 730 | 25,316 | |||||||||
CarMax, Inc. (a) | 804 | 69,811 | |||||||||
Carnival Corp., Class A | 1,936 | 90,121 | |||||||||
Chipotle Mexican Grill, Inc. (a) | 118 | 86,480 | |||||||||
D.R. Horton, Inc. | 1,642 | 70,820 | |||||||||
Darden Restaurants, Inc. | 595 | 72,429 | |||||||||
Dollar General Corp. | 1,249 | 168,815 | |||||||||
Dollar Tree, Inc. (a) | 1,149 | 123,391 | |||||||||
eBay, Inc. | 3,962 | 156,499 | |||||||||
Expedia, Inc. | 572 | 76,093 | |||||||||
Foot Locker, Inc. | 543 | 22,763 | |||||||||
Ford Motor Co. | 18,951 | 193,869 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory S&P 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Garmin Ltd. | 586 | $ | 46,763 | ||||||||
General Motors Co. | 6,379 | 245,783 | |||||||||
Genuine Parts Co. | 706 | 73,127 | |||||||||
H&R Block, Inc. | 983 | 28,802 | |||||||||
Hanesbrands, Inc. | 1,748 | 30,101 | |||||||||
Harley-Davidson, Inc. | 769 | 27,553 | |||||||||
Hasbro, Inc. | 560 | 59,181 | |||||||||
Hilton Worldwide Holdings, Inc. | 1,408 | 137,618 | |||||||||
Kohl's Corp. | 784 | 37,279 | |||||||||
L Brands, Inc. | 1,109 | 28,945 | |||||||||
Leggett & Platt, Inc. | 635 | 24,365 | |||||||||
Lennar Corp., Class A | 1,380 | 66,875 | |||||||||
LKQ Corp. (a) | 1,519 | 40,421 | |||||||||
Lowe's Co., Inc. | 3,786 | 382,045 | |||||||||
Macy's, Inc. | 1,494 | 32,061 | |||||||||
Marriott International, Inc., Class A | 1,337 | 187,568 | |||||||||
McDonald's Corp. | 3,693 | 766,888 | |||||||||
MGM Resorts International | 2,468 | 70,511 | |||||||||
Mohawk Industries, Inc. (a) | 298 | 43,946 | |||||||||
Newell Brands, Inc. | 1,882 | 29,020 | |||||||||
Nike, Inc., Class B | 6,078 | 510,247 | |||||||||
Nordstrom, Inc. | 509 | 16,217 | |||||||||
Norwegian Cruise Line Holdings Ltd. (a) | 1,042 | 55,882 | |||||||||
O'Reilly Automotive, Inc. (a) | 379 | 139,972 | |||||||||
PulteGroup, Inc. | 1,233 | 38,987 | |||||||||
PVH Corp. | 362 | 34,260 | |||||||||
Ralph Lauren Corp. | 252 | 28,625 | |||||||||
Ross Stores, Inc. | 1,777 | 176,136 | |||||||||
Royal Caribbean Cruises Ltd. | 831 | 100,726 | |||||||||
Starbucks Corp. | 5,858 | 491,076 | |||||||||
Tapestry, Inc. | 1,403 | 44,517 | |||||||||
Target Corp. | 2,478 | 214,620 | |||||||||
The Gap, Inc. | 1,024 | 18,401 | |||||||||
The Home Depot, Inc. | 5,321 | 1,106,609 | |||||||||
The TJX Co., Inc. | 5,865 | 310,141 | |||||||||
Tiffany & Co. | 523 | 48,974 | |||||||||
Tractor Supply Co. | 583 | 63,430 | |||||||||
Ulta Salon, Cosmetics & Fragrance, Inc. (a) | 269 | 93,313 | |||||||||
Under Armour, Inc., Class A (a) | 909 | 23,043 | |||||||||
Under Armour, Inc., Class C (a) | 939 | 20,846 | |||||||||
VF Corp. | 1,575 | 137,576 | |||||||||
Whirlpool Corp. | 306 | 43,562 | |||||||||
Wynn Resorts Ltd. | 469 | 58,151 | |||||||||
Yum! Brands, Inc. | 1,480 | 163,792 | |||||||||
12,038,997 | |||||||||||
Consumer Staples (7.3%): | |||||||||||
Altria Group, Inc. | 9,048 | 428,423 | |||||||||
Archer-Daniels-Midland Co. | 2,709 | 110,527 | |||||||||
Brown-Forman Corp., Class B | 804 | 44,566 | |||||||||
Campbell Soup Co. | 932 | 37,345 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory S&P 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Church & Dwight Co., Inc. | 1,191 | $ | 87,014 | ||||||||
Colgate-Palmolive Co. | 4,152 | 297,574 | |||||||||
Conagra Brands, Inc. | 2,350 | 62,322 | |||||||||
Constellation Brands, Inc., Class A | 809 | 159,324 | |||||||||
Costco Wholesale Corp. | 2,127 | 562,081 | |||||||||
Coty, Inc., Class A (b) | 1,454 | 19,484 | |||||||||
General Mills, Inc. | 2,896 | 152,098 | |||||||||
Hormel Foods Corp. | 1,317 | 53,391 | |||||||||
Kellogg Co. | 1,202 | 64,391 | |||||||||
Kimberly-Clark Corp. | 1,663 | 221,645 | |||||||||
Lamb Weston Holdings, Inc. | 707 | 44,796 | |||||||||
McCormick & Co., Inc. | 592 | 91,766 | |||||||||
Molson Coors Brewing Co., Class B | 908 | 50,848 | |||||||||
Mondelez International, Inc., Class A | 6,966 | 375,468 | |||||||||
Monster Beverage Corp. (a) | 1,893 | 120,830 | |||||||||
PepsiCo, Inc. | 6,779 | 888,930 | |||||||||
Philip Morris International, Inc. | 7,524 | 590,860 | |||||||||
Sysco Corp. | 2,287 | 161,737 | |||||||||
The Clorox Co. | 616 | 94,316 | |||||||||
The Coca-Cola Co. | 18,568 | 945,483 | |||||||||
The Estee Lauder Cos., Inc., Class A | 1,060 | 194,096 | |||||||||
The Hershey Co. | 674 | 90,336 | |||||||||
The J.M. Smucker Co. | 550 | 63,355 | |||||||||
The Kraft Heinz Co. | 3,009 | 93,399 | |||||||||
The Kroger Co. | 3,901 | 84,691 | |||||||||
The Procter & Gamble Co. | 12,131 | 1,330,164 | |||||||||
Tyson Foods, Inc., Class A | 1,426 | 115,135 | |||||||||
Walgreens Boots Alliance, Inc. | 3,758 | 205,450 | |||||||||
Wal-Mart Stores, Inc. | 6,765 | 747,464 | |||||||||
8,589,309 | |||||||||||
Energy (4.9%): | |||||||||||
Anadarko Petroleum Corp. | 2,428 | 171,320 | |||||||||
Apache Corp. | 1,818 | 52,667 | |||||||||
Baker Hughes, Inc. | 2,490 | 61,329 | |||||||||
Cabot Oil & Gas Corp. | 2,047 | 46,999 | |||||||||
Chevron Corp. | 9,212 | 1,146,341 | |||||||||
Cimarex Energy Co. | 491 | 29,131 | |||||||||
Concho Resources, Inc. | 970 | 100,085 | |||||||||
ConocoPhillips | 5,466 | 333,426 | |||||||||
Devon Energy Corp. | 2,008 | 57,268 | |||||||||
Diamondback Energy, Inc. | 749 | 81,619 | |||||||||
EOG Resources, Inc. | 2,807 | 261,500 | |||||||||
Exxon Mobil Corp. (b) | 20,462 | 1,568,003 | |||||||||
Halliburton Co. | 4,227 | 96,122 | |||||||||
Helmerich & Payne, Inc. | 534 | 27,031 | |||||||||
Hess Corp. | 1,233 | 78,382 | |||||||||
HollyFrontier Corp. | 760 | 35,173 | |||||||||
Kinder Morgan, Inc. | 9,415 | 196,585 | |||||||||
Marathon Oil Corp. | 3,956 | 56,215 | |||||||||
Marathon Petroleum Corp. | 3,205 | 179,095 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory S&P 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
National Oilwell Varco, Inc. | 1,866 | $ | 41,481 | ||||||||
Noble Energy, Inc. | 2,313 | 51,811 | |||||||||
Occidental Petroleum Corp. | 3,618 | 181,913 | |||||||||
ONEOK, Inc. | 1,996 | 137,345 | |||||||||
Phillips 66 | 2,020 | 188,951 | |||||||||
Pioneer Natural Resources Co. | 815 | 125,396 | |||||||||
Schlumberger Ltd. | 6,699 | 266,218 | |||||||||
TechnipFMC PLC | 2,037 | 52,840 | |||||||||
The Williams Cos., Inc. | 5,860 | 164,314 | |||||||||
Valero Energy Corp. | 2,018 | 172,761 | |||||||||
5,961,321 | |||||||||||
Financials (12.8%): | |||||||||||
Affiliated Managers Group, Inc. | 248 | 22,851 | |||||||||
Aflac, Inc. | 3,605 | 197,590 | |||||||||
American Express Co. | 3,312 | 408,833 | |||||||||
American International Group, Inc. | 4,206 | 224,096 | |||||||||
Ameriprise Financial, Inc. | 648 | 94,064 | |||||||||
Aon PLC | 1,163 | 224,435 | |||||||||
Arthur J. Gallagher & Co. | 896 | 78,481 | |||||||||
Assurant, Inc. | 297 | 31,595 | |||||||||
Bank of America Corp. | 42,764 | 1,240,157 | |||||||||
BB&T Corp. | 3,704 | 181,978 | |||||||||
Berkshire Hathaway, Inc., Class B (a) | 9,372 | 1,997,829 | |||||||||
BlackRock, Inc., Class A | 575 | 269,848 | |||||||||
Capital One Financial Corp. | 2,271 | 206,071 | |||||||||
CBOE Holdings, Inc. | 540 | 55,960 | |||||||||
Chubb Ltd. | 2,214 | 326,099 | |||||||||
Cincinnati Financial Corp. | 734 | 76,094 | |||||||||
Citigroup, Inc. | 11,183 | 783,145 | |||||||||
Citizens Financial Group, Inc. | 2,217 | 78,393 | |||||||||
CME Group, Inc. | 1,731 | 336,004 | |||||||||
Comerica, Inc. | 746 | 54,189 | |||||||||
Discover Financial Services | 1,566 | 121,506 | |||||||||
E*TRADE Financial Corp. | 1,183 | 52,762 | |||||||||
Everest Re Group Ltd. | 197 | 48,694 | |||||||||
Fifth Third BanCorp. | 3,517 | 98,124 | |||||||||
First Republic Bank | 797 | 77,827 | |||||||||
Franklin Resources, Inc. | 1,424 | 49,555 | |||||||||
Hartford Financial Services Group, Inc. | 1,748 | 97,399 | |||||||||
Huntington Bancshares, Inc. | 5,061 | 69,943 | |||||||||
Intercontinental Exchange, Inc. | 2,727 | 234,358 | |||||||||
Invesco Ltd. | 1,937 | 39,631 | |||||||||
Jefferies Financial Group, Inc. | 1,225 | 23,557 | |||||||||
JPMorgan Chase & Co. | 15,688 | 1,753,919 | |||||||||
KeyCorp | 4,876 | 86,549 | |||||||||
Lincoln National Corp. | 979 | 63,097 | |||||||||
Loews Corp. | 1,298 | 70,962 | |||||||||
M&T Bank Corp. | 661 | 112,416 | |||||||||
Marsh & McLennan Co., Inc. | 2,473 | 246,681 | |||||||||
MetLife, Inc. | 4,596 | 228,282 |
See notes to financial statements.
7
Victory Variable Insurance Funds Victory S&P 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Moody's Corp. | 798 | $ | 155,857 | ||||||||
Morgan Stanley | 6,183 | 270,877 | |||||||||
MSCI, Inc. | 410 | 97,904 | |||||||||
Nasdaq, Inc. | 561 | 53,951 | |||||||||
Northern Trust Corp. | 1,053 | 94,770 | |||||||||
People's United Financial, Inc. | 1,907 | 31,999 | |||||||||
Principal Financial Group, Inc. | 1,253 | 72,574 | |||||||||
Prudential Financial, Inc. | 1,963 | 198,263 | |||||||||
Raymond James Financial, Inc. | 611 | 51,660 | |||||||||
Regions Financial Corp. | 4,900 | 73,206 | |||||||||
S&P Global, Inc. | 1,190 | 271,070 | |||||||||
State Street Corp. | 1,805 | 101,188 | |||||||||
SunTrust Banks, Inc. | 2,146 | 134,876 | |||||||||
SVB Financial Group (a) | 253 | 56,821 | |||||||||
Synchrony Financial | 3,067 | 106,333 | |||||||||
T. Rowe Price Group, Inc. | 1,144 | 125,508 | |||||||||
The Allstate Corp. | 1,611 | 163,823 | |||||||||
The Bank of New York Mellon Corp. | 4,260 | 188,079 | |||||||||
The Charles Schwab Corp. | 5,746 | 230,932 | |||||||||
The Goldman Sachs Group, Inc. | 1,645 | 336,568 | |||||||||
The PNC Financial Services Group, Inc. | 2,183 | 299,682 | |||||||||
The Progressive Corp. | 2,824 | 225,721 | |||||||||
The Travelers Co., Inc. | 1,267 | 189,442 | |||||||||
Torchmark Corp. | 489 | 43,746 | |||||||||
U.S. Bancorp | 7,238 | 379,271 | |||||||||
Unum Group | 1,025 | 34,389 | |||||||||
Wells Fargo & Co. (b) | 19,562 | 925,675 | |||||||||
Willis Towers Watson PLC | 625 | 119,713 | |||||||||
Zions BanCorp | 883 | 40,600 | |||||||||
15,437,472 | |||||||||||
Health Care (14.2%): | |||||||||||
Abbott Laboratories (b) | 8,532 | 717,540 | |||||||||
AbbVie, Inc. | 7,149 | 519,875 | |||||||||
ABIOMED, Inc. (a) | 218 | 56,787 | |||||||||
Agilent Technologies, Inc. | 1,528 | 114,096 | |||||||||
Alexion Pharmaceuticals, Inc. (a) | 1,084 | 141,982 | |||||||||
Align Technology, Inc. (a) | 352 | 96,342 | |||||||||
Allergan PLC | 1,490 | 249,471 | |||||||||
AmerisourceBergen Corp. | 752 | 64,116 | |||||||||
Amgen, Inc. | 2,950 | 543,626 | |||||||||
Anthem, Inc. | 1,244 | 351,069 | |||||||||
Baxter International, Inc. | 2,295 | 187,961 | |||||||||
Becton, Dickinson & Co. | 1,304 | 328,621 | |||||||||
Biogen, Inc. (a) | 938 | 219,370 | |||||||||
Boston Scientific Corp. (a) | 6,725 | 289,041 | |||||||||
Bristol-Myers Squibb Co. | 7,911 | 358,764 | |||||||||
Cardinal Health, Inc. | 1,441 | 67,871 | |||||||||
Celgene Corp. (a) | 3,411 | 315,313 | |||||||||
Centene Corp. (a) | 1,999 | 104,828 | |||||||||
Cerner Corp. | 1,574 | 115,374 |
See notes to financial statements.
8
Victory Variable Insurance Funds Victory S&P 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Cigna Corp. | 1,835 | $ | 289,104 | ||||||||
CVS Health Corp. | 6,283 | 342,361 | |||||||||
Danaher Corp. | 3,047 | 435,477 | |||||||||
DaVita, Inc. (a) | 612 | 34,431 | |||||||||
Dentsply Sirona, Inc. | 1,132 | 66,064 | |||||||||
Edwards Lifesciences Corp. (a) | 1,008 | 186,218 | |||||||||
Eli Lilly & Co. | 4,179 | 462,991 | |||||||||
Gilead Sciences, Inc. | 6,149 | 415,426 | |||||||||
HCA Holdings, Inc. | 1,291 | 174,504 | |||||||||
Henry Schein, Inc. (a) | 721 | 50,398 | |||||||||
Hologic, Inc. (a) | 1,296 | 62,234 | |||||||||
Humana, Inc. | 653 | 173,241 | |||||||||
IDEXX Laboratories, Inc. (a) | 416 | 114,537 | |||||||||
Illumina, Inc. (a) | 711 | 261,755 | |||||||||
Incyte Pharmaceuticals, Inc. (a) | 861 | 73,151 | |||||||||
Intuitive Surgical, Inc. (a) | 558 | 292,699 | |||||||||
IQVIA Holdings, Inc. (a) | 763 | 122,767 | |||||||||
Johnson & Johnson (b) | 12,840 | 1,788,355 | |||||||||
Laboratory Corp. of America Holdings (a) | 476 | 82,300 | |||||||||
McKesson Corp. | 919 | 123,504 | |||||||||
Medtronic PLC | 6,484 | 631,477 | |||||||||
Merck & Co., Inc. | 12,451 | 1,044,016 | |||||||||
Mettler-Toledo International, Inc. (a) | 120 | 100,800 | |||||||||
Mylan NV (a) | 2,493 | 47,467 | |||||||||
Nektar Therapeutics (a) | 843 | 29,994 | |||||||||
PerkinElmer, Inc. | 536 | 51,638 | |||||||||
Perrigo Co. PLC | 605 | 28,810 | |||||||||
Pfizer, Inc. | 26,849 | 1,163,099 | |||||||||
Quest Diagnostics, Inc. | 650 | 66,177 | |||||||||
Regeneron Pharmaceuticals, Inc. (a) | 380 | 118,940 | |||||||||
ResMed, Inc. | 693 | 84,567 | |||||||||
Stryker Corp. | 1,498 | 307,959 | |||||||||
Teleflex, Inc. | 223 | 73,846 | |||||||||
The Cooper Co., Inc. | 239 | 80,517 | |||||||||
Thermo Fisher Scientific, Inc. | 1,934 | 567,976 | |||||||||
UnitedHealth Group, Inc. | 4,596 | 1,121,470 | |||||||||
Universal Health Services, Inc., Class B | 401 | 52,286 | |||||||||
Varian Medical Systems, Inc. (a) | 440 | 59,897 | |||||||||
Vertex Pharmaceuticals, Inc. (a) | 1,239 | 227,208 | |||||||||
Waters Corp. (a) | 336 | 72,321 | |||||||||
WellCare Health Plans, Inc. (a) | 243 | 69,272 | |||||||||
Zimmer Biomet Holdings, Inc. | 990 | 116,563 | |||||||||
Zoetis, Inc. | 2,315 | 262,729 | |||||||||
16,772,593 | |||||||||||
Industrials (9.2%): | |||||||||||
3M Co. (b) | 2,788 | 483,272 | |||||||||
A.O. Smith Corp. | 683 | 32,210 | |||||||||
Alaska Air Group, Inc. | 597 | 38,154 | |||||||||
Allegion PLC | 454 | 50,190 | |||||||||
American Airlines Group, Inc. | 1,915 | 62,448 |
See notes to financial statements.
9
Victory Variable Insurance Funds Victory S&P 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
AAMETEK, Inc. | 1,102 | $ | 100,106 | ||||||||
Arconic, Inc. | 1,931 | 49,858 | |||||||||
C.H. Robinson Worldwide, Inc. | 660 | 55,671 | |||||||||
Caterpillar, Inc. | 2,766 | 376,978 | |||||||||
Cintas Corp. | 410 | 97,289 | |||||||||
Copart, Inc. (a) | 975 | 72,872 | |||||||||
CSX Corp. | 3,718 | 287,662 | |||||||||
Cummins, Inc. | 701 | 120,109 | |||||||||
Deere & Co. | 1,533 | 254,033 | |||||||||
Delta Air Lines, Inc. | 2,881 | 163,497 | |||||||||
Dover Corp. | 703 | 70,441 | |||||||||
Eaton Corp. PLC, ADR | 2,046 | 170,391 | |||||||||
Emerson Electric Co. | 2,972 | 198,291 | |||||||||
Equifax, Inc. | 584 | 78,980 | |||||||||
Expeditors International of Washington, Inc. | 832 | 63,116 | |||||||||
Fastenal Co. | 2,768 | 90,209 | |||||||||
FedEx Corp. | 1,159 | 190,296 | |||||||||
Flowserve Corp. | 634 | 33,405 | |||||||||
Fortive Corp. | 1,426 | 116,248 | |||||||||
Fortune Brands Home & Security, Inc. | 676 | 38,620 | |||||||||
General Dynamics Corp. | 1,313 | 238,730 | |||||||||
General Electric Co. (b) | 42,175 | 442,838 | |||||||||
Harris Corp. | 571 | 107,993 | |||||||||
Honeywell International, Inc. | 3,519 | 614,381 | |||||||||
Huntington Ingalls Industries, Inc. | 201 | 45,173 | |||||||||
IHS Markit Ltd. (a) | 1,759 | 112,084 | |||||||||
Illinois Tool Works, Inc. | 1,449 | 218,524 | |||||||||
Ingersoll-Rand PLC | 1,166 | 147,697 | |||||||||
J.B. Hunt Transport Services, Inc. | 421 | 38,484 | |||||||||
Jacobs Engineering Group, Inc. | 555 | 46,836 | |||||||||
Johnson Controls International PLC | 3,849 | 159,002 | |||||||||
Kansas City Southern Industries, Inc. | 486 | 59,205 | |||||||||
Lockheed Martin Corp. | 1,189 | 432,249 | |||||||||
Masco Corp. | 1,420 | 55,721 | |||||||||
Nielsen Holdings PLC | 1,719 | 38,849 | |||||||||
Norfolk Southern Corp. | 1,286 | 256,338 | |||||||||
Northrop Grumman Corp. | 821 | 265,273 | |||||||||
PACCAR, Inc. | 1,675 | 120,031 | |||||||||
Parker-Hannifin Corp. | 620 | 105,406 | |||||||||
Pentair PLC | 765 | 28,458 | |||||||||
Quanta Services, Inc. | 687 | 26,237 | |||||||||
Raytheon Co. | 1,347 | 234,216 | |||||||||
Republic Services, Inc., Class A | 1,042 | 90,279 | |||||||||
Robert Half International, Inc. | 573 | 32,667 | |||||||||
Rockwell Automation, Inc. | 572 | 93,711 | |||||||||
Rollins, Inc. | 713 | 25,575 | |||||||||
Roper Technologies, Inc. | 502 | 183,863 | |||||||||
Snap-on, Inc. | 268 | 44,392 | |||||||||
Southwest Airlines Co. | 2,364 | 120,044 | |||||||||
Stanley Black & Decker, Inc. | 733 | 105,999 | |||||||||
Textron, Inc. | 1,126 | 59,723 |
See notes to financial statements.
