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
Victory Variable Insurance Funds
(Exact name of registrant as specified in charter)
4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio | 44144 |
(Address of principal executive offices) | (Zip code) |
Citi Fund Services Ohio, Inc., 4400 Easton Commons, Suite 200, Columbus, Ohio 43219
(Name and address of agent for service)
Registrant’s telephone number, including area code: 800-539-3863
Date of fiscal year end: December 31
Date of reporting period: June 30, 2020
Item 1. Reports to Stockholders.
June 30, 2020
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 Objectives & 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 | |||||||
Proxy Voting and Portfolio Holdings Information | 29 | ||||||
Expense Examples | 29 | ||||||
Liquidity Risk Management Program | 30 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Services, 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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Victory Variable Insurance Funds | June 30, 2020 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: 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, 2020 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Asset-Backed Securities (1.6%) | |||||||||||
AmeriCredit Automobile Receivables Trust, Series 2018-1, Class B, 3.26%, 1/18/24, Callable 10/18/22 @ 100 (a) | $ | 1,000,000 | $ | 1,025,512 | |||||||
Santander Drive Auto Receivables Trust, Series 2018-2, Class B, 3.03%, 9/15/22, Callable 5/15/22 @ 100 (a) | 333,620 | 333,904 | |||||||||
Santander Drive Auto Receivables Trust, Series 2020-1, Class A2A, 2.07%, 1/17/23, Callable 2/15/25 @ 100 (a) | 1,355,000 | 1,366,183 | |||||||||
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 | 3,837,550 | |||||||||
Synchrony Credit Card Master Note Trust, Series 2018-1, Class A, 2.97%, 3/15/24 | 2,585,000 | 2,620,929 | |||||||||
Total Asset-Backed Securities (Cost $9,106,601) | 9,184,078 | ||||||||||
Collateralized Mortgage Obligations (2.6%) | |||||||||||
Bank, Series 2020-BN26, Class AS, 2.69%, 3/15/63 | 2,590,000 | 2,650,720 | |||||||||
Citigroup Commercial Mortgage Trust, Series 2020-GC46, Class AS, 2.92%, 1/15/53 | 2,241,000 | 2,326,371 | |||||||||
DBUBS Mortgage Trust, Series 2011-LC1A, Class A3, 5.00%, 11/10/46 (a) (b) | 2,887,344 | 2,911,984 | |||||||||
GS Mortgage Securities Trust, Series 2012-GC6, Class B, 5.84%, 1/10/45 (a) (b) (c) | 3,250,000 | 3,255,091 | |||||||||
WF-RBS Commercial Mortgage Trust, Series 2012-C6, Class B, 4.70%, 4/15/45 | 3,275,000 | 3,358,102 | |||||||||
Total Collateralized Mortgage Obligations (Cost $15,619,320) | 14,502,268 | ||||||||||
Corporate Bonds (54.5%) | |||||||||||
Communication Services (2.8%): | |||||||||||