10
Victory Variable Insurance Funds Victory S&P 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
The Boeing Co. | 2,531 | $ | 921,309 | ||||||||
TransDigm Group, Inc. (a) | 237 | 114,661 | |||||||||
Union Pacific Corp. | 3,423 | 578,863 | |||||||||
United Continental Holdings, Inc. (a) | 1,069 | 93,591 | |||||||||
United Parcel Service, Inc., Class B | 3,373 | 348,329 | |||||||||
United Rentals, Inc. (a) | 380 | 50,399 | |||||||||
United Technologies Corp. | 3,923 | 510,775 | |||||||||
Verisk Analytics, Inc., Class A | 792 | 115,997 | |||||||||
W.W. Grainger, Inc. | 217 | 58,206 | |||||||||
Wabtec Corp. | 782 | 56,116 | |||||||||
Waste Management, Inc. | 1,890 | 218,049 | |||||||||
Xylem, Inc. | 870 | 72,767 | |||||||||
10,983,386 | |||||||||||
Information Technology (21.1%): | |||||||||||
Accenture PLC, Class A | 3,085 | 570,015 | |||||||||
Adobe Systems, Inc. (a) | 2,360 | 695,374 | |||||||||
Advanced Micro Devices, Inc. (a) | 4,289 | 130,257 | |||||||||
Akamai Technologies, Inc. (a) | 794 | 63,631 | |||||||||
Alliance Data Systems Corp. | 218 | 30,548 | |||||||||
Amphenol Corp., Class A | 1,445 | 138,633 | |||||||||
Analog Devices, Inc. | 1,788 | 201,812 | |||||||||
ANSYS, Inc. (a) | 406 | 83,157 | |||||||||
Apple, Inc. (b) | 21,139 | 4,183,832 | |||||||||
Applied Materials, Inc. | 4,527 | 203,308 | |||||||||
Arista Networks, Inc. (a) | 256 | 66,463 | |||||||||
Autodesk, Inc. (a) | 1,062 | 173,000 | |||||||||
Automatic Data Processing, Inc. | 2,105 | 348,020 | |||||||||
Broadcom, Inc. | 1,914 | 550,964 | |||||||||
Broadridge Financial Solutions, Inc. | 562 | 71,756 | |||||||||
Cadence Design Systems, Inc. (a) | 1,359 | 96,231 | |||||||||
Cisco Systems, Inc. | 20,702 | 1,133,020 | |||||||||
Citrix Systems, Inc. | 605 | 59,375 | |||||||||
Cognizant Technology Solutions Corp., Class A | 2,753 | 174,513 | |||||||||
Corning, Inc. | 3,795 | 126,108 | |||||||||
DXC Technology Co. | 1,297 | 71,530 | |||||||||
F5 Networks, Inc. (a) | 289 | 42,087 | |||||||||
Fidelity National Information Services, Inc. | 1,566 | 192,117 | |||||||||
Fiserv, Inc. (a) | 1,898 | 173,022 | |||||||||
FleetCor Technologies, Inc. (a) | 417 | 117,114 | |||||||||
FLIR Systems, Inc. | 655 | 35,436 | |||||||||
Fortinet, Inc. (a) | 702 | 53,935 | |||||||||
Gartner, Inc. (a) | 436 | 70,170 | |||||||||
Global Payments, Inc. | 758 | 121,379 | |||||||||
Hewlett Packard Enterprises Co. | 6,476 | 96,816 | |||||||||
HP, Inc. | 7,285 | 151,455 | |||||||||
Intel Corp. | 21,651 | 1,036,433 | |||||||||
International Business Machines Corp. | 4,288 | 591,315 | |||||||||
Intuit, Inc. | 1,254 | 327,708 | |||||||||
IPG Photonics Corp. (a) | 172 | 26,531 | |||||||||
Jack Henry & Associates, Inc. | 373 | 49,952 |
See notes to financial statements.
11
Victory Variable Insurance Funds Victory S&P 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Juniper Networks, Inc. | 1,665 | $ | 44,339 | ||||||||
Keysight Technologies, Inc. (a) | 910 | 81,727 | |||||||||
KLA-Tencor Corp. | 782 | 92,432 | |||||||||
Lam Research Corp. | 725 | 136,184 | |||||||||
Mastercard, Inc., Class A | 4,347 | 1,149,912 | |||||||||
Maxim Integrated Products, Inc. | 1,317 | 78,783 | |||||||||
Microchip Technology, Inc. | 1,151 | 99,792 | |||||||||
Micron Technology, Inc. (a) | 5,352 | 206,534 | |||||||||
Microsoft Corp. (b) | 37,059 | 4,964,424 | |||||||||
Motorola Solutions, Inc. | 797 | 132,884 | |||||||||
NetApp, Inc. | 1,194 | 73,670 | |||||||||
Nvidia Corp. | 2,945 | 483,657 | |||||||||
Oracle Corp. | 11,735 | 668,543 | |||||||||
Paychex, Inc. | 1,547 | 127,303 | |||||||||
PayPal Holdings, Inc. (a) | 5,682 | 650,362 | |||||||||
Qorvo, Inc. (a) | 576 | 38,367 | |||||||||
QUALCOMM, Inc. | 5,879 | 447,216 | |||||||||
Red Hat, Inc. (a) | 860 | 161,474 | |||||||||
Salesforce.com, Inc. (a) | 3,755 | 569,746 | |||||||||
Seagate Technology PLC | 1,218 | 57,392 | |||||||||
Skyworks Solutions, Inc. | 835 | 64,520 | |||||||||
Symantec Corp. | 2,990 | 65,062 | |||||||||
Synopsys, Inc. (a) | 725 | 93,300 | |||||||||
TE Connectivity Ltd. | 1,629 | 156,026 | |||||||||
Texas Instruments, Inc. | 4,537 | 520,666 | |||||||||
The Western Union Co. | 2,083 | 41,431 | |||||||||
Total System Services, Inc. | 787 | 100,948 | |||||||||
VeriSign, Inc. (a) | 507 | 106,044 | |||||||||
Visa, Inc., Class A | 8,410 | 1,459,555 | |||||||||
Western Digital Corp. | 1,417 | 67,378 | |||||||||
Xerox Corp. | 945 | 33,462 | |||||||||
Xilinx, Inc. | 1,228 | 144,806 | |||||||||
25,374,956 | |||||||||||
Materials (2.8%): | |||||||||||
Air Products & Chemicals, Inc. | 1,065 | 241,084 | |||||||||
Albemarle Corp. | 512 | 36,050 | |||||||||
Amcor PLC (a) | 7,849 | 90,185 | |||||||||
Avery Dennison Corp. | 408 | 47,197 | |||||||||
Ball Corp. | 1,619 | 113,315 | |||||||||
Celanese Corp., Series A | 612 | 65,974 | |||||||||
CF Industries Holdings, Inc. | 1,069 | 49,933 | |||||||||
Corteva, Inc. | 3,621 | 107,073 | |||||||||
Dow, Inc. | 3,621 | 178,552 | |||||||||
DuPont de Nemours, Inc. | 3,621 | 271,828 | |||||||||
Eastman Chemical Co. | 670 | 52,146 | |||||||||
Ecolab, Inc. | 1,227 | 242,259 | |||||||||
FMC Corp. | 637 | 52,839 | |||||||||
Freeport-McMoRan, Inc. | 7,016 | 81,456 | |||||||||
International Flavors & Fragrances, Inc. | 490 | 71,094 | |||||||||
International Paper Co. | 1,922 | 83,261 |
See notes to financial statements.
12
Victory Variable Insurance Funds Victory S&P 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Linde PLC | 2,625 | $ | 527,101 | ||||||||
Lyondellbasell Industries NV, Class A | 1,469 | 126,525 | |||||||||
Martin Marietta Materials, Inc. | 302 | 69,493 | |||||||||
Newmont Mining Corp. | 3,964 | 152,495 | |||||||||
Nucor Corp. | 1,474 | 81,217 | |||||||||
Packaging Corp. of America | 457 | 43,561 | |||||||||
PPG Industries, Inc. | 1,142 | 133,283 | |||||||||
Sealed Air Corp. | 753 | 32,213 | |||||||||
The Mosaic Co. | 1,716 | 42,951 | |||||||||
The Sherwin-Williams Co. | 393 | 180,108 | |||||||||
Vulcan Materials Co. | 639 | 87,741 | |||||||||
WestRock Co. | 1,243 | 45,332 | |||||||||
3,306,266 | |||||||||||
Real Estate (3.1%): | |||||||||||
Alexandria Real Estate Equities, Inc. | 546 | 77,035 | |||||||||
American Tower Corp. | 2,138 | 437,115 | |||||||||
Apartment Investment & Management Co. | 720 | 36,086 | |||||||||
AvalonBay Communities, Inc. | 674 | 136,943 | |||||||||
Boston Properties, Inc. | 747 | 96,363 | |||||||||
CBRE Group, Inc., Class A (a) | 1,512 | 77,566 | |||||||||
Crown Castle International Corp. | 2,011 | 262,134 | |||||||||
Digital Realty Trust, Inc. | 1,007 | 118,615 | |||||||||
Duke Realty Investments, Inc. | 1,738 | 54,938 | |||||||||
Equinix, Inc. | 407 | 205,246 | |||||||||
Equity Residential | 1,792 | 136,049 | |||||||||
Essex Property Trust, Inc. | 318 | 92,834 | |||||||||
Extra Space Storage, Inc. | 616 | 65,358 | |||||||||
Federal Realty Investment Trust | 362 | 46,611 | |||||||||
HCP, Inc. | 2,312 | 73,938 | |||||||||
Host Hotels & Resorts, Inc. | 3,583 | 65,282 | |||||||||
Iron Mountain, Inc. | 1,387 | 43,413 | |||||||||
Kimco Realty Corp. | 2,041 | 37,718 | |||||||||
Mid-America Apartment Communities, Inc. | 551 | 64,886 | |||||||||
Prologis, Inc. | 3,051 | 244,385 | |||||||||
Public Storage | 726 | 172,911 | |||||||||
Realty Income Corp. | 1,523 | 105,041 | |||||||||
Regency Centers Corp. | 808 | 53,926 | |||||||||
SBA Communications Corp. (a) | 548 | 123,212 | |||||||||
Simon Property Group, Inc. | 1,494 | 238,681 | |||||||||
SL Green Realty Corp. | 408 | 32,791 | |||||||||
The Macerich Co. | 512 | 17,147 | |||||||||
UDR, Inc. | 1,363 | 61,185 | |||||||||
Ventas, Inc. | 1,787 | 122,141 | |||||||||
Vornado Realty Trust | 840 | 53,844 | |||||||||
Welltower, Inc. | 1,958 | 159,636 | |||||||||
Weyerhaeuser Co. | 3,602 | 94,877 | |||||||||
3,607,907 | |||||||||||
Utilities (3.4%): | |||||||||||
AES Corp. | 3,210 | 53,800 |
See notes to financial statements.
13
Victory Variable Insurance Funds Victory S&P 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Alliant Energy Corp. | 1,143 | $ | 56,098 | ||||||||
Ameren Corp. | 1,188 | 89,231 | |||||||||
American Electric Power Co., Inc. | 2,386 | 209,992 | |||||||||
American Water Works Co., Inc. | 873 | 101,268 | |||||||||
Atmos Energy Corp. | 566 | 59,747 | |||||||||
CenterPoint Energy, Inc. | 2,429 | 69,542 | |||||||||
CMS Energy Corp. | 1,372 | 79,453 | |||||||||
Consolidated Edison, Inc. | 1,582 | 138,710 | |||||||||
Dominion Resources, Inc. | 3,880 | 300,001 | |||||||||
DTE Energy Co. | 886 | 113,302 | |||||||||
Duke Energy Corp. | 3,521 | 310,693 | |||||||||
Edison International | 1,576 | 106,238 | |||||||||
Entergy Corp. | 919 | 94,593 | |||||||||
Evergy, Inc. | 1,180 | 70,977 | |||||||||
Eversource Energy | 1,553 | 117,655 | |||||||||
Exelon Corp. | 4,696 | 225,126 | |||||||||
FirstEnergy Corp. | 2,442 | 104,542 | |||||||||
NextEra Energy, Inc. | 2,316 | 474,455 | |||||||||
NiSource, Inc. | 1,804 | 51,955 | |||||||||
NRG Energy, Inc. | 1,292 | 45,375 | |||||||||
Pinnacle West Capital Corp. | 543 | 51,091 | |||||||||
PPL Corp. | 3,490 | 108,225 | |||||||||
Public Service Enterprise Group, Inc. | 2,444 | 143,756 | |||||||||
Sempra Energy | 1,327 | 182,382 | |||||||||
The Southern Co. | 5,034 | 278,280 | |||||||||
WEC Energy Group, Inc. | 1,526 | 127,223 | |||||||||
Xcel Energy, Inc. | 2,489 | 148,071 | |||||||||
3,911,781 | |||||||||||
Total Common Stocks (Cost $37,506,398) | 118,021,442 | ||||||||||
Total Investments (Cost $37,506,398) — 98.9% | 118,021,442 | ||||||||||
Other assets in excess of liabilities — 1.1% | 1,329,772 | ||||||||||
NET ASSETS — 100.00% | $ | 119,351,214 |
(a) Non-income producing security.
(b) All or a portion of this security has been segregated as collateral for derivative instruments.
ADR — American Depositary Receipt
PLC — Public Limited Company
Futures Contracts Purchased
Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||
E-Mini S&P 500 Futures | 8 | 9/20/19 | $ | 1,164,095 | $ | 1,177,680 | $ | 13,585 | |||||||||||||||
Total unrealized appreciation | $ | 13,585 | |||||||||||||||||||||
Total unrealized depreciation | — | ||||||||||||||||||||||
Total net unrealized appreciation(depreciation) | $ | 13,585 |
See notes to financial statements.
14
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2019 |
(Unaudited)
Victory S&P 500 Index VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $37,506,398) | $ | 118,021,442 | |||||
Cash and cash equivalents | 1,041,831 | ||||||
Deposits with brokers for futures contracts | 188,015 | ||||||
Interest and dividends receivable | 99,020 | ||||||
Receivable for capital shares issued | 44 | ||||||
Receivable for investments sold | 94,139 | ||||||
Variation margin receivable on open futures contracts | 5,320 | ||||||
Receivable from Adviser | 66,219 | ||||||
Prepaid expenses | 3,460 | ||||||
Total Assets | 119,519,490 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Investments purchased | 407 | ||||||
Capital shares redeemed | 105,770 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 24,153 | ||||||
Administration fees | 5,927 | ||||||
Custodian fees | 934 | ||||||
Transfer agent fees | 13,038 | ||||||
Chief Compliance Officer fees | 151 | ||||||
Other accrued expenses | 17,896 | ||||||
Total Liabilities | 168,276 | ||||||
NET ASSETS: | |||||||
Capital | 24,731,902 | ||||||
Total distributable earnings/(loss) | 94,619,312 | ||||||
Net Assets | $ | 119,351,214 | |||||
Shares Outstanding (unlimited shares authorized, with a par value of $0.001 per share): | 5,960,746 | ||||||
Net asset value: | $ | 20.02 |
See notes to financial statements.
15
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2019 |
(Unaudited)
Victory S&P 500 Index VIP Series | |||||||
Investment Income: | |||||||
Dividends | $ | 1,186,484 | |||||
Interest | 8,473 | ||||||
Securities lending (net of fees) | 321 | ||||||
Total Income | 1,195,278 | ||||||
Expenses: | |||||||
Investment advisory fees | 144,650 | ||||||
Administration fees | 36,556 | ||||||
Custodian fees | 3,096 | ||||||
Transfer agent fees | 78,289 | ||||||
Trustees' fees | 5,069 | ||||||
Chief Compliance Officer fees | 407 | ||||||
Legal and audit fees | 9,374 | ||||||
Other expenses | 16,936 | ||||||
Total Expenses | 294,377 | ||||||
Expenses waived/reimbursed by Adviser | (132,274 | ) | |||||
Net Expenses | 162,103 | ||||||
Net Investment Income (Loss) | 1,033,175 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities | 4,422,322 | ||||||
Net realized gains (losses) from futures contracts | 127,256 | ||||||
Net change in unrealized appreciation/depreciation on investment securities | 13,651,710 | ||||||
Net change in unrealized appreciation/depreciation on futures contracts | 45,656 | ||||||
Net realized/unrealized gains (losses) on investments | 18,246,944 | ||||||
Change in net assets resulting from operations | $ | 19,280,119 |
See notes to financial statements.
16
Victory Variable Insurance Funds | Statements of Changes in Net Assets |
Victory S&P 500 Index VIP Series | |||||||||||
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | ||||||||||
(Unaudited) | |||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 1,033,175 | $ | 2,052,531 | |||||||
Net realized gains (losses) from investments | 4,549,578 | 11,525,904 | |||||||||
Net change in unrealized appreciation/depreciation on investments | 13,697,366 | (18,228,830 | ) | ||||||||
Change in net assets resulting from operations | 19,280,119 | (4,650,395 | ) | ||||||||
Change in net assets resulting from distributions to shareholders | — | (7,462,566 | ) | ||||||||
Change in net assets resulting from capital transactions | (6,360,619 | ) | (10,536,165 | ) | |||||||
Change in net assets | 12,919,500 | (22,649,126 | ) | ||||||||
Net Assets: | |||||||||||
Beginning of period | 106,431,714 | 129,080,840 | |||||||||
End of period | $ | 119,351,214 | $ | 106,431,714 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | 2,639,726 | 5,103,469 | |||||||||
Distributions reinvested | — | 7,462,566 | |||||||||
Cost of shares redeemed | (9,000,345 | ) | (23,102,200 | ) | |||||||
Change in net assets resulting from capital transactions | (6,360,619 | ) | (10,536,165 | ) | |||||||
Share Transactions: | |||||||||||
Issued | 142,500 | 260,170 | |||||||||
Reinvested | — | 440,689 | |||||||||
Redeemed | (472,671 | ) | (1,183,894 | ) | |||||||
Change in Shares | (330,171 | ) | (483,035 | ) |
See notes to financial statements.
17
Victory Variable Insurance Funds | Financial Highlights |
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholder From | ||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(a) | Net Realized and Unrealized Gains (Losses) on Investments | Total from Investment Activities | Net Investment Income | Net Realized Gains From Investments | ||||||||||||||||||||||
Victory S&P 500 Index VIP Series | |||||||||||||||||||||||||||
Six Months Ended 6/30/19 (unaudited) | $ | 16.92 | 0.17 | 2.93 | 3.10 | — | — | ||||||||||||||||||||
Year Ended 12/31/18 | $ | 19.06 | 0.32 | (1.21 | ) | (0.89 | ) | (0.02 | ) | (1.23 | ) | ||||||||||||||||
Year Ended 12/31/17 | $ | 15.98 | 0.30 | 3.15 | 3.45 | (0.33 | ) | (0.04 | ) | ||||||||||||||||||
Year Ended 12/31/16 | $ | 14.84 | 0.28 | 1.46 | 1.74 | (0.32 | ) | (0.28 | ) | ||||||||||||||||||
Year Ended 12/31/15 | $ | 14.97 | 0.27 | (0.12 | ) | 0.15 | (0.28 | ) | — | ||||||||||||||||||
Year Ended 12/31/14 | $ | 13.43 | 0.24 | 1.56 | 1.80 | (0.26 | ) | — |
(a) Per share net investment income (loss) has been calculated using the average daily shares method.
(b) Not annualized for periods less than one year.
(c) Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(d) Annualized for periods less than one year.
(e) During the period, certain fees were reduced and/or reimbursed. If such fee reductions and/or reimbursements had not occurred, the ratios would have been as indicated.
(f) Amount is less than $0.005 per share.
(g) The Fund received monies related to a nonrecurring refund from the prior Custodian. The corresponding impact to the total return was less than 0.01% for the period shown. (See Note 8)
See notes to financial statements.
18
Victory Variable Insurance Funds | Financial Highlights — continued |
For a Share Outstanding Throughout Each Period
Ratios to Average Net Assets | Supplemental Data | ||||||||||||||||||||||||||||||||||||||
Total Distributions | Net Asset Value, End of Period | Capital contributions from prior custodian, Net (See Note 8) | Total Return(b)(c) | Net Expenses(d) | Net Investment Income (Loss)(d) | Gross Expenses(d)(e) | Net Assets, End of Period (000's) | Portfolio Turnover(b) | |||||||||||||||||||||||||||||||
Victory S&P 500 Index VIP Series | |||||||||||||||||||||||||||||||||||||||
Six Months Ended 6/30/19 (unaudited) | — | $ | 20.02 | — | 18.32 | % | 0.28 | % | 1.78 | % | 0.51 | % | $ | 119,351 | 1 | % | |||||||||||||||||||||||
Year Ended 12/31/18 | (1.25 | ) | $ | 16.92 | — | (4.65 | )% | 0.28 | % | 1.65 | % | 0.38 | % | $ | 106,432 | 3 | % | ||||||||||||||||||||||
Year Ended 12/31/17 | (0.37 | ) | $ | 19.06 | — | 21.60 | % | 0.28 | % | 1.70 | % | 0.41 | % | $ | 129,081 | 3 | % | ||||||||||||||||||||||
Year Ended 12/31/16 | (0.60 | ) | $ | 15.98 | — | (f) | 11.75 | %(g) | 0.28 | % | 1.84 | % | 0.37 | % | $ | 120,157 | 4 | % | |||||||||||||||||||||
Year Ended 12/31/15 | (0.28 | ) | $ | 14.84 | — | 1.03 | % | 0.28 | % | 1.75 | % | 0.39 | % | $ | 118,752 | 3 | % | ||||||||||||||||||||||
Year Ended 12/31/14 | (0.26 | ) | $ | 14.97 | — | 13.42 | % | 0.28 | % | 1.73 | % | 0.37 | % | $ | 129,723 | 3 | % |
See notes to financial statements.
19
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2019 |
(Unaudited)
1. Organization:
Victory Variable Insurance Funds (the "Trust") was organized on February 11, 1998 as a Delaware statutory trust. The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end investment company. The Trust is comprised of nine funds and is authorized to issue an unlimited number of shares, which are units of beneficial interest with a par value of $0.001 per share.
The accompanying financial statements are those of the Victory S&P 500 Index VIP Series (the "Fund"). The Fund offers a single class of shares: Class I Shares. Sales of shares of the Fund may only be made to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. ("GIAC") that fund certain variable annuity and variable life insurance contracts issued by GIAC. GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America ("Guardian Life").
Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. The Fund follows the specialized accounting and reporting requirements under GAAP that are applicable to investment companies.
Investment Valuation:
The Fund records investments at fair value. Fair value is defined 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.
The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund's investments are summarized in the three broad levels listed below:
• Level 1 — quoted prices in active markets for identical securities
• Level 2 — other significant observable inputs (including quoted prices for similar securities or interest rates applicable to those securities, etc.)
• Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The inputs or methodologies used for valuation techniques are not necessarily an indication of the risk associated with entering into those investments.
Portfolio securities listed or traded on securities exchanges, including American Depositary Receipts ("ADRs") and Rights, are valued at the closing price on the exchange or system where the security is principally traded, if available, or at the Nasdaq Official Closing Price. If there have been no sales for that day on the exchange or system, then a security is valued at the last available bid quotation on the exchange or system where the security is principally traded. In each of these situations, valuations are typically categorized as Level 1 in the fair value hierarchy.
20
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Futures contracts are valued at the settlement price established each day by the board of trade or an exchange on which they are traded. These valuations are typically categorized as Level 1 in the fair value hierarchy.
Investments for which there are no such quotations, or for which quotations do not appear reliable, are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Trust's Board of Trustees (the "Board"). These valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based on the observability of inputs used to determine the fair value.
A summary of the valuations as of June 30, 2019, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed in the Schedule of Portfolio Investments:
LEVEL 1 — Quoted Prices | Total | ||||||||||||||||||
Investments in Securities | Other Financial Investments^ | Investments in Securities | Other Financial Investments^ | ||||||||||||||||
Common Stocks | $ | 118,021,442 | $ | — | $ | 118,021,442 | $ | — | |||||||||||
Futures Contracts | — | 13,585 | — | 13,585 | |||||||||||||||
Total | $ | 118,021,442 | $ | 13,585 | $ | 118,021,442 | $ | 13,585 |
^ Other Financial instruments include any derivative instruments not reflected in the Schedule of Portfolio Investments as Investment Securities, such as futures contracts. These instruments are generally recorded in the financial statements at the unrealized gain or loss on the investment.
For the six months ended June 30, 2019, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
Derivative Instruments:
Futures Contracts:
The Fund may enter into contracts for the future delivery of securities or foreign currencies and futures contracts based on a specific security, class of securities, foreign currency or an index, and purchase or sell options on any such futures contracts. A futures contract on a securities index is an agreement obligating either party to pay, and entitling the other party to receive, while the contract is outstanding, cash payments based on the level of a specified securities index. No physical delivery of the underlying asset is made. The Fund may enter into futures contracts in an effort to hedge against market risks. The acquisition of put and call options on futures contracts will give the Fund the right (but not the obligation), for a specified price, to sell or to purchase the underlying futures contract, upon exercise of the option, at any time during the option period. Futures transactions involve brokerage costs and require the Fund to segregate assets to cover contracts that would require it to purchase securities or currencies. A good faith margin deposit, known as initial margin, of cash or government securities with a broker or custodian is required to initiate and maintain open positions in futures contracts. Subsequent payments, known as variation margin, are made or received by the Fund based on the change in the market value of the position and are recorded as unrealized appreciation or depreciation until the contract is closed out, at which time the gain or loss is realized. The Fund may lose the expected benefit of futures transactions if interest rates, exchange rates or securities prices change in an unanticipated manner. Such unanticipated changes may also result in lower overall performance than if the Fund had not entered into any futures transactions. In addition, the value of the Fund's futures positions may not prove to be perfectly or even highly correlated with the value of its portfolio securities or foreign currencies, limiting the Fund's ability to hedge effectively against interest rate, exchange rate and/or market risk and giving rise to additional risks. There is no assurance of liquidity in the secondary market for purposes of closing out futures positions. The collateral held by the Fund is presented on the Statement of Assets and Liabilities under Deposit with broker for futures contracts. The Fund entered into futures contracts primarily for the strategy of hedging or other purposes, including but not limited to, providing liquidity and equitizing cash.
21
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Summary of Derivative Instruments:
The following table presents the effect of derivative instruments on the Statement of Assets and Liabilities, categorized by risk exposure, as of June 30, 2019.
Assets | |||||||
Variation Margin Receivable on Open Futures Contracts* | |||||||
Equity Risk Exposure | $ | 13,585 |
* Includes cumulative appreciation (depreciation) of futures contracts as reported in the Schedule of Investments. Only current day's variation margin is reported within the Statement of Assets and Liabilities.
The following table presents the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the six months ended June 30, 2019.
Net Realized Gains (Losses) on Derivatives Recognized as a Result from Operations | Net Change in Unrealized Appreciation/Depreciation on Derivatives Recognized as a Result of Operations | ||||||||||
Net Realized Gains (Losses) from Futures Contracts | Net Change in Unrealized Appreciation/Depreciation On Futures Contracts | ||||||||||
Equity Risk Exposure | $ | 127,256 | $ | 45,656 |
All open derivative positions at period end are reflected on the Fund's Schedule of Portfolio Investments. The underlying face value of open derivative positions relative to the Fund's net assets at period end is generally representative of the notional amount of open positions to net assets throughout the period.
Investment Transactions and Related Income:
Changes in holdings of investments are accounted for no later than one business day following the trade date. For financial reporting purposes, however, investment transactions are accounted for on trade date on the last business day of the reporting period. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date. Gains or losses realized on sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds.
Withholding taxes on interest, dividends and gains as a result of certain investments in ADRs by the Fund have been provided for in accordance with each investment's applicable country's tax rules and rates.
Securities Lending:
The Trust has entered into a Master Securities Lending Agreement ("MSLA") with Citibank, N.A. ("Citibank" or the "Agent"). Under the terms of the MSLA, the Fund may lend securities to certain broker-dealers and banks in exchange for collateral in the amount of at least 102% of the value of U.S. securities loaned or at least 105% of the value of non-U.S. securities loaned, marked-to-market daily. Any collateral shortfalls associated with increases in the valuation of the securities loaned are adjusted the next business day. The collateral can be received in the form of cash collateral and/or non-cash collateral. Non-cash collateral can include U.S. Government Securities, letters of credit and certificates of deposit. The cash collateral is invested in short-term instruments or cash equivalents as noted on the Fund's Schedule of Portfolio Investments. The Trust does not have effective control of the non-cash collateral and therefore it is not disclosed in the Fund's Schedule of Portfolio Investments. The Fund continues to benefit from interest or dividends on the securities loaned and may also earn a return from the collateral. The Fund pays various fees in connection with the investment of cash
22
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
collateral. The Fund pays the Agent fees based on the investment income received from securities lending activities. Securities lending income is disclosed in the Fund's Statement of Operations. Although risk is mitigated by the collateral, the Fund could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them.
Securities lending transactions are entered into by the Fund under the MSLA, which permits the Fund, under certain circumstances such as an event of default, to offset amounts payable by the Fund to the same counterparty against amounts receivable from the counterparty to create a net payment due to or from the Fund.
For the six months ended June 30, 2019, the Fund had no securities lending transactions.
Dividends to Shareholders:
Dividends from net investment income, if any, are declared and paid annually by the Fund. Distributable net realized gains, if any, are declared and distributed at least annually.
The amounts of dividends from net investment income and distributions from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these "book/tax" differences are permanent in nature (e.g., net operating loss and distribution reclassification), such amounts are reclassified within the components of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales) do not require reclassification. To the extent dividends and distributions exceed net investment income and net realized gains for tax purposes, they are reported as distributions of capital. Net investment losses incurred by the Fund may be reclassified as an offset to capital on the accompanying Statement of Assets and Liabilities.
Federal Income Taxes:
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes is required in the financial statements. The Fund has a tax year end of December 31.
Management of the Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Allocations:
Expenses directly attributable to the Fund are charged to the Fund, while expenses which are attributable to more than one fund in the Trust, or jointly with an affiliated trust, are allocated among the respective funds in the Trust and/or affiliated trust based upon net assets or another appropriate basis.
Affiliated Securities Transactions:
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Adviser and any applicable sub-adviser. Any such purchase or sale transaction must be effected without brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security's last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. For the six months ended June 30, 2019, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
23
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding securities maturing less than one year from acquisition) for the six months ended June 30, 2019 were as follows for the Fund:
Purchases | Sales | ||||||
$ | 1,104,907 | $ | 7,368,933 |
For the six months ended June 30, 2019, there were no purchases or sales of U.S. Government Securities.
4. Fees and Transactions with Affiliates and Related Parties:
Investment advisory services are provided to the Fund by Victory Capital Management Inc. ("VCM" or the "Adviser"), a New York corporation registered as an investment adviser with the Securities and Exchange Commission ("SEC"). The Adviser is a wholly-owned indirect subsidiary of Victory Capital Holdings, Inc., a publicly traded Delaware corporation, and a wholly-owned direct subsidiary of Victory Capital Operating, LLC.
Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive 0.25% of the average daily net assets of the Fund. The Adviser may use its resources to assist with the Fund's distribution and marketing expenses.
VCM also serves as the Fund's administrator and fund accountant. Under an Administration and Fund Accounting Agreement, VCM is paid for its services an annual fee at a rate of 0.08% of the first $15 billion in average daily net assets of the Trust, Victory Portfolios and Victory Portfolios II (collectively, the "Victory Funds Complex"), 0.05% of the average daily net assets above $15 billion to $30 billion of the Victory Funds Complex and 0.04% of the average daily net assets over $30 billion of the Victory Funds Complex.
Citi Fund Services Ohio, Inc. ("Citi"), an affiliate of Citibank, N.A., acts as sub-administrator and sub-fund accountant to the Fund pursuant to a Sub-Administration and Sub-Fund Accounting Services Agreement between VCM and Citi. VCM pays Citi a fee for providing these services. The Trust reimburses VCM and Citi for all of their reasonable out-of-pocket expenses incurred in providing these services.
FIS Investor Services, LLC ("FIS") serves as the Fund's transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Chief Compliance Officer ("CCO") is an employee of the Adviser, which pays the compensation of the CCO and his support staff. The Trust has entered into an Agreement to provide compliance services with the Adviser, pursuant to which the Adviser furnishes its compliance personnel, including the services of the CCO, and other resources reasonably necessary to provide the Trust with compliance oversight services related to the design, administration and oversight of a compliance program for the Trust in accordance with Rule 38a-1 under the 1940 Act. The funds in the Victory Funds Complex, in the aggregate, compensate the Adviser for these services.
The Victory Funds Complex pays an annual retainer to each Independent Trustee, plus an additional annual retainer to the Chairman of the Board. The aggregate amount of the fees and expenses of the Independent Trustees are allocated amongst all the funds in the Victory Funds Complex and are presented in the Statement of Operations.
Shearman & Sterling LLP provides legal services to the Trust.
Victory Capital Advisers, Inc. (the "Distributor"), an affiliate of the Adviser, serves as distributor for the continuous offering of the shares of the Fund pursuant to a Distribution Agreement between the Distributor and the Trust.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2020. Under the terms of the agreement, the Adviser has agreed to waive fees or reimburse certain expenses to the extent that ordinary operating expenses incurred by the Fund in any fiscal year exceed the expense limit for the Fund. Such excess amounts will be the liability of the Adviser. Interest, taxes, brokerage
24
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
commissions, other expenditures which are capitalized in accordance with GAAP, and other extraordinary expenses not incurred in the ordinary course of a Fund's business are excluded from the expense limits. For the the six months ended June 30, 2019, the expense limit (excluding voluntary waivers) is 0.28%.
The Fund has agreed to repay fees and expenses that were waived or reimbursed by the Adviser for a period up to three fiscal years after such waiver or reimbursement was made to the extent such payments or repayments would not cause the expenses of a class to exceed the original expense limitation in place at time of the waiver or reimbursement or any expense limitation agreement in place at the time of repayment. As of June 30, 2019, the following amounts are available to be repaid to the Adviser. Amounts repaid to the Adviser during the six months ended, if any, are reflected on the Statement of Operations as "Recoupment of prior expenses waived/reimbursed by Adviser".
Expires 12/31/2019 | Expires 12/31/2020 | Expires 12/31/2021 | Expires 12/31/2022 | ||||||||||||
$ | 36,542 | $ | 167,384 | $ | 126,360 | $ | 132,274 |
The Adviser may voluntarily waive or reimburse additional fees to assist the Fund in maintaining a competitive expense ratio. Voluntary waivers and reimbursements applicable to the Fund are not available to be recouped at a future time. There were no voluntary waivers or reimbursements for the year ended June 30, 2019.
Certain officers and/or interested trustees of the Fund are also officers and/or employees of the Adviser, Administrator, Fund Accountant, Sub-Administrator, Sub-Fund Accountant and Legal Counsel.
5. Risks:
The Fund may be subject to other risks in addition to these identified risks.
An investment in the Fund's shares represents an indirect investment in the securities owned by the Fund, some of which will be traded on a national securities exchange or in the over-the-counter markets. The value of the securities in which the Fund invests, like other market investments, may move up or down, sometimes rapidly and unpredictably. The value of the securities in which the Fund invests may affect the value of the Fund's shares. An investment in the Fund's shares at any point in time may be worth less than the original investment, even after taking into account the reinvestment of the Fund's distributions.
The Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties for financial instruments entered into by the Fund. The Fund may be negatively impacted 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 bankruptcy or other reorganization proceeding and the Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund typically enters into transactions with counterparties whose credit ratings are investment grade, as determined by a nationally recognized statistical rating organization or, if unrated, judged by the Adviser to be of comparable quality.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2019, the Victory Funds Complex participated in a short-term, demand note "Line of Credit" agreement with Citibank. Under the agreement with Citibank, the Victory Funds Complex may have borrowed up to $250 million, of which $100 million was committed and $150 million was uncommitted. This agreement was in effect through July 26, 2019. Effective July 1, 2019, the current agreement was amended to include the USAA Mutual Funds Complex and has a new termination date of June 29, 2020. Under this amended agreement, the Victory Funds Complex and USAA Funds Complex, combined, may borrow up to $600 million, of which $300 million is committed and $300 million is uncommitted. $40 million of the Line of Credit is reserved for use by the Victory
25
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Floating Rate Fund, another series of the Victory Funds Complex, with that Fund paying the related commitment fees for that amount. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. With the agreement in affect for the six months ended June 30, 2019, Citibank received an annual commitment fee of 0.15% on $100 million for providing the Line of Credit. For the six months ended June 30, 2019, Citibank earned approximately $76 thousand in commitment fees from the Victory Funds Complex. Effective July 1, 2019, Citibank receives an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest on amounts borrowed, including the USAA Funds Complex, commencing July 1, 2019. Interest charged to the Fund during the period is presented on the Statement of Operations under line of credit fees.
The Fund did not utilize the Line of Credit during the six months ended June 30, 2019.
Interfund Lending:
The Trust and Adviser rely on an exemptive order granted by the SEC in March 2017 (the "Order"), permitting the establishment and operation of an Interfund Lending Facility (the "Facility"). The Facility allows the Fund to directly lend and borrow money to or from any other Victory Fund relying upon the Order at rates beneficial to both the borrowing and lending funds. Advances under the Facility are allowed for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities, and are subject to each Fund's borrowing restrictions. The interfund loan rate is determined, as specified in the Order, by averaging the current repurchase agreement rate and the current bank loan rate. As a Borrower, interest charged to the Fund during the period is presented on the Statement of Operations under interfund lending fees. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Income on interfund lending.
The Fund did not utilize or participate in the Facility during the six months ended June 30, 2019.
7. Federal Income Tax Information:
The tax character of current year distributions paid and the tax basis of the current components of accumulated earnings (deficit) will be determined at the end of the current tax year ending December 31, 2019.
The tax character of distributions paid during the most recent tax year ended December 31, 2018 was as follows (total distributions paid may differ from the Statement of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid).
Distributions paid from | |||||||||||||||
Ordinary Income | Net Long-Term Capital Gains | Total Distributions Paid | |||||||||||||
$ | 349,417 | $ | 7,113,149 | $ | 7,462,566 |
As of the most recent tax year ended December 31, 2018, the components of accumulated earnings (deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Unrealized Appreciation (Depreciation)* | Total Accumulated Earnings (Deficit) | |||||||||||||||
$ | 1,897,408 | $ | 11,013,973 | $ | 12,911,381 | $ | 62,427,812 | $ | 75,339,193 |
* The difference between the book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to tax deferral of losses on wash sales.
26
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
During the most recent tax year ended December 31, 2018, the Fund did not utilize any capital loss carryforwards.
At June 30, 2019, the cost basis for federal income tax purposes, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) for investments were as follows:
Cost of Investments for Federal Tax Purposes | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||||||||||
$ | 41,552,848 | $ | 82,028,851 | $ | (5,560,257 | ) | $ | 76,468,594 |
8. Capital Contribution from Prior Custodian:
During 2016, the Fund received notification from the Fund's prior custodian, State Street Bank and Trust ("State Street"), concerning issues related to billing on certain categories of expenses during the approximately 16-year period from 1998 through October 31, 2014. The over-billing primarily related to categories of expenses that involved an allocation of general costs among multiple clients.
State Street paid the refunded amounts during January 2017. Based on billing information received during 2016 from State Street and an analysis of any expense limitation agreements that were in place during the period of the activities in question, including the application of any recoupment provisions in such agreements, the Adviser received a portion of the refund.
The portion of the refund retained by the Fund was accounted for as a capital contribution and is reflected on the Financial Highlights as "Capital Contribution from Prior Custodian, Net".
9. Fund Ownership:
Ownership of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2(a)(9) of the 1940 Act. As of June 30, 2019, the shareholders listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund.
Shareholder | Percent | ||||||
The Guardian Insurance & Annuity Company, Inc. | 100.0 | % |
10. Recent Accounting Pronouncements:
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-13, "Fair Value Measurements" ("ASU 2018-13"). This update makes certain removals from, changes to and additions to existing disclosure requirements for fair value measurements. ASU 2018-13 does not change fair value measurements already required or permitted by existing standards. ASU 2018-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As permitted, the Fund has early adopted ASU 2018-13 with the financial statements prepared as of June 30, 2019.
11. Subsequent Events:
The Fund has evaluated the need for additional disclosures or adjustments resulting from subsequent events through the date these financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have a material impact on the Fund's financial statements.
27
Victory Variable Insurance Funds | Supplemental Information June 30, 2019 |
(Unaudited)
Trustee and Officer Information
Board of Trustees:
Overall responsibility for management of the Trust rests with the Board. The Trust is managed by the Board in accordance with the laws of the State of Delaware. There are currently ten Trustees, nine of whom are not "interested persons" of the Trust within the meaning of that term under the 1940 Act ("Independent Trustees") and one of whom is an "interested person" of the Trust within the meaning of that term under the 1940 Act ("Interested Trustee"). The Trustees, in turn, elect the officers of the Trust to actively supervise its day-to-day operations.
The following tables list the Trustees, their ages, position with the Trust, commencement of service, principal occupations during the past five years and any directorships of other investment companies or companies whose securities are registered under the Securities Exchange Act of 1934, as amended, or who file reports under that Act. Each Trustee oversees nine portfolios in the Trust, 42 portfolios in Victory Portfolios and 20 portfolios in Victory Portfolios II, each a registered investment company that, together with the Trust, comprise the Victory Funds Complex. Each Trustee's address is c/o Victory Variable Insurance Funds, 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. Each Trustee has an indefinite term.