Activision Blizzard, Inc., 2.60%, 6/15/22, Callable 5/15/22 @ 100 (a) | 1,000,000 | 1,037,580 | |||||||||
AT&T, Inc. 3.20%, 3/1/22 (a) (d) | 1,429,000 | 1,490,819 | |||||||||
4.25%, 3/1/27, Callable 12/1/26 @ 100 (a) | 1,140,000 | 1,303,693 | |||||||||
5.15%, 11/15/46, Callable 5/15/46 @ 100 (a) | 1,933,000 | 2,377,338 | |||||||||
Comcast Corp. 3.45%, 2/1/50, Callable 8/1/49 @ 100 | 746,000 | 845,487 | |||||||||
2.80%, 1/15/51, Callable 7/15/50 @ 100 | 1,016,000 | 1,039,073 | |||||||||
Verizon Communications, Inc. 5.15%, 9/15/23 (a) | 1,262,000 | 1,439,500 | |||||||||
3.38%, 2/15/25 (a) | 1,017,000 | 1,131,809 | |||||||||
Vodafone Group PLC 3.75%, 1/16/24 | 2,537,000 | 2,777,558 | |||||||||
5.25%, 5/30/48 | 1,718,000 | 2,228,298 | |||||||||
15,671,155 | |||||||||||
Consumer Discretionary (5.5%): | |||||||||||
D.R. Horton, Inc., 2.50%, 10/15/24, Callable 9/15/24 @ 100 | 5,960,000 | 6,209,903 | |||||||||
General Motors Co., 4.88%, 10/2/23 (a) | 1,976,000 | 2,098,314 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Hasbro, Inc. 2.60%, 11/19/22 | $ | 2,412,000 | $ | 2,482,141 | |||||||
6.35%, 3/15/40 | 1,596,000 | 1,825,122 | |||||||||
Lear Corp., 3.50%, 5/30/30, Callable 2/28/30 @ 100 (d) | 994,000 | 980,144 | |||||||||
Magna International, Inc., 3.63%, 6/15/24, Callable 3/15/24 @ 100 | 4,305,000 | 4,730,591 | |||||||||
NIKE, Inc., 3.88%, 11/1/45, Callable 5/1/45 @ 100 | 1,566,000 | 1,922,641 | |||||||||
NVR, Inc. 3.95%, 9/15/22, Callable 6/15/22 @ 100 (a) | 2,375,000 | 2,520,041 | |||||||||
3.00%, 5/15/30, Callable 11/15/29 @ 100 | 2,303,000 | 2,402,098 | |||||||||
Ross Stores, Inc., 3.38%, 9/15/24, Callable 6/15/24 @ 100 | 1,220,000 | 1,305,534 | |||||||||
Starbucks Corp. 3.80%, 8/15/25, Callable 6/15/25 @ 100 | 1,635,000 | 1,845,931 | |||||||||
2.25%, 3/12/30, Callable 12/12/29 @ 100 (d) | 1,771,000 | 1,841,043 | |||||||||
4.50%, 11/15/48, Callable 5/15/48 @ 100 | 897,000 | 1,066,336 | |||||||||
31,229,839 | |||||||||||
Consumer Staples (5.9%): | |||||||||||
Altria Group, Inc., 4.40%, 2/14/26, Callable 12/14/25 @ 100 (a) | 1,731,000 | 1,990,356 | |||||||||
BAT Capital Corp., 5.28%, 4/2/50 | 1,436,000 | 1,738,809 | |||||||||
Church & Dwight Co., Inc., 2.45%, 8/1/22, Callable 7/1/22 @ 100 (a) | 620,000 | 639,933 | |||||||||
Constellation Brands, Inc., 4.65%, 11/15/28, Callable 8/15/28 @ 100 (a) | 827,000 | 976,621 | |||||||||
Estee Lauder Cos., Inc., 4.15%, 3/15/47, Callable 9/15/46 @ 100 | 1,000,000 | 1,249,810 | |||||||||
Hormel Foods Corp., 1.80%, 6/11/30, Callable 3/11/30 @ 100 | 2,863,000 | 2,913,790 | |||||||||
Kerry Group Financial Services Unlimited Co., 3.20%, 4/9/23, Callable 1/9/23 @ 100 (a) (b) | 5,337,000 | 5,577,112 | |||||||||
Keurig Dr Pepper, Inc. 4.06%, 5/25/23, Callable 4/25/23 @ 100 (a) | 3,070,000 | 3,343,905 | |||||||||