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Independent Trustees. | |||||||||||||||||||
David Brooks Adcock, 67 | Trustee | February 2005 | Consultant (since 2006). | Chair and Trustee, Turner Funds (December 2016-December 2017). | |||||||||||||||
Nigel D.T. Andrews, 72 | Vice Chair and Trustee | August 2002 | Retired. | Director, TCG BDC II, Inc. (since 2017); Director, TCG BDC I, Inc. (formerly Carlyle GMS Finance, Inc.) (since 2012); Director, Old Mutual US Asset Management (2002-2014). | |||||||||||||||
E. Lee Beard, 68* | Trustee | February 2005 | Retired (since 2015); Consultant, The Henlee Group, LLC (consulting) (2005-2015). | None. | |||||||||||||||
Dennis M. Bushe, 75 | Trustee | July 2016 | Retired. | Trustee, RS Investment Trust and RS Variable Products Trust (November 2011-July 2016). |
28
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Sally M. Dungan, 65 | Trustee | February 2011 | Chief Investment Officer, Tufts University (since 2002). | None. | |||||||||||||||
John L. Kelly, 66 | Trustee | February 2015 | Partner, McCarvill Capital Partners (September 2016-September 2017); Advisor, Endgate Commodities LLC (January 2016-April 2016); Managing Partner, Endgate Commodities LLC (August 2014-January 2016); Chief Operating Officer, Liquidnet Holdings, Inc. (December 2011-July 2014). | Director, Caledonia Mining Corporation (since May 2012). | |||||||||||||||
David L. Meyer, 62* | Trustee | December 2008 | Retired. | None. | |||||||||||||||
Gloria S. Nelund, 58 | Trustee | July 2016 | Chair, CEO and Co-Founder of TriLinc Global, LLC, an investment firm. | TriLinc Global Impact Fund, LLC (since 2012); Trustee, RS Investment Trust and RS Variable Products Trust (November 2007-July 2016). | |||||||||||||||
Leigh A. Wilson, 74 | Chair and Trustee | February 1998 | Private Investor. | Chair (since 2013), Caledonia Mining Corporation. | |||||||||||||||
Interested Trustee. | |||||||||||||||||||
David C. Brown, 47** | Trustee | May 2008 | Chairman and Chief Executive Officer (since 2013), Co-Chief Executive Officer (2011-2013), the Adviser; Chairman and Chief Executive Officer, Victory Capital Holdings, Inc. (since 2013). | None. |
* The Board has designated Mr. Meyer and Ms. Beard as its Audit Committee Financial Experts.
** Mr. Brown is an "Interested Person" by reason of his relationship with the Adviser.
The Statement of Additional Information includes additional information about the Trustees of the Trust and is available, without charge, by calling 800-539-3863.
29
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Officers:
The officers of the Trust, their ages, commencement of service and their principal occupations during the past five years, are detailed in the following table. Each officer serves until the earlier of his or her resignation, removal, retirement, death, or the election of a successor. The mailing address of each officer of the Trust is 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. The officers of the Trust receive no compensation directly from the Trust for performing the duties of their offices.
Name and Age | Position with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | ||||||||||||
Christopher K. Dyer, 57 | President | February 2006* | Director of Fund Administration, the Adviser. | ||||||||||||
Scott A. Stahorsky, 50 | Vice President | December 2014 | Manager, Fund Administration, the Adviser (since 2015); Senior Analyst, Fund Administration, the Adviser (prior to 2015). | ||||||||||||
Erin G. Wagner, 45 | Secretary | December 2014 | Associate General Counsel, the Adviser (since 2013). | ||||||||||||
Allan Shaer, 54 | Treasurer | May 2017 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc. (since 2016); Vice President, Mutual Fund Administration, JP Morgan Chase (2011-2016). | ||||||||||||
Christopher A. Ponte, 35 | Assistant Treasurer | December 2017 | Manager, Fund Administration, the Adviser (since 2017); Senior Analyst, Fund Administration, the Adviser (prior to 2017); Chief Financial Officer, Victory Capital Advisers, Inc. (since 2018). | ||||||||||||
Colin Kinney, 45 | Chief Compliance Officer | July 2017 | Chief Compliance Officer (since 2013) and Chief Risk Officer (2009-2017), the Adviser. | ||||||||||||
Chuck Booth, 59 | Anti-Money Laundering Compliance Officer and Identity Theft Officer | May 2015 | Director, Regulatory Administration and CCO Support Services, Citi Fund Services Ohio, Inc. | ||||||||||||
Jay G. Baris, 65 | Assistant Secretary | February 1998 | Partner, Shearman & Sterling LLP (since 2018); Partner, Morrison & Foerster LLP (2011-January 2018). |
* On December 3, 2014, Mr. Dyer resigned as Secretary of the Trust and accepted the position of President.
30
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Proxy Voting and Portfolio Holdings Information
Proxy Voting:
Information regarding the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 800-539-3863. The information is also included in the Fund's Statement of Additional Information, which is available on the SEC's website at www.sec.gov.
Information relating to how the Fund voted proxies relating to portfolio securities held during the most recent twelve months ended June 30 is available on the SEC's website at www.sec.gov.
Availability of Schedules of Portfolio Investments:
The Trust files a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-PORT. Prior to the implementation of Form N-PORT, the Trust filed a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-PORT and Forms N-Q are available on the SEC's website at www.sec.gov.
Expense Examples
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2019 through June 30, 2019.
The Actual Expense figures in the table below provide information about actual account values and actual expenses. You may use the information below, 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.
The Hypothetical Expense figures in the table below provide 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 this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 1/1/19 | Actual Ending Account Value 6/30/19 | Hypothetical Ending Account Value 6/30/19 | Actual Expenses Paid During Period 1/1/19-6/30/19* | Hypothetical Expenses Paid During Period 1/1/19-6/30/19* | Annualized Expense Ratio During Period 1/1/19-6/30/19 | ||||||||||||||||||
$ | 1,000.00 | $ | 1,183.20 | $ | 1,023.41 | $ | 1.52 | $ | 1.40 | 0.28 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 181/365 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
31
Privacy Policy
Protecting the Privacy of Information
The Trust respects your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information about investment goals and risk tolerance.
We do not disclose any information about you or about former customers to anyone except as permitted or required by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and printers and mailers that assist us in the distribution of investor materials. We may also disclose this information to companies that perform marketing services on our behalf. This allows us to continue to offer you Victory investment products and services that meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only in connection with the services for which we hired them. They are not permitted to use or share this information for any other purpose.
To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information.*
* You may have received communications regarding information about privacy policies from other financial institutions which gave you the opportunity to "opt-out" of certain information sharing with companies which are not affiliated with that financial institution. The Trust does not share information with other companies for purposes of marketing solicitations for products other than the Trust. Therefore, the Trust does not provide opt-out options to their shareholders.
Victory Funds
P.O. Box 182593
Columbus, Ohio 43218-2593
Visit our website at: | Call Victory at: | ||||||
www.vcm.com | 800-539-FUND (800-539-3863) |
VVIF-RS-SPIVIP-SAR (6/19)
June 30, 2019
Semi Annual Report
Victory Variable Insurance Funds
Victory Sophus Emerging Markets VIP Series
Beginning January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports may no longer be sent by mail from the insurance company that issued your variable annuity and variable life insurance contract, unless you specifically request paper copies of the reports from your insurance company. Instead, the reports will be made available on www.victoryfunds.com. The insurance company that offers your contract may also make these reports available on a website, and such insurance company will notify you by mail each time a report is posted and provide you with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the insurance company electronically by following the instructions provided by the insurance company.
If offered by your insurance company, you may elect to receive all future reports in paper and free of charge from the insurance company. You can inform your insurance company that you wish to continue receiving paper copies of your reports. Your election to receive reports in paper will apply to all funds available under your contract.
www.vcm.com
News, Information And Education 24 Hours A Day, 7 Days A Week
The Victory Funds site gives fund shareholders, prospective shareholders, and investment professionals a convenient way to access fund information, get guidance, and track fund performance anywhere they can access the Internet. The site includes:
• Detailed performance records
• Daily share prices
• The latest fund news
• Investment resources to help you become a better investor
• A section dedicated to investment professionals
Whether you're a potential investor searching for the fund that matches your investment philosophy, a seasoned investor interested in planning tools, or an investment professional, www.vcm.com has what you seek. Visit us anytime. We're always open.
Victory Variable Insurance Funds
Table of Contents
Financial Statements | |||||||
Investment Objective & Portfolio Holdings | 3 | ||||||
Schedule of Portfolio Investments | 4 | ||||||
Statement of Assets and Liabilities | 12 | ||||||
Statement of Operations | 13 | ||||||
Statements of Changes in Net Assets | 14 | ||||||
Financial Highlights | 16 | ||||||
Notes to Financial Statements | 18 | ||||||
Supplemental Information (Unaudited) | |||||||
Trustee and Officer Information | 27 | ||||||
Proxy Voting and Portfolio Holdings Information | 30 | ||||||
Expense Examples | 30 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Advisers, Inc. Victory Capital Management Inc. is the investment adviser to the Fund and receives fees from the Fund for performing services for the Fund.
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus of the Fund.
For additional information about any Victory Fund, including fees, expenses, and risks, view our prospectus online at www.vcm.com or call 800-539-3863. Read it carefully before you invest or send money.
The information in this semi annual report is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections, or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Past investment performance of the Fund, markets or securities mentioned herein should not be considered to be indicative of future results.
• NOT FDIC INSURED • NO BANK GUARANTEE
• MAY LOSE VALUE
Call Victory at:
800-539-FUND (800-539-3863)
Visit our website at:
www.vcm.com
1
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2
Victory Variable Insurance Funds | June 30, 2019 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: The Victory Sophus Emerging Markets VIP Series seeks to provide long-term capital appreciation.
Portfolio Holdings*:
* Percentages are of total investments of the Fund.
3
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Common Stocks (96.6%) | |||||||||||
Australia (0.6%): | |||||||||||
Materials (0.6%): | |||||||||||
BHP Billiton Ltd., ADR (a) | 4,888 | $ | 284,042 | ||||||||
Brazil (8.6%): | |||||||||||
Consumer Discretionary (1.4%): | |||||||||||
BK Brasil Operacao e Assessoria a Restaurantes SA | 49,300 | 285,581 | |||||||||
Lojas Renner SA | 26,430 | 324,653 | |||||||||
610,234 | |||||||||||
Consumer Staples (0.7%): | |||||||||||
Atacadao Distribuicao Comercio E Industria Ltd. | 55,400 | 317,454 | |||||||||
Energy (1.7%): | |||||||||||
Cosan Ltd. (b) | 19,647 | 262,484 | |||||||||
Petroleo Brasileiro SA, ADR | 29,949 | 466,306 | |||||||||
728,790 | |||||||||||
Financials (1.0%): | |||||||||||
Banco Bradesco SA, ADR | 44,760 | 439,543 | |||||||||
Health Care (1.5%): | |||||||||||
Odontoprev SA | 77,000 | 366,218 | |||||||||
Qualicorp SA | 47,600 | 284,784 | |||||||||
651,002 | |||||||||||
Industrials (0.7%): | |||||||||||
Companhia de Locacao das Americas | 23,700 | 301,736 | |||||||||
Materials (0.3%): | |||||||||||
Vale SA, ADR | 10,258 | 137,868 | |||||||||
Utilities (1.3%): | |||||||||||
Cia de Saneamento Basico do Estado de Sao Paulo | 18,300 | 225,312 | |||||||||
Eneva SA (b) | 56,000 | 351,814 | |||||||||
577,126 | |||||||||||
3,763,753 | |||||||||||
Chile (1.2%): | |||||||||||
Financials (0.5%): | |||||||||||
Banco de Credito e Inversiones | 3,411 | 235,403 | |||||||||
Real Estate (0.7%): | |||||||||||
Parque Arauco SA | 101,603 | 282,111 | |||||||||
517,514 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
China (27.1%): | |||||||||||
Communication Services (6.6%): | |||||||||||
Momo, Inc., ADR | 7,895 | $ | 282,641 | ||||||||
NetEase, Inc., ADR | 1,093 | 279,557 | |||||||||
Tencent Holdings Ltd. | 51,830 | 2,344,849 | |||||||||
2,907,047 | |||||||||||
Consumer Discretionary (6.4%): | |||||||||||
Alibaba Group Holding Ltd., ADR (b) | 11,692 | 1,981,209 | |||||||||
Baozun, Inc., ADR (a) (b) | 6,203 | 309,282 | |||||||||
Tongcheng-Elong Holdings Ltd. (b) | 154,800 | 307,287 | |||||||||
Xtep International Holdings Ltd. | 379,500 | 229,007 | |||||||||
2,826,785 | |||||||||||
Consumer Staples (2.7%): | |||||||||||
Ausnutria Dairy Corp. Ltd. | 167,000 | 332,864 | |||||||||
Wuliangye Yibin Co. Ltd. | 31,000 | 533,932 | |||||||||
Yihai International Holding Ltd. | 57,000 | 295,721 | |||||||||
1,162,517 | |||||||||||
Energy (1.2%): | |||||||||||
China Oilfield Services Ltd. | 276,000 | 273,823 | |||||||||
PetroChina Co. Ltd. | 442,000 | 243,723 | |||||||||
517,546 | |||||||||||
Financials (5.9%): | |||||||||||
China Construction Bank Corp. | 1,288,638 | 1,110,854 | |||||||||
China Merchants Bank Co. Ltd., Class H | 95,500 | 473,929 | |||||||||
Ping An Insurance Group Co. of China Ltd. | 82,000 | 986,078 | |||||||||
2,570,861 | |||||||||||
Industrials (0.8%): | |||||||||||
Zoomlion Heavy Industry Science And Technology Co. | 517,000 | 339,596 | |||||||||
Information Technology (0.6%): | |||||||||||
Beijing Sinnet Technology Co. Ltd., Class A | 107,900 | 263,939 | |||||||||
Materials (1.8%): | |||||||||||
Anhui Conch Cement Co. Ltd. | 55,000 | 344,165 | |||||||||
Wanhua Chemical Group Co. Ltd., Class — A | 35,500 | 221,692 | |||||||||
Zijin Mining Group Co. Ltd. | 542,000 | 220,273 | |||||||||
786,130 | |||||||||||
Real Estate (1.1%): | |||||||||||
China Sce Property Holdings | 454,000 | 218,813 | |||||||||
Sunac China Holdings Ltd. | 58,000 | 284,842 | |||||||||
503,655 | |||||||||||
11,878,076 | |||||||||||
Cyprus (0.2%): | |||||||||||
Financials (0.2%): | |||||||||||
TCS Group Holding PLC, GDR | 5,643 | 110,635 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Greece (1.0%): | |||||||||||
Communication Services (0.6%): | |||||||||||
Hellenic Telecommunications Organization SA | 19,292 | $ | 284,959 | ||||||||
Industrials (0.4%): | |||||||||||
Mytilineos Holdings SA | 14,765 | 170,409 | |||||||||
455,368 | |||||||||||
Hong Kong (4.6%): | |||||||||||
Consumer Discretionary (0.5%): | |||||||||||
Xinyi Glass Holdings Ltd. | 198,000 | 207,998 | |||||||||
Energy (0.7%): | |||||||||||
Kunlun Energy Co. Ltd. | 334,000 | 291,636 | |||||||||
Financials (0.7%): | |||||||||||
Hong Kong Exchanges and Clearing Ltd. | 8,300 | 293,334 | |||||||||
Health Care (0.8%): | |||||||||||
CSPC Pharmaceutical Group Ltd. | 220,000 | 354,840 | |||||||||
Industrials (0.5%): | |||||||||||
CIMC Enric Holdings Ltd. | 268,000 | 216,144 | |||||||||
Information Technology (0.5%): | |||||||||||
Kingboard Laminates Holdings Ltd. | 252,000 | 231,221 | |||||||||
Real Estate (0.9%): | |||||||||||
Shimao Property Holdings Ltd. | 136,000 | 414,348 | |||||||||
2,009,521 | |||||||||||
India (8.6%): | |||||||||||
Consumer Discretionary (1.4%): | |||||||||||
Aditya Birla Fashion And Retail Ltd. (b) | 54,722 | 170,859 | |||||||||
Indian Hotels Co. Ltd. | 70,068 | 159,913 | |||||||||
Jubilant Foodworks, Ltd. | 15,103 | 269,795 | |||||||||
600,567 | |||||||||||
Energy (1.3%): | |||||||||||
Reliance Industries Ltd. (b) | 32,285 | 585,943 | |||||||||
Financials (2.4%): | |||||||||||
Cholamandalam Investment and Finance Co. Ltd. | 59,750 | 247,252 | |||||||||
Housing Development Finance Corp. Ltd. | 18,541 | 588,799 | |||||||||
Rec Ltd. | 84,232 | 201,029 | |||||||||
1,037,080 | |||||||||||
Health Care (0.4%): | |||||||||||
Jubilant Life Sciences Ltd. | 23,488 | 174,275 | |||||||||
Industrials (1.2%): | |||||||||||
Adani Ports And Special Economic Zone | 50,310 | 298,996 | |||||||||
Larsen & Toubro Ltd. | 10,644 | 239,511 | |||||||||
538,507 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Information Technology (1.3%): | |||||||||||
HCL Technologies Ltd. | 15,724 | $ | 242,592 | ||||||||
Infosys Technologies, ADR (a) | 31,397 | 335,948 | |||||||||
578,540 | |||||||||||
Utilities (0.6%): | |||||||||||
Mahanagar Gas Ltd. | 22,393 | 275,612 | |||||||||
3,790,524 | |||||||||||
Indonesia (3.2%): | |||||||||||
Financials (2.4%): | |||||||||||
Bank Tabungan Pensiunan Nasional Syariah TBK PT (b) | 1,799,600 | 439,543 | |||||||||
PT Bank Negara Indonesia Persero TBK | 895,000 | 583,199 | |||||||||
1,022,742 | |||||||||||
Industrials (0.4%): | |||||||||||
PT Wijaya Karya Persero TBK | 1,072,900 | 184,526 | |||||||||
Materials (0.4%): | |||||||||||
PT Indocement Tunggal Prakarsa TBK | 128,400 | 181,499 | |||||||||
1,388,767 | |||||||||||
Korea, Republic Of (12.8%): | |||||||||||
Communication Services (0.4%): | |||||||||||
Innocean Worldwide, Inc. | 2,846 | 175,675 | |||||||||
.3retionary (1.6%): | |||||||||||
Fila Korea Ltd. | 3,633 | 241,327 | |||||||||
Hyundai Mobis Co. Ltd. | 2,366 | 482,824 | |||||||||
724,151 | |||||||||||
Consumer Staples (0.5%): | |||||||||||
Neopharm Co. Ltd. | 4,500 | 203,235 | |||||||||
Energy (0.6%): | |||||||||||
SK Innovation Co. Ltd. | 1,893 | 260,987 | |||||||||
Financials (0.6%): | |||||||||||
Hana Financial Group, Inc. | 8,764 | 284,123 | |||||||||
Industrials (0.9%): | |||||||||||
Samsung Engineering Co. Ltd. (b) | 25,416 | 378,302 | |||||||||
Information Technology (7.5%): | |||||||||||
DuzonBizon Co. Ltd. | 3,769 | 203,632 | |||||||||
Samsung Electro-Mechanics Co. Ltd. | 2,950 | 251,056 | |||||||||
Samsung Electronics Co. Ltd. | 52,204 | 2,126,225 | |||||||||
SK Hynix, Inc. | 11,852 | 713,045 | |||||||||
3,293,958 | |||||||||||
Materials (0.7%): | |||||||||||
Ssangyong Cement Industrial Co. Ltd. | 54,997 | 300,867 | |||||||||
5,621,298 |
See notes to financial statements.
7
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Malaysia (0.5%): | |||||||||||
Financials (0.5%): | |||||||||||
Ammb Holdings Berhad | 204,700 | $ | 209,637 | ||||||||
Mexico (3.8%): | |||||||||||
Communication Services (0.8%): | |||||||||||
America Movil, ADR (a) | 23,866 | 347,489 | |||||||||
Consumer Discretionary (0.3%): | |||||||||||
El Puerto de Liverpool Sab de CV | 24,754 | 137,858 | |||||||||
Consumer Staples (0.3%): | |||||||||||
Grupo Lala SAB de CV | 117,253 | 144,139 | |||||||||
Financials (1.5%): | |||||||||||
Gentera SAB de CV | 233,425 | 201,801 | |||||||||
Grupo Financiero Banorte SAB de CV | 80,140 | 465,059 | |||||||||
666,860 | |||||||||||
Materials (0.5%): | |||||||||||
Alpek SAB de CV | 158,998 | 199,764 | |||||||||
Real Estate (0.4%): | |||||||||||
Corporacion Inmobiliaria Vesta SAB de CV | 109,597 | 161,799 | |||||||||
1,657,909 | |||||||||||
Peru (0.9%): | |||||||||||
Financials (0.9%): | |||||||||||
Credicorp Ltd. | 1,706 | 390,520 | |||||||||
Philippines (1.6%): | |||||||||||
Financials (0.8%): | |||||||||||
BDO Unibank, Inc. | 121,160 | 331,259 | |||||||||
Real Estate (0.8%): | |||||||||||
Megaworld Corp. | 2,987,000 | 355,651 | |||||||||
686,910 | |||||||||||
Poland (0.5%): | |||||||||||
Energy (0.5%): | |||||||||||
Grupa Lotos SA | 9,573 | 217,401 | |||||||||
Russian Federation (3.4%): | |||||||||||
Energy (1.7%): | |||||||||||
LUKOIL PJSC, ADR | 8,730 | 738,033 | |||||||||
Financials (1.5%): | |||||||||||
Sberbank of Russia PJSC, ADR | 42,094 | 648,503 | |||||||||
Materials (0.2%): | |||||||||||
ALROSA AO | 63,910 | 86,988 | |||||||||
1,473,524 |
See notes to financial statements.
8
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Saudi Arabia (1.0%): | |||||||||||
Consumer Discretionary (0.3%): | |||||||||||
Leejam Sports Co. JSC | 6,521 | $ | 130,045 | ||||||||
Financials (0.7%): | |||||||||||
Al Rajhi Bank | 17,587 | 326,608 | |||||||||
456,653 | |||||||||||
South Africa (4.1%): | |||||||||||
Communication Services (1.5%): | |||||||||||
Naspers Ltd. | 2,814 | 681,492 | |||||||||
Consumer Staples (0.5%): | |||||||||||
The SPAR Group Ltd. | 16,146 | 214,599 | |||||||||
Financials (1.1%): | |||||||||||
Absa Group Ltd. | 22,153 | 277,174 | |||||||||
Nedbank Group Ltd. | 11,976 | 215,540 | |||||||||
492,714 | |||||||||||
Materials (1.0%): | |||||||||||
AngloGold Ashanti Ltd. | 23,814 | 427,086 | |||||||||
1,815,891 | |||||||||||
Taiwan (8.3%): | |||||||||||
Consumer Discretionary (0.6%): | |||||||||||
Giant Manufacturing Co. Ltd. | 36,000 | 282,333 | |||||||||
Financials (1.2%): | |||||||||||
Chailease Holding Co. Ltd. | 23,000 | 95,323 | |||||||||
Yuanta Financial Holding Co. Ltd. | 702,000 | 422,033 | |||||||||
517,356 | |||||||||||
Industrials (0.8%): | |||||||||||
Far Eastern New Century Corp. | 325,000 | 351,170 | |||||||||
Information Technology (5.7%): | |||||||||||
Globalwafers Co. Ltd. | 22,000 | 223,843 | |||||||||
King Yuan Electronics Co. Ltd. | 281,000 | 243,211 | |||||||||
Nanya Technology Corp. | 150,000 | 311,890 | |||||||||
Phison Electronics Corp. | 17,000 | 155,148 | |||||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 180,259 | 1,378,845 | |||||||||
Utechzone Co. Ltd. | 77,000 | 177,605 | |||||||||
2,490,542 | |||||||||||
3,641,401 | |||||||||||
Thailand (2.1%): | |||||||||||
Consumer Discretionary (0.5%): | |||||||||||
Com7 PCL (a) | 317,400 | 226,054 | |||||||||
Consumer Staples (0.5%): | |||||||||||
CP All PCL | 78,800 | 221,194 |
See notes to financial statements.
9
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Energy (1.1%): | |||||||||||
PTT Exploration & Production | 104,200 | $ | 460,100 | ||||||||
907,348 | |||||||||||
United Arab Emirates (0.6%): | |||||||||||
Real Estate (0.6%): | |||||||||||
Aldar Properties PJSC | 484,254 | 249,669 | |||||||||
United Kingdom (1.4%): | |||||||||||
Communication Services (0.4%): | |||||||||||
Airtel Africa PLC (b) (c) | 187,689 | 161,573 | |||||||||
Materials (1.0%): | |||||||||||
Anglo American PLC | 15,256 | 435,753 | |||||||||
597,326 | |||||||||||
United States (0.5%): | |||||||||||
Industrials (0.5%): | |||||||||||
Bizlink Holding, Inc. | 33,000 | 229,362 | |||||||||
Total Common Stocks (Cost $35,905,384) | 42,353,048 | ||||||||||
Preferred Stocks (1.8%) | |||||||||||
Brazil (1.8%): | |||||||||||
Financials (1.4%): | |||||||||||
Itau Unibanco Holding S.A. | 61,950 | 585,083 | |||||||||
Industrials (0.4%): | |||||||||||
Randon SA Implementos e Participacoes | 79,800 | 187,897 | |||||||||
772,980 | |||||||||||
Total Preferred Stocks (Cost $662,150) | 772,980 | ||||||||||
Collateral for Securities Loaned^ (2.3%) | |||||||||||
United States (2.3%): | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 2.43% (d) | 210,740 | 210,740 | |||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 2.28% (d) | 271,456 | 271,456 | |||||||||
Fidelity Investments Prime Money Market Portfolio, Class I, 2.39% (d) | 7,050 | 7,050 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 2.48% (d) | 115,891 | 115,891 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 2.41% (d) | 158,030 | 158,030 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 2.42% (d) | 245,833 | 245,833 | |||||||||
Total Collateral for Securities Loaned (Cost $1,009,000) | 1,009,000 | ||||||||||
Total Investments (Cost $37,576,534) — 100.7% | 44,135,028 | ||||||||||
Liabilities in excess of other assets — (0.7)% | (306,934 | ) | |||||||||
NET ASSETS — 100.00% | $ | 43,828,094 |
^ Purchased with cash collateral from securities on loan.
(a) All or a portion of this security is on loan.
See notes to financial statements.
10
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2019 |
(Unaudited)
(b) Non-income producing security.
(c) Rule 144A security or other security that is restricted as to resale to institutional investors. The Fund's Adviser has deemed this security to be liquid based upon procedures approved by the Board of Trustees. As of June 30, 2019, the fair value of this security was $161,573 and amounted to 0.4% of net assets.
(d) Rate disclosed is the daily yield on June 30, 2019.
ADR — American Depositary Receipt
GDR — Global Depository Receipt
PCL — Public Company Limited
PLC — Public Limited Company
See notes to financial statements.
11
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2019 |
(Unaudited)
Victory Sophus Emerging Markets VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $37,576,534) | $ | 44,135,028 | (a) | ||||
Foreign currency, at value (Cost $255,114) | 254,412 | ||||||
Cash and cash equivalents | 208,412 | ||||||
Interest and dividends receivable | 210,895 | ||||||
Receivable for capital shares issued | 67 | ||||||
Receivable for investments sold | 897,921 | ||||||
Reclaims receivable | 528 | ||||||
Prepaid expenses | 1,316 | ||||||
Total Assets | 45,708,579 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 1,009,000 | ||||||
Accrued foreign capital gains taxes | 8,764 | ||||||
Investments purchased | 760,479 | ||||||
Capital shares redeemed | 32,461 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 34,923 | ||||||
Administration fees | 2,149 | ||||||
Custodian fees | 9,650 | ||||||
Transfer agent fees | 49 | ||||||
Chief Compliance Officer fees | 67 | ||||||
Other accrued expenses | 22,943 | ||||||
Total Liabilities | 1,880,485 | ||||||
NET ASSETS: | |||||||
Capital | 34,529,164 | ||||||
Total distributable earnings/(loss) | 9,298,930 | ||||||
Net Assets | $ | 43,828,094 | |||||
Shares Outstanding (unlimited shares authorized, with a par value of $0.001 per share): | 2,895,538 | ||||||
Net asset value: | $ | 15.14 |
(a) Includes $981,083 of securities on loan.
See notes to financial statements.
12
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2019 |
(Unaudited)
Victory Sophus Emerging Markets VIP Series | |||||||
Investment Income: | |||||||
Dividends | $ | 600,340 | |||||
Interest | 2,981 | ||||||
Securities lending (net of fees) | 6,418 | ||||||
Foreign tax withholding | (54,303 | ) | |||||
Total Income | 555,436 | ||||||
Expenses: | |||||||
Investment advisory fees | 219,208 | ||||||
Administration fees | 13,854 | ||||||
Custodian fees | 31,439 | ||||||
Transfer agent fees | 145 | ||||||
Trustees' fees | 2,012 | ||||||
Chief Compliance Officer fees | 152 | ||||||
Legal and audit fees | 8,716 | ||||||
Interfund lending fees | 12 | ||||||
Other expenses | 16,859 | ||||||
Total Expenses | 292,397 | ||||||
Net Investment Income (Loss) | 263,039 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities and foreign currency translations | 8,886 | ||||||
Foreign taxes on realized gains | (597 | ) | |||||
Net change in unrealized appreciation/depreciation on investment securities and foreign currency translations | 4,464,999 | ||||||
Net change in accrued foreign taxes on unrealized gains | (6,332 | ) | |||||
Net realized/unrealized gains (losses) on investments | 4,466,956 | ||||||
Change in net assets resulting from operations | $ | 4,729,995 |
See notes to financial statements.
13
Victory Variable Insurance Funds | Statements of Changes in Net Assets |
Victory Sophus Emerging Markets VIP Series | |||||||||||
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | ||||||||||
(Unaudited) | |||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 263,039 | $ | 617,718 | |||||||
Net realized gains (losses) from investments | 8,289 | 1,957,167 | |||||||||
Net change in unrealized appreciation/depreciation on investments | 4,458,667 | (12,921,981 | ) | ||||||||
Change in net assets resulting from operations | 4,729,995 | (10,347,096 | ) | ||||||||
Change in net assets resulting from distributions to shareholders | — | (4,578,069 | ) | ||||||||
Change in net assets resulting from capital transactions | (3,286,696 | ) | (5,239,557 | ) | |||||||
Change in net assets | 1,443,299 | (20,164,722 | ) | ||||||||
Net Assets: | |||||||||||
Beginning of period | 42,384,795 | 62,549,517 | |||||||||
End of period | $ | 43,828,094 | $ | 42,384,795 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 675,336 | $ | 3,506,148 | |||||||
Distributions reinvested | — | 4,578,069 | |||||||||
Cost of shares redeemed | (3,962,032 | ) | (13,323,774 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (3,286,696 | ) | $ | (5,239,557 | ) | |||||
Share Transactions: | |||||||||||
Issued | 46,219 | 186,585 | |||||||||
Reinvested | — | 338,686 | |||||||||
Redeemed | (269,392 | ) | (735,217 | ) | |||||||
Change in Shares | (223,173 | ) | (209,946 | ) |
See notes to financial statements.
14
This page is intentionally left blank.
15
Victory Variable Insurance Funds | Financial Highlights |
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholder From | ||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gains (Losses) on Investments | Total from Investment Activities | Net Investment Income | Net Realized Gains From Investments | Total Distributions | Capital contributions from prior custodian, Net (See Note 8) | ||||||||||||||||||||||||||||
Victory Sophus Emerging Markets VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended 06/30/19 (unaudited) | $ | 13.59 | 0.09 | (d) | 1.46 | 1.55 | — | — | — | — | |||||||||||||||||||||||||
Year Ended 12/31/18 | $ | 18.79 | 0.20 | (d) | (3.79 | ) | (3.59 | ) | (0.14 | ) | (1.47 | ) | (1.61 | ) | — | ||||||||||||||||||||
Year Ended 12/31/17 | $ | 13.26 | 0.17 | (d) | 5.51 | 5.68 | (0.15 | ) | — | (0.15 | ) | — | |||||||||||||||||||||||
Year Ended 12/31/16 | $ | 11.99 | 0.12 | (d) | 1.14 | 1.26 | (0.12 | ) | — | (0.12 | ) | 0.13 | |||||||||||||||||||||||
Year Ended 12/31/15 | $ | 13.81 | 0.13 | (d) | (1.89 | ) | (1.76 | ) | (0.06 | ) | — | (0.06 | ) | — | |||||||||||||||||||||
Year Ended 12/31/14 | $ | 14.79 | 0.14 | (0.70 | ) | (0.56 | ) | (0.15 | ) | (0.27 | ) | (0.42 | ) | — |
(a) Not annualized for periods less than one year.
(b) Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(c) Annualized for periods less than one year.
(d) Per share net investment income (loss) has been calculated using the average daily shares method.
(e) The Fund received monies related to a nonrecurring refund from the prior Custodian. The corresponding impact to the total return was 0.95% for the period shown. (See Note 8)
(f) During the period, certain fees were reduced and/or reimbursed. If such fee reductions and/or reimbursements had not occurred, the ratios would have been as indicated.
See notes to financial statements.
16
Victory Variable Insurance Funds | Financial Highlights — continued |
For a Share Outstanding Throughout Each Period
Ratios to Average Net Assets | Supplemental Data | ||||||||||||||||||||||||||||||
Net Asset Value, End of Period | Total Return(a)(b) | Net Expenses(c) | Net Investment Income (Loss)(c) | Gross Expenses(c) | Net Assets, End of Period (000's) | Portfolio Turnover(a) | |||||||||||||||||||||||||
Victory Sophus Emerging Markets VIP Series | |||||||||||||||||||||||||||||||
Six Months Ended 06/30/19 (unaudited) | $ | 15.14 | 11.41 | % | 1.33 | % | 1.20 | % | 1.33 | % | $ | 43,828 | 53 | % | |||||||||||||||||
Year Ended 12/31/18 | $ | 13.59 | (18.97 | )% | 1.34 | % | 1.12 | % | 1.34 | % | $ | 42,385 | 105 | % | |||||||||||||||||
Year Ended 12/31/17 | $ | 18.79 | 42.88 | % | 1.33 | % | 1.03 | % | 1.33 | % | $ | 62,550 | 99 | % | |||||||||||||||||
Year Ended 12/31/16 | $ | 13.26 | 11.57 | %(e) | 1.34 | % | 0.98 | % | 1.35 | %(f) | $ | 48,634 | 102 | % | |||||||||||||||||
Year Ended 12/31/15 | $ | 11.99 | (12.74 | )% | 1.35 | % | 0.92 | % | 1.35 | % | $ | 48,426 | 123 | % | |||||||||||||||||
Year Ended 12/31/14 | $ | 13.81 | (3.71 | )% | 1.35 | % | 0.94 | % | 1.35 | % | $ | 62,782 | 135 | % |
See notes to financial statements.
17
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2019 |
(Unaudited)
1. Organization:
Victory Variable Insurance Funds (the "Trust") was organized on February 11, 1998 as a Delaware statutory trust. The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end investment company. The Trust is comprised of nine funds and is authorized to issue an unlimited number of shares, which are units of beneficial interest with a par value of $0.001 per share.
The accompanying financial statements are those of the Victory Sophus Emerging Markets VIP Series (the "Fund"). The Fund offers a single class of shares: Class I Shares. Sales of shares of the Fund may only be made to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. ("GIAC") that fund certain variable annuity and variable life insurance contracts issued by GIAC. GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America ("Guardian Life").
Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. The Fund follows the specialized accounting and reporting requirements under GAAP that are applicable to investment companies.
Investment Valuation:
The Fund records investments at fair value. Fair value is defined 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.
The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund's investments are summarized in the three broad levels listed below:
• Level 1 — quoted prices in active markets for identical securities
• Level 2 — other significant observable inputs (including quoted prices for similar securities or interest rates applicable to those securities, etc.)
• Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The inputs or methodologies used for valuation techniques are not necessarily an indication of the risk associated with entering into those investments.
Portfolio securities listed or traded on securities exchanges, American Depositary Receipts ("ADRs") and Rights, are valued at the closing price on the exchange or system where the security is principally traded, if available, or at the Nasdaq Official Closing Price. If there have been no sales for that day on the exchange or system, then a security is valued at the last available bid quotation on the exchange or system where the security is principally traded. In each of these situations, valuations are typically categorized as Level 1 in the fair value hierarchy.
18
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Investments in open-end investment companies are valued at net asset value. These valuations are typically categorized as Level 1 in the fair value hierarchy.
Investments for which there are no such quotations, or for which quotations do not appear reliable, are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Trust's Board of Trustees (the "Board"). These valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based on the observability of inputs used to determine the fair value.
In accordance with procedures adopted by the Board, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time the exchange on which they are traded closes and the time the Fund's net asset value is calculated. The Fund uses a systematic valuation model, provided daily by an independent third party to fair value their international equity securities. These valuations are considered as Level 2 in the fair value hierarchy.
A summary of the valuations as of June 30, 2019, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed in the Schedule of Portfolio Investments:
LEVEL 1 — Quoted Prices | LEVEL 2 — Other Significant Observable Inputs | Total | |||||||||||||
Investments in Securities | Investments in Securities | Investments in Securities | |||||||||||||
Common Stocks | $ | 9,963,946 | $ | 32,389,102 | $ | 42,353,048 | |||||||||
Preferred Stocks | 772,980 | — | 772,980 | ||||||||||||
Collateral for Securities Loaned | 1,009,000 | — | 1,009,000 | ||||||||||||
Total | $ | 11,745,926 | $ | 32,389,102 | $ | 44,135,028 |
For the six months ended June 30, 2019, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
Foreign Exchange Currency Contracts:
The Fund may enter into foreign exchange currency contracts to convert U.S. dollars to and from various foreign currencies. A foreign exchange currency contract is an obligation by the Fund to purchase or sell a specific currency at a future date at a price (in U.S. dollars) set at the time of the contract. The Fund does not engage in "cross-currency" foreign exchange contracts (i.e., contracts to purchase or sell one foreign currency in exchange for another foreign currency). The Fund's foreign exchange currency contracts might be considered spot contracts (typically a contract of one week or less) or forward contracts (typically a contract term over one week). A spot contract is entered into for purposes of hedging against foreign currency fluctuations relating to a specific portfolio transaction, such as the delay between a security transaction trade date and settlement date. Forward contracts are entered into for purposes of hedging portfolio holdings or concentrations of such holdings. The Fund enters into foreign exchange currency contracts solely for spot or forward hedging purposes, and not for speculative purposes (i.e., the Fund does not enter into such contracts solely for the purpose of earning foreign currency gains). Each foreign exchange currency contract is adjusted daily by the prevailing spot or forward rate of the underlying currency, and any appreciation or depreciation is recorded for financial statement purposes as unrealized until the contract settlement date, at which time the Fund records realized gains or losses equal to the difference between the value of a contract at the time it was opened and the value at the time it was closed. The Fund could be exposed to risk if a counterparty is unable to meet the terms of a foreign exchange currency contract or if the value of the foreign currency changes unfavorably. In addition, the use of foreign exchange currency contracts does not eliminate fluctuations in the underlying prices of the securities. As of June 30, 2019, the Fund had no open forward foreign exchange currency contracts.
19
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Investment Transactions and Related Income:
Changes in holdings of investments are accounted for no later than one business day following the trade date. For financial reporting purposes, however, investment transactions are accounted for on trade date on the last business day of the reporting period. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date. Gains or losses realized on sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds.
Withholding taxes on interest, dividends and gains as a result of certain investments in ADRs by the Fund have been provided for in accordance with each investment's applicable country's tax rules and rates.
Securities Lending:
The Trust has entered into a Master Securities Lending Agreement ("MSLA") with Citibank, N.A. ("Citibank" or the "Agent"). Under the terms of the MSLA, the Fund may lend securities to certain broker-dealers and banks in exchange for collateral in the amount of at least 102% of the value of U.S. securities loaned or at least 105% of the value of non-U.S. securities loaned, marked-to-market daily. Any collateral shortfalls associated with increases in the valuation of the securities loaned are adjusted the next business day. The collateral can be received in the form of cash collateral and/or non-cash collateral. Non-cash collateral can include U.S. Government Securities, letters of credit and certificates of deposit. The cash collateral is invested in short-term instruments or cash equivalents as noted on the Fund's Schedule of Portfolio Investments. The Trust does not have effective control of the non-cash collateral and therefore it is not disclosed in the Fund's Schedule of Portfolio Investments. The Fund continues to benefit from interest or dividends on the securities loaned and may also earn a return from the collateral. The Fund pays various fees in connection with the investment of cash collateral. The Fund pays the Agent fees based on the investment income received from securities lending activities. Securities lending income is disclosed in the Fund's Statement of Operations. Although risk is mitigated by the collateral, the Fund could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them.
Securities lending transactions are entered into by the Fund under the MSLA, which permits the Fund, under certain circumstances such as an event of default, to offset amounts payable by the Fund to the same counterparty against amounts receivable from the counterparty to create a net payment due to or from the Fund.
The following table is a summary of the Fund's securities lending transactions which are subject to offset under the MSLA as of June 30, 2019. These transactions are accounted for as secured borrowings with an overnight and continuous contractual maturity for cash collateral, and greater than overnight and continuous contractual maturity for non-cash collateral.
Gross Amount of Recognized Assets (Value of | Value of Cash | Value of Non-cash Collateral Received by Maturity | |||||||||||||||||||||
Securities on Loan) | Collateral Received* | <30 Days | Between 30 & 90 days | >90 Days | Net Amount | ||||||||||||||||||
$ | 981,083 | $ | 981,083 | $ | — | $ | — | $ | — | $ | — |
* Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by the Fund is disclosed in the Statement of Assets and Liabilities.
20
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Foreign Currency Translations:
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities of the Fund denominated in a foreign currency are translated into U.S. dollars at current exchange rates. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars at the exchange rates on the date of the transactions. The Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are disclosed as net change in unrealized appreciation/depreciation on investments and foreign currency translations on the Statement of Operations. Any realized gains or losses from these fluctuations are disclosed as net realized gains or losses from investments and foreign currency translations on the Statement of Operations.
Foreign Taxes:
The Fund may be subject to foreign taxes related to foreign income received (a portion of which may be reclaimable), capital gains on the sale of securities, and certain foreign currency transactions. All foreign taxes are recorded in accordance with the applicable regulations and rates that exist in the foreign jurisdictions in which the Fund invests.
Dividends to Shareholders:
Dividends from net investment income, if any, are declared and paid annually by the Fund. Distributable net realized gains, if any, are declared and distributed at least annually.
The amounts of dividends from net investment income and distributions from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these "book/tax" differences are permanent in nature (e.g., net operating loss and distribution reclassification), such amounts are reclassified within the components of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales) do not require reclassification. To the extent dividends and distributions exceed net investment income and net realized gains for tax purposes, they are reported as distributions of capital. Net investment losses incurred by the Fund may be reclassified as an offset to capital on the accompanying Statement of Assets and Liabilities.
Federal Income Taxes:
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes is required in the financial statements. The Fund has a tax year end of December 31.
Management of the Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Allocations:
Expenses directly attributable to the Fund are charged to the Fund, while expenses which are attributable to more than one fund in the Trust, or jointly with an affiliated trust, are allocated among the respective funds in the Trust and/or affiliated trust based upon net assets or another appropriate basis.
Affiliated Securities Transactions:
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Adviser and any applicable
21
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
sub-adviser. Any such purchase or sale transaction must be effected without brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security's last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. For the six months ended June 30, 2019, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding securities maturing less than one year from acquisition) for the six months ended June 30, 2019 were as follows for the Fund:
Purchases | Sales | ||||||
$ | 23,193,800 | $ | 23,196,288 |
For the six months ended June 30, 2019, there were no purchases or sales of U.S. Government Securities.
4. Fees and Transactions with Affiliates and Related Parties:
Investment advisory services are provided to the Fund by Victory Capital Management Inc. ("VCM" or the "Adviser"), a New York corporation registered as an investment adviser with the Securities and Exchange Commission ("SEC"). The Adviser is a wholly-owned indirect subsidiary of Victory Capital Holdings, Inc., a publicly traded Delaware corporation, and a wholly-owned direct subsidiary of Victory Capital Operating, LLC.
Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive 1.00% of the average daily net assets of the Fund. The Adviser may use its resources to assist with the Fund's distribution and marketing expenses.
VCM also serves as the Fund's administrator and fund accountant. Under an Administration and Fund Accounting Agreement, VCM is paid for its services an annual fee at a rate of 0.08% of the first $15 billion in average daily net assets of the Trust, Victory Portfolios and Victory Portfolios II (collectively, the "Victory Funds Complex"), 0.05% of the average daily net assets above $15 billion to $30 billion of the Victory Funds Complex and 0.04% of the average daily net assets over $30 billion of the Victory Funds Complex.
Citi Fund Services Ohio, Inc. ("Citi"), an affiliate of Citibank, N.A., acts as sub-administrator and sub-fund accountant to the Fund pursuant to a Sub-Administration and Sub-Fund Accounting Services Agreement between VCM and Citi. VCM pays Citi a fee for providing these services. The Trust reimburses VCM and Citi for all of their reasonable out-of-pocket expenses incurred in providing these services.
FIS Investor Services, LLC ("FIS") serves as the Fund's transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Chief Compliance Officer ("CCO") is an employee of the Adviser, which pays the compensation of the CCO and his support staff. The Trust has entered into an Agreement to provide compliance services with the Adviser, pursuant to which the Adviser furnishes its compliance personnel, including the services of the CCO, and other resources reasonably necessary to provide the Trust with compliance oversight services related to the design, administration and oversight of a compliance program for the Trust in accordance with Rule 38a-1 under the 1940 Act. The funds in the Victory Funds Complex, in the aggregate, compensate the Adviser for these services.
The Victory Funds Complex pays an annual retainer to each Independent Trustee, plus an additional annual retainer to the Chairman of the Board. The aggregate amount of the fees and expenses of the Independent Trustees are allocated amongst all the funds in the Victory Funds Complex and are presented in the Statement of Operations.
Shearman & Sterling LLP provides legal services to the Trust.
22
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
Victory Capital Advisers, Inc. (the "Distributor"), an affiliate of the Adviser, serves as distributor for the continuous offering of the shares of the Fund pursuant to a Distribution Agreement between the Distributor and the Trust.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2020. Under the terms of the agreement, the Adviser has agreed to waive fees or reimburse certain expenses to the extent that ordinary operating expenses incurred by the Fund in any fiscal year exceed the expense limit for the Fund. Such excess amounts will be the liability of the Adviser. Interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with GAAP, and other extraordinary expenses not incurred in the ordinary course of a Fund's business are excluded from the expense limits. For the six months ended June 30, 2019, the expense limit (excluding voluntary waivers) is 1.35%.
The Fund has agreed to repay fees and expenses that were waived or reimbursed by the Adviser for a period up to three fiscal years after such waiver or reimbursement was made to the extent such payments or repayments would not cause the expenses of a class to exceed the original expense limitation in place at time of the waiver or reimbursement or any expense limitation agreement in place at the time of repayment. As of June 30, 2019, the following amounts are available to be repaid to the Adviser. Amounts repaid to the Adviser during the six months ended June 30, 2019, if any, are reflected on the Statement of Operations as "Recoupment of prior expenses waived/reimbursed by Adviser". As of June 30, 2019, there are no amounts available to be repaid to the Adviser.
The Adviser may voluntarily waive or reimburse additional fees to assist the Fund in maintaining a competitive expense ratio. Voluntary waivers and reimbursements applicable to the Fund are not available to be recouped at a future time. There were no voluntary waivers or reimbursements for the six months June 30, 2019.
Certain officers and/or interested trustees of the Fund are also officers and/or employees of the Adviser, Administrator, Fund Accountant, Sub-Administrator, Sub-Fund Accountant and Legal Counsel.
5. Risks:
The Fund may be subject to other risks in addition to these identified risks.
An investment in the Fund's shares represents an indirect investment in the securities owned by the Fund, some of which will be traded on a national securities exchange or in the over-the-counter markets. The value of the securities in which the Fund invests, like other market investments, may move up or down, sometimes rapidly and unpredictably. The value of the securities in which the Fund invests may affect the value of the Fund's shares. An investment in the Fund's shares at any point in time may be worth less than the original investment, even after taking into account the reinvestment of the Fund's distributions.
The Fund will be subject to foreign securities risk. Foreign securities are (including ADRs and other depository receipts) are subject to political, regulatory, and economic risks not present in domestic investments. In addition, when the Fund buys securities denominated in a foreign currency, there are special risks such as changes in currency exchange rates and the risk that a foreign government could regulate foreign exchange transactions. In addition, to the extent investments are made in a limited number of countries, events in those countries will have a more significant impact on the Fund.
The Fund will be subject to emerging market risk. Risk of investment in emerging markets include greater political and economic instability, greater volatility in currency exchange rates, less developed securities markets, possible trade barriers, currency transfer restrictions, a more limited number of potential buyers and issuers, an emerging market country's dependence on revenue from particular commodities or international aid, less governmental supervision and regulation, unavailability of currency hedging techniques, differences in auditing and financial reporting standards and less developed legal systems.
The Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties for financial instruments entered into by the Fund. The Fund may be negatively impacted if a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial
23
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
difficulties. The Fund may experience significant delays in obtaining any recovery in bankruptcy or other reorganization proceeding and the Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund typically enters into transactions with counterparties whose credit ratings are investment grade, as determined by a nationally recognized statistical rating organization or, if unrated, judged by the Adviser to be of comparable quality.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2019, the Victory Funds Complex participated in a short-term, demand note "Line of Credit" agreement with Citibank. Under the agreement with Citibank, the Victory Funds Complex may have borrowed up to $250 million, of which $100 million was committed and $150 million was uncommitted. This agreement was in effect through July 26, 2019. Effective July 1, 2019, the current agreement was amended to include the USAA Mutual Funds Complex and has a new termination date of June 29, 2020. Under this amended agreement, the Victory Funds Complex and USAA Funds Complex, combined, may borrow up to $600 million, of which $300 million is committed and $300 million is uncommitted. $40 million of the Line of Credit is reserved for use by the Victory Floating Rate Fund, another series of the Victory Funds Complex, with that Fund paying the related commitment fees for that amount. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. With the agreement in affect for the six months ended June 30, 2019, Citibank received an annual commitment fee of 0.15% on $100 million for providing the Line of Credit. For the six months ended June 30, 2019, Citibank earned approximately $76 thousand in commitment fees from the Victory Funds Complex. Effective July 1, 2019, Citibank receives an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest on amounts borrowed, including the USAA Funds Complex, commencing July 1, 2019. Interest charged to the Fund during the period is presented on the Statement of Operations under line of credit fees.
The Fund did not utilize the Line of Credit during the six months ended June 30, 2019.
Interfund Lending:
The Trust and Adviser rely on an exemptive order granted by the SEC in March 2017 (the "Order"), permitting the establishment and operation of an Interfund Lending Facility (the "Facility"). The Facility allows the Fund to directly lend and borrow money to or from any other Victory Fund relying upon the Order at rates beneficial to both the borrowing and lending funds. Advances under the Facility are allowed for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities, and are subject to each Fund's borrowing restrictions. The interfund loan rate is determined, as specified in the Order, by averaging the current repurchase agreement rate and the current bank loan rate. As a Borrower, interest charged to the Fund during the period is presented on the Statement of Operations under interfund lending fees. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Income on interfund lending.
Borrower or Lender | Amount Outstanding at June 30, 2019 | Average Borrowing | Days Borrowing Outstanding | Average Interest Rate | Maximum Borrowing During the Period | ||||||||||||||||||
Borrower | $ | — | $ | 143,000 | 1 | 2.99 | % | $ | 143,000 |
24
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
7. Federal Income Tax Information:
The tax character of current year distributions paid and the tax basis of the current components of accumulated earnings (deficit) will be determined at the end of the current tax year ending December 31, 2019.
The tax character of distributions paid during the most recent tax year ended December 31, 2018 was as follows (total distributions paid may differ from the Statement of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid).
Distributions paid from | |||||||||||
Ordinary Income | Net Long-Term Capital Gains | Total Distributions Paid | |||||||||
$ | 437,091 | $ | 4,140,978 | $ | 4,578,069 |
As of the most recent tax year ended December 31, 2018, the components of accumulated earnings (deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Unrealized Appreciation (Depreciation)* | Total Accumulated Earnings (Deficit) | |||||||||||||||
$ | 457,781 | $ | 2,248,688 | $ | 2,706,469 | $ | 1,862,466 | $ | 4,568,935 |
*The difference between the book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to tax deferral of losses on wash sales.
During the most recent tax year ended December 31, 2018, the Fund did not utilize any capital loss carryforwards.
At June 30, 2019, the cost basis for federal income tax purposes, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) for investments were as follows:
Cost of Investments for Federal Tax Purposes | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||||||||||
$ | 37,723,613 | $ | 7,854,802 | $ | (1,443,387 | ) | $ | 6,411,415 |
8. Capital Contribution from Prior Custodian:
During 2016, the Fund received notification from the Fund's prior custodian, State Street Bank and Trust ("State Street"), concerning issues related to billing on certain categories of expenses during the approximately 16-year period from 1998 through October 31, 2014. The over-billing primarily related to categories of expenses that involved an allocation of general costs among multiple clients.
State Street paid the refunded amounts during January 2017. Based on billing information received during 2016 from State Street and an analysis of any expense limitation agreements that were in place during the period of the activities in question, including the application of any recoupment provisions in such agreements, the Adviser received a portion of the refund.
The portion of the refund retained by the Fund was accounted for as a capital contribution and is reflected on the Financial Highlights as "Capital Contribution from Prior Custodian, Net".
9. Fund Ownership:
Ownership of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2(a)(9) of the 1940 Act. As of June 30, 2019, the shareholders listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund.
Shareholder | Percent | ||||||
The Guardian Insurance & Annuity Company, Inc. | 99.4 | % |
25
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2019 |
(Unaudited)
10. Recent Accounting Pronouncements:
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-13, "Fair Value Measurements" ("ASU 2018-13"). This update makes certain removals from, changes to and additions to existing disclosure requirements for fair value measurements. ASU 2018-13 does not change fair value measurements already required or permitted by existing standards. ASU 2018-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As permitted, the Fund has early adopted ASU 2018-13 with the financial statements prepared as of June 30, 2019.
11. Subsequent Events:
The Fund has evaluated the need for additional disclosures or adjustments resulting from subsequent events through the date these financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have a material impact on the Fund's financial statements.
26
Victory Variable Insurance Funds | Supplemental Information June 30, 2019 |
(Unaudited)
Trustee and Officer Information
Board of Trustees:
Overall responsibility for management of the Trust rests with the Board. The Trust is managed by the Board in accordance with the laws of the State of Delaware. There are currently ten Trustees, nine of whom are not "interested persons" of the Trust within the meaning of that term under the 1940 Act ("Independent Trustees") and one of whom is an "interested person" of the Trust within the meaning of that term under the 1940 Act ("Interested Trustee"). The Trustees, in turn, elect the officers of the Trust to actively supervise its day-to-day operations.
The following tables list the Trustees, their ages, position with the Trust, commencement of service, principal occupations during the past five years and any directorships of other investment companies or companies whose securities are registered under the Securities Exchange Act of 1934, as amended, or who file reports under that Act. Each Trustee oversees nine portfolios in the Trust, 42 portfolios in Victory Portfolios and 20 portfolios in Victory Portfolios II, each a registered investment company that, together with the Trust, comprise the Victory Funds Complex. Each Trustee's address is c/o Victory Variable Insurance Funds, 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. Each Trustee has an indefinite term.
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Independent Trustees. | |||||||||||||||||||
David Brooks Adcock, 67 | Trustee | February 2005 | Consultant (since 2006). | Chair and Trustee, Turner Funds (December 2016-December 2017). | |||||||||||||||
Nigel D.T. Andrews, 72 | Vice Chair and Trustee | August 2002 | Retired. | Director, TCG BDC II, Inc. (since 2017); Director, TCG BDC I, Inc. (formerly Carlyle GMS Finance, Inc.) (since 2012); Director, Old Mutual US Asset Management (2002-2014). | |||||||||||||||
E. Lee Beard, 68* | Trustee | February 2005 | Retired (since 2015); Consultant, The Henlee Group, LLC (consulting) (2005-2015). | None. | |||||||||||||||
Dennis M. Bushe, 75 | Trustee | July 2016 | Retired. | Trustee, RS Investment Trust and RS Variable Products Trust (November 2011-July 2016). |
27
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Sally M. Dungan, 65 | Trustee | February 2011 | Chief Investment Officer, Tufts University (since 2002). | None. | |||||||||||||||
John L. Kelly, 66 | Trustee | February 2015 | Partner, McCarvill Capital Partners (September 2016-September 2017); Advisor, Endgate Commodities LLC (January 2016-April 2016); Managing Partner, Endgate Commodities LLC (August 2014-January 2016); Chief Operating Officer, Liquidnet Holdings, Inc. (December 2011-July 2014). | Director, Caledonia Mining Corporation (since May 2012). | |||||||||||||||
David L. Meyer, 62* | Trustee | December 2008 | Retired. | None. | |||||||||||||||
Gloria S. Nelund, 58 | Trustee | July 2016 | Chair, CEO and Co-Founder of TriLinc Global, LLC, an investment firm. | TriLinc Global Impact Fund, LLC (since 2012); Trustee, RS Investment Trust and RS Variable Products Trust (November 2007-July 2016). | |||||||||||||||
Leigh A. Wilson, 74 | Chair and Trustee | February 1998 | Private Investor. | Chair (since 2013), Caledonia Mining Corporation. | |||||||||||||||
Interested Trustee. | |||||||||||||||||||
David C. Brown, 47** | Trustee | May 2008 | Chairman and Chief Executive Officer (since 2013), Co-Chief Executive Officer (2011-2013), the Adviser; Chairman and Chief Executive Officer, Victory Capital Holdings, Inc. (since 2013). | None. |
* The Board has designated Mr. Meyer and Ms. Beard as its Audit Committee Financial Experts.
** Mr. Brown is an "Interested Person" by reason of his relationship with the Adviser.
The Statement of Additional Information includes additional information about the Trustees of the Trust and is available, without charge, by calling 800-539-3863.
28
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Officers:
The officers of the Trust, their ages, commencement of service and their principal occupations during the past five years, are detailed in the following table. Each officer serves until the earlier of his or her resignation, removal, retirement, death, or the election of a successor. The mailing address of each officer of the Trust is 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. The officers of the Trust receive no compensation directly from the Trust for performing the duties of their offices.
Name and Age | Position with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | ||||||||||||
Christopher K. Dyer, 57 | President | February 2006* | Director of Fund Administration, the Adviser. | ||||||||||||
Scott A. Stahorsky, 50 | Vice President | December 2014 | Manager, Fund Administration, the Adviser (since 2015); Senior Analyst, Fund Administration, the Adviser (prior to 2015). | ||||||||||||
Erin G. Wagner, 45 | Secretary | December 2014 | Associate General Counsel, the Adviser (since 2013). | ||||||||||||
Allan Shaer, 54 | Treasurer | May 2017 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc. (since 2016); Vice President, Mutual Fund Administration, JP Morgan Chase (2011-2016). | ||||||||||||
Christopher A. Ponte, 35 | Assistant Treasurer | December 2017 | Manager, Fund Administration, the Adviser (since 2017); Senior Analyst, Fund Administration, the Adviser (prior to 2017); Chief Financial Officer, Victory Capital Advisers, Inc. (since 2018). | ||||||||||||
Colin Kinney, 45 | Chief Compliance Officer | July 2017 | Chief Compliance Officer (since 2013) and Chief Risk Officer (2009-2017), the Adviser. | ||||||||||||
Chuck Booth, 59 | Anti-Money Laundering Compliance Officer and Identity Theft Officer | May 2015 | Director, Regulatory Administration and CCO Support Services, Citi Fund Services Ohio, Inc. | ||||||||||||
Jay G. Baris, 65 | Assistant Secretary | February 1998 | Partner, Shearman & Sterling LLP (since 2018); Partner, Morrison & Foerster LLP (2011- January 2018). |
* On December 3, 2014, Mr. Dyer resigned as Secretary of the Trust and accepted the position of President.
29
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2019 |
(Unaudited)
Proxy Voting and Portfolio Holdings Information
Proxy Voting:
Information regarding the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 800-539-3863. The information is also included in the Fund's Statement of Additional Information, which is available on the SEC's website at www.sec.gov.
Information relating to how the Fund voted proxies relating to portfolio securities held during the most recent twelve months ended June 30 is available on the SEC's website at www.sec.gov.
Availability of Schedules of Portfolio Investments:
The Trust files a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-PORT. Prior to the implementation of Form N-PORT, the Trust filed a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-PORT and Forms N-Q are available on the SEC's website at www.sec.gov.
Expense Examples
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2019 through June 30, 2019.
The Actual Expense figures in the table below provide information about actual account values and actual expenses. You may use the information below, 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.
The Hypothetical Expense figures in the table below provide 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 this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 1/1/19 | Actual Ending Account Value 6/30/19 | Hypothetical Ending Account Value 6/30/19 | Actual Expenses Paid During Period 1/1/19-6/30/19* | Hypothetical Expenses Paid During Period 1/1/19-6/30/19* | Annualized Expense Ratio During Period 1/1/19-6/30/19 | ||||||||||||||||||
$ | 1,000.00 | $ | 1,114.10 | $ | 1,018.20 | $ | 6.97 | $ | 6.66 | 1.33 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 181/365 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
30
Privacy Policy
Protecting the Privacy of Information
The Trust respects your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information about investment goals and risk tolerance.
We do not disclose any information about you or about former customers to anyone except as permitted or required by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and printers and mailers that assist us in the distribution of investor materials. We may also disclose this information to companies that perform marketing services on our behalf. This allows us to continue to offer you Victory investment products and services that meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only in connection with the services for which we hired them. They are not permitted to use or share this information for any other purpose.
To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information.*
* You may have received communications regarding information about privacy policies from other financial institutions which gave you the opportunity to "opt-out" of certain information sharing with companies which are not affiliated with that financial institution. The Trust does not share information with other companies for purposes of marketing solicitations for products other than the Trust. Therefore, the Trust does not provide opt-out options to their shareholders.
Victory Funds
P.O. Box 182593
Columbus, Ohio 43218-2593
Visit our website at: | Call Victory at: | ||||||
www.vcm.com | 800-539-FUND (800-539-3863) |
VVIF-RS-SEMVIP-SAR (6/19)
June 30, 2019
Semi Annual Report
Victory Variable Insurance Funds
Diversified Stock Fund
Beginning January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports may no longer be sent by mail from the insurance company that issued your variable annuity and variable life insurance contract, unless you specifically request paper copies of the reports from your insurance company. Instead, the reports will be made available on www.victoryfunds.com. The insurance company that offers your contract may also make these reports available on a website, and such insurance company will notify you by mail each time a report is posted and provide you with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the insurance company electronically by following the instructions provided by the insurance company.
If offered by your insurance company, you may elect to receive all future reports in paper and free of charge from the insurance company. You can inform your insurance company that you wish to continue receiving paper copies of your reports. Your election to receive reports in paper will apply to all funds available under your contract.
www.vcm.com
News, Information And Education 24 Hours A Day, 7 Days A Week
The Victory Funds site gives fund shareholders, prospective shareholders, and investment professionals a convenient way to access fund information, get guidance, and track fund performance anywhere they can access the Internet. The site includes:
• Detailed performance records
• Daily share prices
• The latest fund news
• Investment resources to help you become a better investor
• A section dedicated to investment professionals
Whether you're a potential investor searching for the fund that matches your investment philosophy, a seasoned investor interested in planning tools, or an investment professional, www.vcm.com has what you seek. Visit us anytime. We're always open.
Victory Variable Insurance Funds
Table of Contents
Financial Statements | |||||||
Investment Objective & Portfolio Holdings | 2 | ||||||
Schedule of Portfolio Investments | 3 | ||||||
Statement of Assets and Liabilities | 6 | ||||||
Statement of Operations | 7 | ||||||
Statements of Changes in Net Assets | 8 | ||||||
Financial Highlights | 10 | ||||||
Notes to Financial Statements | 12 | ||||||
Supplemental Information | |||||||
Trustee and Officer Information | 18 | ||||||
Proxy Voting and Portfolio Holdings Information | 20 | ||||||
Expense Examples | 20 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Advisers, Inc. Victory Capital Management Inc. is the investment adviser to the Fund and receives fees from the Fund for performing services for the Fund.
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus of the Victory Variable Insurance Diversified Stock Fund.
The information in this semi annual report is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections, or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Past investment performance of the Fund, markets or securities mentioned herein should not be considered to be indicative of future results.
• NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
Call Victory at:
800-539-FUND (800-539-3863)
Visit our website at:
www.vcm.com
1
Victory Portfolios June 30, 2019
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: The Victory Diversified Stock Fund seeks to provide long-term growth of capital.
Portfolio Holdings*:
* Percentages are of total investments of the Fund.
2
Victory Variable Insurance Funds Schedule of Portfolio Investments
Victory Variable Insurance Diversified Stock Fund June 30, 2019
(Amounts in Thousands, Except for Shares)
Security Description | Shares | Value | |||||||||
Common Stocks (98.6%): | |||||||||||
Communication Services (11.6%): | |||||||||||
Alphabet, Inc., Class C (a) | 888 | $ | 960 | ||||||||
Comcast Corp., Class A | 16,725 | 707 | |||||||||
Facebook, Inc., Class A (a) | 3,367 | 650 | |||||||||
Momo, Inc., ADR | 7,490 | 268 | |||||||||
The Walt Disney Co. | 2,284 | 319 | |||||||||
T-Mobile US, Inc. (a) | 5,306 | 393 | |||||||||
Verizon Communications, Inc. | 3,510 | 201 | |||||||||
3,498 | |||||||||||
Consumer Discretionary (15.3%): | |||||||||||
Aaron's, Inc. | 7,532 | 463 | |||||||||
Amazon.com, Inc. (a) | 612 | 1,159 | |||||||||
Asbury Automotive Group, Inc. (a) | 5,211 | 439 | |||||||||
AutoZone, Inc. (a) | 327 | 360 | |||||||||
Dollar General Corp. | 1,184 | 160 | |||||||||
eBay, Inc. | 10,856 | 429 | |||||||||
Group 1 Automotive, Inc. | 2,288 | 187 | |||||||||
Norwegian Cruise Line Holdings Ltd. (a) | 7,581 | 407 | |||||||||
Target Corp. | 5,181 | 449 | |||||||||
The Home Depot, Inc. | 2,783 | 578 | |||||||||
4,631 | |||||||||||
Consumer Staples (4.5%): | |||||||||||
Medifast, Inc. | 2,117 | 272 | |||||||||
PepsiCo, Inc. | 3,374 | 442 | |||||||||
The Coca-Cola Co. | 6,361 | 324 | |||||||||
Wal-Mart Stores, Inc. | 2,896 | 320 | |||||||||
1,358 | |||||||||||
Energy (3.9%): | |||||||||||
Chevron Corp. | 2,817 | 350 | |||||||||
Exxon Mobil Corp. | 3,131 | 240 | |||||||||
Occidental Petroleum Corp. | 1,988 | 100 | |||||||||
Phillips 66 | 2,639 | 247 | |||||||||
Valero Energy Corp. | 2,897 | 248 | |||||||||
1,185 | |||||||||||
Financials (16.2%): | |||||||||||
Ally Financial, Inc. | 14,083 | 437 | |||||||||
Ameriprise Financial, Inc. | 1,996 | 290 | |||||||||
Bank of America Corp. | 23,645 | 686 | |||||||||
Berkshire Hathaway, Inc., Class B (a) | 1,397 | 298 | |||||||||
Credit Acceptance Corp. (a) | 854 | 413 | |||||||||
Discover Financial Services | 5,561 | 431 | |||||||||
E*TRADE Financial Corp. | 4,257 | 190 | |||||||||
Essent Group Ltd. (a) | 8,840 | 415 | |||||||||
JPMorgan Chase & Co. | 2,785 | 311 | |||||||||
LPL Financial Holdings, Inc. | 5,679 | 463 | |||||||||
NMI Holdings, Inc., Class A (a) | 7,135 | 203 | |||||||||
SVB Financial Group (a) | 1,478 | 332 | |||||||||
Western Alliance BanCorp (a) | 9,443 | 422 | |||||||||
4,891 |
See notes to financial statements.
3
Victory Variable Insurance Funds Schedule of Portfolio Investments — continued
Victory Variable Insurance Diversified Stock Fund June 30, 2019
(Amounts in Thousands, Except for Shares)
Security Description | Shares | Value | |||||||||
Health Care (12.4%): | |||||||||||
AbbVie, Inc. | 7,661 | $ | 557 | ||||||||
Anthem, Inc. | 1,641 | 463 | |||||||||
Biogen, Inc. (a) | 1,383 | 323 | |||||||||
Bristol-Myers Squibb Co. | 5,939 | 269 | |||||||||
Celgene Corp. (a) | 2,193 | 203 | |||||||||
HCA Holdings, Inc. | 2,858 | 386 | |||||||||
Jazz Pharmaceuticals PLC (a) | 3,004 | 428 | |||||||||
Johnson & Johnson | 1,950 | 272 | |||||||||
Medtronic PLC | 1,388 | 135 | |||||||||
UnitedHealth Group, Inc. | 2,862 | 699 | |||||||||
3,735 | |||||||||||
Industrials (10.2%): | |||||||||||
Air Lease Corp. | 11,209 | 463 | |||||||||
Comfort Systems USA, Inc. | 6,719 | 343 | |||||||||
Herman Miller, Inc. | 7,483 | 334 | |||||||||
Lockheed Martin Corp. | 1,465 | 533 | |||||||||
Norfolk Southern Corp. | 2,181 | 435 | |||||||||
SkyWest, Inc. | 6,117 | 371 | |||||||||
United Rentals, Inc. (a) | 1,467 | 195 | |||||||||
Universal Forest Products, Inc. | 10,437 | 397 | |||||||||
3,071 | |||||||||||
Information Technology (22.3%): | |||||||||||
Apple, Inc. | 5,633 | 1,115 | |||||||||
Booz Allen Hamilton Holdings Corp. | 7,607 | 503 | |||||||||
Broadcom, Inc. | 1,074 | 310 | |||||||||
Cabot Microelectronics Corp. | 2,066 | 227 | |||||||||
CDW Corp. of Delaware | 4,282 | 475 | |||||||||
Cisco Systems, Inc. | 11,979 | 656 | |||||||||
Euronet Worldwide, Inc. (a) | 1,967 | 331 | |||||||||
II-VI, Inc. (a) (c) | 7,244 | 265 | |||||||||
KEMET Corp. | 13,761 | 259 | |||||||||
Mastercard, Inc., Class A | 899 | 238 | |||||||||
Microsoft Corp. (c) | 11,656 | 1,560 | |||||||||
PayPal Holdings, Inc. (a) | 1,522 | 174 | |||||||||
Visa, Inc., Class A | 2,679 | 465 | |||||||||
Zebra Technologies Corp., Class A (a) | 867 | 182 | |||||||||
6,760 | |||||||||||
Materials (0.6%): | |||||||||||
Lyondellbasell Industries NV, Class A | 1,959 | 169 | |||||||||
Real Estate (1.6%): | |||||||||||
CBRE Group, Inc., Class A (a) | 5,800 | 297 | |||||||||
Rexford Industrial Realty, Inc. | 4,869 | 197 | |||||||||
494 | |||||||||||
Total Common Stocks (Cost $25,331) | 29,792 | ||||||||||
Exchange-Traded Funds (0.4%): | |||||||||||
SPDR S&P 500 ETF Trust, 1.79% | 392 | 115 | |||||||||
Total Exchange-Traded Fund (Cost $100) | 115 |
See notes to financial statements.
4
Victory Variable Insurance Funds Schedule of Portfolio Investments — continued
Victory Variable Insurance Diversified Stock Fund June 30, 2019
(Amounts in Thousands, Except for Shares)
Security Description | Shares | Value | |||||||||
Collateral for Securities Loaned^ (2.7%): | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 2.43% (b) | 167,661 | $ | 168 | ||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 2.28% (b) | 215,966 | 216 | |||||||||
Fidelity Investments Prime Money Market Portfolio, Class I, 2.39% (b) | 5,609 | 6 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 2.48% (b) | 92,401 | 92 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 2.41% (b) | 125,426 | 125 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 2.42% (b) | 195,581 | 196 | |||||||||
Total Collateral for Securities Loaned (Cost $803) | 803 | ||||||||||
Total Investments (Cost $26,234) — 101.7% | 30,710 | ||||||||||
Other liabilities in excess of assets — (1.7%) | (524 | ) | |||||||||
NET ASSETS — 100.0% | $ | 30,186 |
^ Purchased with cash collateral from securities on loan.
(a) Non-income producing security.
(b) Rate disclosed is the daily yield on June 30, 2019.
(c) All or a portion of this security is on loan.
ADR — American Depositary Receipt
PLC — Public Liability Company
ETF — Exchange Traded Fund
See notes to financial statements.
5
Statement of Assets and Liabilities
Victory Variable Insurance Funds June 30, 2019
(Amounts in Thousands, Except Per Share Amounts) (Unaudited)
Victory Variable Insurance Diversified Stock Fund | |||||||
ASSETS: | |||||||
Investments, at value (Cost $26,234) | $ | 30,710 | (a) | ||||
Cash and cash equivalents | 33 | ||||||
Dividends receivable | 17 | ||||||
Receivable for investments sold | 333 | ||||||
Prepaid expenses | 1 | ||||||
Total Assets | 31,094 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 803 | ||||||
Investments purchased | 45 | ||||||
Capital shares redeemed | 29 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 7 | ||||||
Administration fees | 2 | ||||||
Contract owner fees | 14 | ||||||
Transfer agent fees | — | (b) | |||||
Chief Compliance Officer fees | — | (b) | |||||
12b-1 fees | 3 | ||||||
Other accrued expenses | 5 | ||||||
Total Liabilities | 908 | ||||||
NET ASSETS: | |||||||
Capital | 23,543 | ||||||
Total distributable earnings/(loss) | 6,643 | ||||||
Net Assets | $ | 30,186 | |||||
Shares Outstanding (unlimited number of shares authorized, with a par value of $0.001 per share): | 2,557 | ||||||
Net asset value, offering price & redemption price per share (c): | $ | 11.80 |
(a) Includes $788 of securities on loan.
(b) Rounds to less than $1
(c) Per share amount may not recalculate due to rounding of net assets and/or shares outstanding.
See notes to financial statements.
6
Statement of Operations
Victory Variable Insurance Funds For the Six Months Ended June 30, 2019
(Amounts in Thousands) (Unaudited)
Victory Variable Insurance Diversified Stock Fund | |||||||
Investment Income: | |||||||
Dividends | $ | 228 | |||||
Interest | 4 | ||||||
Securities lending (net of fees) | — | (a) | |||||
Total Income | 232 | ||||||
Expenses: | |||||||
Investment advisory fees | 45 | ||||||
Administration fees | 10 | ||||||
Contract owner fees | 37 | ||||||
12b-1 fees | 38 | ||||||
Custodian fees | 1 | ||||||
Transfer agent fees | — | (a) | |||||
Trustees' fees | 1 | ||||||
Chief Compliance Officer fees | — | (a) | |||||
Legal and audit fees | 5 | ||||||
Other expenses | 7 | ||||||
Total Expenses | 144 | ||||||
Net Investment Income (Loss) | 88 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities | 592 | ||||||
Net change in unrealized appreciation/depreciation on investment securities | 3,754 | ||||||
Net realized/unrealized gains (losses) on investments | 4,346 | ||||||
Change in net assets resulting from operations | $ | 4,434 |
(a) Rounds to less than $1.
See notes to financial statements.
7
Victory Variable Insurance Funds Statements of Changes in Net Assets
(Amounts in Thousands)
Victory Variable Insurance Diversified Stock Fund | |||||||||||
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | ||||||||||
(Unaudited) | |||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 88 | $ | 174 | |||||||
Net realized gains (losses) from investments | 592 | 1,594 | |||||||||
Net change in unrealized appreciation/depreciation on investments | 3,754 | (6,154 | ) | ||||||||
Change in net assets resulting from operations | 4,434 | (4,386 | ) | ||||||||
Change in net assets resulting from distributions to shareholders | (132 | ) | (5,921 | ) | |||||||
Change in net assets resulting from capital transactions | (2,246 | ) | (440 | ) | |||||||
Change in net assets | 2,056 | (10,747 | ) | ||||||||
Net Assets: | |||||||||||
Beginning of period | 28,130 | 38,877 | |||||||||
End of period | $ | 30,186 | $ | 28,130 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 259 | $ | 235 | |||||||
Dividends reinvested | 132 | 5,921 | |||||||||
Cost of shares redeemed | (2,637 | ) | (6,596 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (2,246 | ) | $ | (440 | ) | |||||
Share Transactions: | |||||||||||
Issued | 22 | 17 | |||||||||
Reinvested | 12 | 580 | |||||||||
Redeemed | (230 | ) | (451 | ) | |||||||
Change in Shares | (196 | ) | 146 |
See notes to financial statements.
8
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Victory Variable Insurance Funds Financial Highlights
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholder From | ||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gains (Losses) on Investments | Total from Investment Activities | Net Investment Income | Net Realized Gains from Investments | ||||||||||||||||||||||
Victory Variable Insurance Diversified Stock Fund | |||||||||||||||||||||||||||
Six Months Ended 6/30/19 (unaudited) | $ | 10.22 | 0.03 | (d) | 1.60 | 1.63 | (0.05 | ) | — | ||||||||||||||||||
Year Ended 12/31/2018 | $ | 14.91 | 0.07 | (d) | (2.07 | ) | (2.00 | ) | (0.06 | ) | (2.63 | ) | |||||||||||||||
Year Ended 12/31/2017 | $ | 12.03 | 0.09 | (d) | 3.08 | 3.17 | (0.09 | ) | (0.20 | ) | |||||||||||||||||
Year Ended 12/31/2016 | $ | 12.75 | 0.13 | (d) | 0.37 | 0.50 | (0.13 | ) | (0.09 | ) | |||||||||||||||||
Year Ended 12/31/2015 | $ | 15.15 | 0.09 | (0.53 | ) | (0.44 | ) | (0.09 | ) | (1.87 | ) | ||||||||||||||||
Year Ended 12/31/2014 | $ | 13.87 | 0.13 | 1.28 | 1.41 | (0.13 | ) | — |
(a) Total returns do not include an insurance, sales, or administrative charges of variable annuity or life insurance contracts. If these charges were
included, the returns would be lower.
(b) Not annualized for periods less than one year.
(c) Annualized for periods less than one year.
(d) Per share net investment income (loss) has been calculated using the average daily shares method.
See notes to financial statements.
10
Victory Variable Insurance Funds Financial Highlights — continued
For a Share Outstanding Throughout Each Period
Ratios to Average Net Assets | Supplemental Data | ||||||||||||||||||||||||||||||||||
Total Distributions | Net Asset Value, End of Period | Total Return(a)(b) | Net Expenses(c) | Net Investment Income (Loss)(c) | Gross Expenses(c) | Net Assets, End of Period (000's) | Portfolio Turnover(b) | ||||||||||||||||||||||||||||
Victory Variable Insurance Diversified Stock Fund | |||||||||||||||||||||||||||||||||||
Six Months Ended 6/30/19 (unaudited) | (0.05 | ) | $ | 11.80 | 15.97 | % | 0.96 | % | 0.58 | % | 0.96 | % | $ | 30,186 | 61 | % | |||||||||||||||||||
Year Ended 12/31/2018 | (2.69 | ) | $ | 10.22 | (13.30 | )% | 0.96 | % | 0.50 | % | 0.96 | % | $ | 28,130 | 114 | % | |||||||||||||||||||
Year Ended 12/31/2017 | (0.29 | ) | $ | 14.91 | 26.45 | % | 0.94 | % | 0.68 | % | 0.94 | % | $ | 38,877 | 138 | % | |||||||||||||||||||
Year Ended 12/31/2016 | (1.22 | ) | $ | 12.03 | 3.90 | % | 1.08 | % | 1.06 | % | 1.08 | % | $ | 33,987 | 86 | % | |||||||||||||||||||
Year Ended 12/31/2015 | (1.96 | ) | $ | 12.75 | (3.11 | )% | 1.14 | % | 0.56 | % | 1.14 | % | $ | 38,441 | 78 | % | |||||||||||||||||||
Year Ended 12/31/2014 | (0.13 | ) | $ | 15.15 | 10.20 | % | 1.16 | % | 0.89 | % | 1.16 | % | $ | 48,524 | 70 | % |
See notes to financial statements.
11
Notes to Financial Statements
Victory Variable Insurance Funds June 30, 2019
(Unaudited)
1. Organization:
Victory Variable Insurance Funds (the "Trust") was organized on February 11, 1998 as a Delaware statutory trust. The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end investment company. The Trust is comprised of nine funds and is authorized to issue an unlimited number of shares, which are units of beneficial interest with a par value of $0.001 per share.
The accompanying financial statements are those of the Victory Variable Insurance Diversified Stock Fund (the "Fund"). The Fund offers a single class of shares: Class A Shares. Sales of shares of the Fund may only be made to separate accounts of various life insurance companies.
Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. The Fund follows the specialized accounting and reporting requirements under GAAP that are applicable to investment companies.
Investment Valuation:
The Fund records investments at fair value. Fair value is defined 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.
The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund's investments are summarized in the three broad levels listed below:
• Level 1 — quoted prices in active markets for identical securities
• Level 2 — other significant observable inputs (including quoted prices for similar securities or interest rates applicable to those securities, etc.)
• Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The inputs or methodologies used for valuation techniques are not necessarily an indication of the risk associated with entering into those investments.
Portfolio securities listed or traded on securities exchanges, including exchange-traded funds ("ETFs"), American Depositary Receipts ("ADRs") and Rights, are valued at the closing price on the exchange or system where the security is principally traded, if available, or at the Nasdaq Official Closing Price. If there have been no sales for that day on the exchange or system, then a security is valued at the last available bid quotation on the exchange or system where the security is principally traded. In each of these situations, valuations are typically categorized as Level 1 in the fair value hierarchy.
Investments for which there are no such quotations, or for which quotations do not appear reliable, are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Trust's Board of Trustees (the "Board"). These valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based on the observability of inputs used to determine the fair value.
A summary of the valuations as of June 30, 2019, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed in the Schedule of Portfolio Investments (amounts in thousands):
LEVEL 1 — Quoted Prices | Total | ||||||||||
Investments in Securities | Investments in Securities | ||||||||||
Common Stocks | $ | 29,792 | $ | 29,792 | |||||||
Exchange-Traded Funds | 115 | 115 | |||||||||
Collateral for Securities Loaned | 803 | 803 | |||||||||
Total | $ | 30,710 | $ | 30,710 |
For the six months ended June 30, 2019, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
Continued
12
Notes to Financial Statements — continued
Victory Variable Insurance Funds June 30, 2019
(Unaudited)
Investment Companies:
Exchange-Traded Funds:
The Fund may invest in ETFs. ETFs are a type of index fund, the shares of which are bought and sold on a securities exchange. An ETF trades like common stock and represents a fixed portfolio of securities designed to track the performance and dividend yield of a particular domestic or foreign market index. The Fund may purchase shares of an ETF to temporarily gain exposure to a portion of the U.S. or a foreign market while awaiting purchase of underlying securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities they are designed to track, although the lack of liquidity of an ETF could result in it being more volatile. Additionally, ETFs have fees and expenses that reduce their value.
Investment Transactions and Related Income:
Changes in holdings of investments are accounted for no later than one business day following the trade date. For financial reporting purposes, however, investment transactions are accounted for on trade date on the last business day of the reporting period. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date. Gains or losses realized on sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds.
Withholding taxes on interest, dividends and gains as a result of certain investments in ADRs by the Fund have been provided for in accordance with each investment's applicable country's tax rules and rates.
Securities Lending:
The Trust has entered into a Master Securities Lending Agreement ("MSLA") with Citibank, N.A. ("Citibank" or the "Agent"). Under the terms of the MSLA, the Fund may lend securities to certain broker-dealers and banks in exchange for collateral in the amount of at least 102% of the value of U.S. securities loaned or at least 105% of the value of non-U.S. securities loaned, marked-to-market daily. Any collateral shortfalls associated with increases in the valuation of the securities loaned are adjusted the next business day. The collateral can be received in the form of cash collateral and/or non-cash collateral. Non-cash collateral can include U.S. Government Securities, letters of credit and certificates of deposit. The cash collateral is invested in short-term instruments or cash equivalents as noted on the Fund's Schedule of Portfolio Investments. The Trust does not have effective control of the non-cash collateral and therefore it is not disclosed in the Fund's Schedule of Portfolio Investments. The Fund continues to benefit from interest or dividends on the securities loaned and may also earn a return from the collateral. The Fund pays various fees in connection with the investment of cash collateral. The Fund pays the Agent fees based on the investment income received from securities lending activities. Securities lending income is disclosed in the Fund's Statement of Operations. Although risk is mitigated by the collateral, the Fund could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them.
Securities lending transactions are entered into by the Fund under the MSLA, which permits the Fund, under certain circumstances such as an event of default, to offset amounts payable by the Fund to the same counterparty against amounts receivable from the counterparty to create a net payment due to or from the Fund.
The following table (amounts in thousands) is a summary of the Fund's securities lending transactions which are subject to offset under the MSLA as of June 30, 2019. These transactions are accounted for as secured borrowings with an overnight and continuous contractual maturity for cash collateral, and greater than overnight and continuous contractual maturity for non-cash collateral.
Gross Amount of Recognized Assets (Value of | Value of Cash | Value of Non-cash Collateral Received by Maturity | |||||||||||||||||||||
Securities on Loan) | Collateral Received* | <30 Days | Between 30 & 90 Days | >90 Days | Net Amount | ||||||||||||||||||
$ | 788 | $ | 788 | $ | — | $ | — | $ | — | $ | — |
* Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by the Fund is disclosed in the Statement of Assets and Liabilities.
Dividends to Shareholders:
Dividends from net investment income, if any, are declared and paid quarterly by the Fund. Distributable net realized gains, if any, are declared and distributed at least annually.
The amounts of dividends from net investment income and distributions from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these "book/tax" differences are permanent in nature (e.g., net operating loss and distribution reclassification), such amounts are reclassified within the components of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales) do not require reclassification. To the extent dividends and
Continued
13
Notes to Financial Statements — continued
Victory Variable Insurance Funds June 30, 2019
(Unaudited)
distributions exceed net investment income and net realized gains for tax purposes, they are reported as distributions of capital. Net investment losses incurred by the Fund may be reclassified as an offset to capital on the accompanying Statement of Assets and Liabilities.
Federal Income Taxes:
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes is required in the financial statements. The Fund has a tax year end of December 31.
Management of the Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Allocations:
Expenses directly attributable to the Fund are charged to the Fund, while expenses which are attributable to more than one fund in the Trust, or jointly with an affiliated trust, are allocated among the respective funds in the Trust and/or affiliated trust based upon net assets or another appropriate basis.
Affiliated Securities Transactions:
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Adviser and any applicable sub-adviser. Any such purchase or sale transaction must be effected without brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security's last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. For the six months ended June 30, 2019, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding securities maturing less than one year from acquisition) for the six months ended June 30, 2019 were as follows for the Fund (amounts in thousands):
Purchases | Sales | ||||||
$ | 18,214 | $ | 20,309 |
For the six months ended June 30, 2019, there were no purchases or sales of U.S. Government Securities.
4. Fees and Transactions with Affiliates and Related Parties:
Investment advisory services are provided to the Fund by Victory Capital Management Inc. ("VCM" or the "Adviser"), a New York corporation registered as an investment adviser with the Securities and Exchange Commission ("SEC"). The Adviser is a wholly-owned indirect subsidiary of Victory Capital Holdings, Inc., a publicly traded Delaware corporation, and a wholly-owned direct subsidiary of Victory Capital Operating, LLC.
Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive 0.30% of the average daily net assets of the Fund. The Adviser may use its resources to assist with the Fund's distribution and marketing expenses.
VCM also serves as the Fund's administrator and fund accountant. Under an Administration and Fund Accounting Agreement, VCM is paid for its services an annual fee at a rate of 0.08% of the first $15 billion in average daily net assets of the Trust, Victory Portfolios and Victory Portfolios II (collectively, the "Victory Funds Complex"), 0.05% of the average daily net assets above $15 billion to $30 billion of the Victory Funds Complex and 0.04% of the average daily net assets over $30 billion of the Victory Funds Complex.
Citi Fund Services Ohio, Inc. ("Citi"), an affiliate of Citibank, N.A., acts as sub-administrator and sub-fund accountant to the Fund pursuant to a Sub-Administration and Sub-Fund Accounting Services Agreement between VCM and Citi. VCM pays Citi a fee for providing these services. The Trust reimburses VCM and Citi for all of their reasonable out-of-pocket expenses incurred in providing these services.
FIS Investor Services, LLC ("FIS") serves as the Fund's transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Chief Compliance Officer ("CCO") is an employee of the Adviser, which pays the compensation of the CCO and his support staff. The Trust has entered into an Agreement to provide compliance services with the Adviser, pursuant to which the Adviser furnishes its compliance personnel, including the services of the CCO, and other resources reasonably necessary to provide the Trust with compliance oversight services related to the design, administration and oversight of a compliance program for the Trust in accordance with Rule 38a-1 under the 1940 Act. Funds in the Victory Funds Complex, in the aggregate, compensate the Adviser for these services.
Continued
14
Notes to Financial Statements — continued
Victory Variable Insurance Funds June 30, 2019
(Unaudited)
The Victory Funds Complex pays an annual retainer to each Independent Trustee, plus an additional annual retainer to the Chairman of the Board. The aggregate amount of the fees and expenses of the Independent Trustees are allocated amongst all the funds in the Victory Funds Complex and are presented in the Statement of Operations.
Shearman & Sterling LLP provides legal services to the Trust.
Victory Capital Advisers, Inc. (the "Distributor"), an affiliate of the Adviser, serves as distributor for the continuous offering of the shares of the Fund pursuant to a Distribution Agreement between the Distributor and the Trust.
Pursuant to the Trust's Distribution and Service Plans adopted in accordance with Rule 12b-1 under the 1940 Act, the Distributor may receive a monthly distribution and service fee, at an annual rate of 0.25% of the average daily net assets of the Fund. The Distributor may pay a 12b-1 fee to life insurance companies for activities primarily intended to result in the sale of Fund shares to life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies or to provide services to owners of variable annuity contracts and variable life insurance policies whose contracts or policies are funded with shares of the Fund, which services are not otherwise provided by life insurance companies and paid for with fees charged by life insurance companies. The Distributor re-allowed all except for approximately $1 thousand to life insurance companies to provide these services.
The Fund has entered into Contract Owner Administrative Services Agreements with certain contract owner servicing agents. A contract owner servicing agent performs a number of services for its customers who hold contracts offered by separate accounts that invest in the Fund, such as establishing and maintaining accounts and records, processing additional contract units attributable to Fund dividend payments, arranging for bank wires, assisting in transactions, and changing account information. For these services, Class A Shares of the Fund pay a fee at an annual rate of up to 0.25% of its average daily net assets serviced by the agent. The Fund may enter into these agreements with financial institutions that provide such services. Contract owner servicing agents may waive all or a portion of their fee. (Not all agents may provide all services listed above.)
The Adviser may voluntarily waive or reimburse additional fees to assist the Fund in maintaining a competitive expense ratio. Voluntary waivers and reimbursements applicable to the Fund are not available to be recouped at a future time. There were no voluntary waivers or reimbursements for the year ended June 30, 2019.
Certain officers and/or interested trustees of the Fund are also officers and/or employees of the Adviser, Administrator, Fund Accountant, Sub-Administrator, Sub-Fund Accountant, and Legal Counsel.
5. Risks:
The Fund may be subject to other risks in addition to these identified risks.
An investment in the Fund's shares represents an indirect investment in the securities owned by the Fund, some of which will be traded on a national securities exchange or in the over-the-counter markets. The value of the securities in which the Fund invests, like other market investments, may move up or down, sometimes rapidly and unpredictably. The value of the securities in which the Fund invests may affect the value of the Fund's shares. An investment in the Fund's shares at any point in time may be worth less than the original investment, even after taking into account the reinvestment of the Fund's distributions.
The Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties for financial instruments entered into by the Fund. The Fund may be negatively impacted 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 bankruptcy or other reorganization proceeding and the Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund typically enters into transactions with counterparties whose credit ratings are investment grade, as determined by a nationally recognized statistical rating organization or, if unrated, judged by the Adviser to be of comparable quality.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2019, the Victory Funds Complex participated in a short-term, demand note "Line of Credit" agreement with Citibank. Under the agreement with Citibank, the Victory Funds Complex may have borrowed up to $250 million, of which $100 million was committed and $150 million was uncommitted. This agreement was in effect through July 26, 2019. Effective July 1, 2019, the current agreement was amended to include the USAA Mutual Funds Complex and has a new termination date of June 29, 2020. Under this amended agreement, the Victory Funds Complex and USAA Funds Complex, combined, may borrow up to $600 million, of which $300 million is committed and $300 million is uncommitted. $40 million of the Line of Credit is reserved for use by the Victory Floating Rate Fund, another series of the Victory Funds Complex, with that Fund paying the related commitment fees for that amount. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. With the agreement in affect for the six months ended June 30, 2019, Citibank received an annual commitment fee of 0.15% on $100 million for providing the Line of Credit. For the six months ended June 30, 2019, Citibank earned approximately $76 thousand in commitment fees from the Victory Funds Complex. Effective July 1, 2019, Citibank receives an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest on amounts borrowed, including the USAA Funds Complex, commencing July 1, 2019. Interest charged to the Fund during the period is presented on the Statement of Operations under line of credit fees.
Continued
15
Notes to Financial Statements — continued
Victory Variable Insurance Funds June 30, 2019
(Unaudited)
The Fund did not utilize the Line of Credit during the six months ended June 30, 2019.
Interfund Lending:
The Trust and Adviser rely on an exemptive order granted by the SEC in March 2017 (the "Order"), permitting the establishment and operation of an Interfund Lending Facility (the "Facility"). The Facility allows the Fund to directly lend and borrow money to or from any other Victory Fund relying upon the Order at rates beneficial to both the borrowing and lending funds. Advances under the Facility are allowed for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities, and are subject to each Fund's borrowing restrictions. The interfund loan rate is determined, as specified in the Order, by averaging the current repurchase agreement rate and the current bank loan rate. As a Borrower, interest charged to the Fund during the period is presented on the Statement of Operations under interfund lending fees. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Income on interfund lending.
The Fund did not utilize the Facility during the six months ended June 30, 2019.
7. Federal Income Tax Information:
The tax character of current year distributions paid and the tax basis of the current components of accumulated earnings (deficit) will be determined at the end of the current tax year ending December 31, 2019.
The tax character of distributions paid during the most recent tax year ended December 31, 2018 was as follows (total distributions paid may differ from the Statement of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid) (amounts in thousands).
Distributions paid from | |||||||||||||||
Ordinary Income | Net Long-Term Capital Gains | Total Distributions Paid | |||||||||||||
$ | 2,582 | $ | 3,339 | $ | 5,921 |
As of the most recent tax year ended December 31, 2018, the components of accumulated earnings (deficit) on a tax basis were as follows (amounts in thousands):
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Earnings | Unrealized Appreciation/ (Depreciation)* | Total Accumulated Earnings/ (Deficit) | |||||||||||||||
$ | 264 | $ | 1,443 | $ | 1,707 | $ | 634 | $ | 2,341 |
* The difference between the book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to tax deferral of losses on wash sales.
During the most recent tax year ended December 31, 2018, the Fund did not utilize any capital loss carryforwards.
At June 30, 2019, the cost basis for federal income tax purposes, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) for investments were as follows (amounts in thousands):
Cost of Investments for Federal Tax Purposes | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||||||||||
$ | 26,299 | $ | 5,028 | $ | (617 | ) | $ | 4,411 |
8. Fund Ownership:
Ownership of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2(a)(9) of the 1940 Act. As of June 30, 2019, the shareholders listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund.
Shareholder | Percent | ||||||
New York Life Insurance and Annuity Corporation | 90.2 | % |
Continued
16
Notes to Financial Statements — continued
Victory Variable Insurance Funds June 30, 2019
(Unaudited)
9. Recent Accounting Pronouncements:
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-13, "Fair Value Measurements" ("ASU 2018-13"). This update makes certain removals from, changes to and additions to existing disclosure requirements for fair value measurements. ASU 2018-13 does not change fair value measurements already required or permitted by existing standards. ASU 2018-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As permitted, the Fund has early adopted ASU 2018-13 with the financial statements prepared as of June 30, 2019.
10. Subsequent Events:
The Fund has evaluated the need for additional disclosures or adjustments resulting from subsequent events through the date these financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have a material impact on the Fund's financial statements.
17
Supplemental Information
Victory Variable Insurance Funds June 30, 2019
(Unaudited)
Trustee and Officer Information
Board of Trustees:
Overall responsibility for management of the Trust rests with the Board. The Trust is managed by the Board in accordance with the laws of the State of Delaware. There are currently ten Trustees, nine of whom are not "interested persons" of the Trust within the meaning of that term under the 1940 Act ("Independent Trustees") and one of whom is an "interested person" of the Trust within the meaning of that term under the 1940 Act ("Interested Trustee"). The Trustees, in turn, elect the officers of the Trust to actively supervise its day-to-day operations.
The following tables list the Trustees, their ages, position with the Trust, commencement of service, principal occupations during the past five years and any directorships of other investment companies or companies whose securities are registered under the Securities Exchange Act of 1934, as amended, or who file reports under that Act. Each Trustee oversees nine portfolios in the Trust, 42 portfolios in Victory Portfolios and 20 portfolios in Victory Portfolios II, each a registered investment company that, together with the Trust, comprise the Victory Funds Complex. Each Trustee's address is c/o Victory Variable Insurance Funds, 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. Each Trustee has an indefinite term.
Name and Age | Position Held with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | Other Directorships Held During Past 5 Years | |||||||||||||||
Independent Trustees. | |||||||||||||||||||
David Brooks Adcock, 67 | Trustee | February 2005 | Consultant (since 2006). | Chair and Trustee, Turner Funds (December 2016-December 2017). | |||||||||||||||
Nigel D.T. Andrews, 72 | Vice Chair and Trustee | August 2002 | Retired. | Director, TCG BDC II, Inc. (since 2017); Director, TCG BDC I, Inc. (formerly Carlyle GMS Finance, Inc.) (since 2012); Director, Old Mutual US Asset Management (2002-2014). | |||||||||||||||
E. Lee Beard, 68* | Trustee | February 2005 | Retired (since 2015); Consultant, The Henlee Group, LLC (consulting) (2005-2015). | None. | |||||||||||||||
Dennis M. Bushe, 75 | Trustee | July 2016 | Retired. | Trustee, RS Investment Trust and RS Variable Products Trust (November 2011-July 2016). | |||||||||||||||
Sally M. Dungan, 65 | Trustee | February 2011 | Chief Investment Officer, Tufts University (since 2002). | None. | |||||||||||||||
John L. Kelly, 66 | Trustee | February 2015 | Partner, McCarvill Capital Partners (September 2016-September 2017); Advisor, Endgate Commodities LLC (January 2016-April 2016); Managing Partner, Endgate Commodities LLC (August 2014-January 2016); Chief Operating Officer, Liquidnet Holdings, Inc. (December 2011-July 2014). | Director, Caledonia Mining Corporation (since May 2012). | |||||||||||||||
David L. Meyer, 62* | Trustee | December 2008 | Retired. | None. | |||||||||||||||
Gloria S. Nelund, 58 | Trustee | July 2016 | Chair, CEO and Co-Founder of TriLinc Global, LLC, an investment firm. | TriLinc Global Impact Fund, LLC (since 2012); Trustee, RS Investment Trust and RS Variable Products Trust (November 2007-July 2016). | |||||||||||||||
Leigh A. Wilson, 74 | Chair and Trustee | February 1998 | Private Investor. | Chair (since 2013), Caledonia Mining Corporation. | |||||||||||||||
Interested Trustee. | |||||||||||||||||||
David C. Brown, 47** | Trustee | May 2008 | Chairman and Chief Executive Officer (since 2013), Co-Chief Executive Officer (2011-2013), the Adviser; Chairman and Chief Executive Officer, Victory Capital Holdings, Inc. (since 2013). | None. |
* The Board has designated Mr. Meyer and Ms. Beard as its Audit Committee Financial Experts.
** Mr. Brown is an "Interested Person" by reason of his relationship with the Adviser.
The Statement of Additional Information includes additional information about the Trustees of the Trust and is available, without charge, by calling 800-539-3863.
Continued
18
Supplemental Information — continued
Victory Variable Insurance Funds June 30, 2019
(Unaudited)
Officers:
The officers of the Trust, their ages, commencement of service and their principal occupations during the past five years, are detailed in the following table. Each officer serves until the earlier of his or her resignation, removal, retirement, death, or the election of a successor. The mailing address of each officer of the Trust is 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144. The officers of the Trust receive no compensation directly from the Trust for performing the duties of their offices.
Name and Age | Position with the Trust | Date Commenced Service | Principal Occupation During Past 5 Years | ||||||||||||
Christopher K. Dyer, 57 | President | February 2006* | Director of Fund Administration, the Adviser. | ||||||||||||
Scott A. Stahorsky, 50 | Vice President | December 2014 | Manager, Fund Administration, the Adviser (since 2015); Senior Analyst, Fund Administration, the Adviser (prior to 2015). | ||||||||||||
Erin G. Wagner, 45 | Secretary | December 2014 | Associate General Counsel, the Adviser (since 2013). | ||||||||||||
Allan Shaer, 54 | Treasurer | May 2017 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc. (since 2016); Vice President, Mutual Fund Administration, JP Morgan Chase (2011-2016). | ||||||||||||
Christopher A. Ponte, 35 | Assistant Treasurer | December 2017 | Manager, Fund Administration, the Adviser (since 2017); Senior Analyst, Fund Administration, the Adviser (prior to 2017); Chief Financial Officer, Victory Capital Advisers, Inc. (since 2018). | ||||||||||||
Colin Kinney, 45 | Chief Compliance Officer | July 2017 | Chief Compliance Officer (since 2013) and Chief Risk Officer (2009-2017), the Adviser. | ||||||||||||
Chuck Booth, 59 | Anti-Money Laundering Compliance Officer and Identity Theft Officer | May 2015 | Director, Regulatory Administration and CCO Support Services, Citi Fund Services Ohio, Inc. | ||||||||||||
Jay G. Baris, 65 | Assistant Secretary | February 1998 | Partner, Shearman & Sterling LLP (since 2018); Partner, Morrison & Foerster LLP (2011-January 2018). |
* On December 3, 2014, Mr. Dyer resigned as Secretary of the Trust and accepted the position of President.
Continued
19
Supplemental Information — continued
Victory Variable Insurance Funds June 30, 2019
(Unaudited)
Proxy Voting and Portfolio Holdings Information
Proxy Voting:
Information regarding the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 800-539-3863. The information is also included in the Fund's Statement of Additional Information, which is available on the SEC's website at www.sec.gov.
Information relating to how the Fund voted proxies relating to portfolio securities held during the most recent twelve months ended June 30 is available on the SEC's website at www.sec.gov.
Availability of Schedules of Portfolio Investments:
The Trust files a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-PORT. Prior to the implementation of Form N-PORT, the Trust filed a complete list of Schedules of Portfolio Investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-PORT and Forms N-Q are available on the SEC's website at www.sec.gov.
Expense Examples
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2019 through June 30, 2019.
The Actual Expense figures in the table below provide information about actual account values and actual expenses. You may use the information below, 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.
The Hypothetical Expense figures in the table below provide 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 this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 1/1/19 | Actual Ending Account Value 6/30/19 | Hypothetical Ending Account Value 6/30/19 | Actual Expenses Paid During Period 1/1/19-6/30/19* | Hypothetical Expenses Paid During Period 1/1/19-6/30/19* | Annualized Expense Ratio During Period 1/1/19-6/30/19 | ||||||||||||||||||||||
$ | 1,000.00 | $ | 1,159.70 | $ | 1,020.03 | $ | 5.14 | $ | 4.81 | 0.96 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 181/365 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
20
Privacy Policy
Protecting the Privacy of Information
The Trust respects your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information about investment goals and risk tolerance.
We do not disclose any information about you or about former customers to anyone except as permitted or required by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and printers and mailers that assist us in the distribution of investor materials. We may also disclose this information to companies that perform marketing services on our behalf. This allows us to continue to offer you Victory investment products and services that meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only in connection with the services for which we hired them. They are not permitted to use or share this information for any other purpose.
To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information.*
* You may have received communications regarding information about privacy policies from other financial institutions which gave you the opportunity to "opt-out" of certain information sharing with companies which are not affiliated with that financial institution. The Trust does not share information with other companies for purposes of marketing solicitations for products other than the Trust. Therefore, the Trust does not provide opt-out options to their shareholders.
Visit our web site at: www.vcm.com | Call Victory at: 800-539-FUND (800-539-3863) |
VF-VIDS-SAR (6/19)
Item 2. Code of Ethics.
Not applicable — only for annual reports.
Item 3. Audit Committee Financial Experts.
Not applicable — only for annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable — only for annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) Not applicable.
(b) Not applicable.
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.
Not applicable.
Item 11. Controls and Procedures.
(a) The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the registrant’s disclosure controls and procedures as conducted within 90 days of the filing date of this report, that these disclosure controls and procedures are adequately designed and are operating effectively to ensure that information required to be disclosed by the registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940 (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that have materially affected or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
(a)(1) Not applicable.
(a)(2) Not applicable.
(a)(3) Not applicable.
(a)(4) Not applicable.
(b) Not applicable.
Item 13. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) are furnished herewith.
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) | Victory Variable Insurance Funds |
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By (Signature and Title)* | /s/ Allan Shaer |
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| Allan Shaer, Principal Financial Officer |
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Date | August 23, 2019 |
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Pursuant to the requirements of the Securities 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. | ||||
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By (Signature and Title)* | /s/ Christopher K. Dyer |
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| Christopher K. Dyer, Principal Executive Officer |
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Date | August 23, 2019 |
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By (Signature and Title)* | /s/ Allan Shaer |
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| Allan Shaer, Principal Financial Officer |
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Date | August 23, 2019 |
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