5.09%, 5/25/48, Callable 11/25/47 @ 100 | 559,000 | 741,346 | |||||||||
Mead Johnson Nutrition Co., 4.60%, 6/1/44, Callable 12/1/43 @ 100 (a) | 1,613,000 | 2,046,187 | |||||||||
Reynolds American, Inc., 5.70%, 8/15/35, Callable 2/15/35 @ 100 | 1,835,000 | 2,245,618 | |||||||||
Suntory Holdings Ltd. 2.55%, 6/28/22, Callable 5/28/22 @ 100 (a) (b) | 4,966,000 | 5,111,504 | |||||||||
2.25%, 10/16/24, Callable 9/16/24 @ 100 (b) | 1,600,000 | 1,664,208 | |||||||||
The Coca-Cola Co., 2.95%, 3/25/25 | 2,270,000 | 2,498,839 | |||||||||
Tyson Foods, Inc., 5.10%, 9/28/48, Callable 3/28/48 @ 100 | 691,000 | 891,114 | |||||||||
33,629,152 | |||||||||||
Energy (4.3%): | |||||||||||
Canadian Natural Resources Ltd. 2.95%, 1/15/23, Callable 12/15/22 @ 100 | 1,255,000 | 1,296,214 | |||||||||
2.05%, 7/15/25, Callable 6/15/25 @ 100 (d) | 2,929,000 | 2,931,197 | |||||||||
Continental Resources, Inc., 4.50%, 4/15/23, Callable 1/15/23 @ 100 (a) | 2,084,000 | 1,994,742 | |||||||||
Ecopetrol SA, 5.88%, 9/18/23 (a) | 2,780,000 | 2,985,442 | |||||||||
EQM Midstream Partners LP, 4.75%, 7/15/23, Callable 6/15/23 @ 100 (a) | 2,186,000 | 2,202,657 | |||||||||
Exxon Mobil Corp., 4.11%, 3/1/46, Callable 9/1/45 @ 100 | 657,000 | 789,878 | |||||||||
Marathon Petroleum Corp. 6.50%, 3/1/41, Callable 9/1/40 @ 100 | 1,285,000 | 1,591,755 | |||||||||
5.85%, 12/15/45, Callable 6/15/45 @ 100 (d) | 850,000 | 919,420 | |||||||||
Plains All American Pipeline LP/PAA Finance Corp. 2.85%, 1/31/23, Callable 10/31/22 @ 100 (a) | 2,215,000 | 2,239,276 | |||||||||
3.80%, 9/15/30, Callable 6/15/30 @ 100 | 1,580,000 | 1,549,632 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Statoil ASA, 3.95%, 5/15/43 | $ | 930,000 | $ | 1,067,370 | |||||||
Valero Energy Corp. 4.00%, 4/1/29, Callable 1/1/29 @ 100 (a) (d) | 910,000 | 1,014,814 | |||||||||
6.63%, 6/15/37 (d) | 2,520,000 | 3,296,892 | |||||||||
23,879,289 | |||||||||||
Financials (16.4%): | |||||||||||
Aflac, Inc. 2.88%, 10/15/26, Callable 7/15/26 @ 100 | 2,450,000 | 2,697,843 | |||||||||
4.75%, 1/15/49, Callable 7/15/48 @ 100 | 341,000 | 437,438 | |||||||||
Alleghany Corp. 3.63%, 5/15/30, Callable 2/15/30 @ 100 | 965,000 | 1,029,259 | |||||||||
4.90%, 9/15/44, Callable 3/15/44 @ 100 | 1,648,000 | 1,935,955 | |||||||||
Bank of America Corp. 2.33% (LIBOR03M+63bps), 10/1/21, Callable 10/1/20 @ 100 (a) (e) | 1,875,000 | 1,882,519 | |||||||||
2.50%, 10/21/22, Callable 10/21/21 @ 100, MTN | 3,500,000 | 3,582,775 | |||||||||
4.20%, 8/26/24, MTN (a) | 1,400,000 | 1,553,188 | |||||||||
3.25%, 10/21/27, Callable 10/21/26 @ 100, MTN | 1,775,000 | 1,961,641 | |||||||||
Capital One Financial Corp., 3.30%, 10/30/24, Callable 9/30/24 @ 100 (a) (d) | 1,935,000 | 2,081,518 | |||||||||
Cincinnati Financial Corp., 6.13%, 11/1/34 | 1,795,000 | 2,513,233 | |||||||||
Citigroup, Inc. 2.75%, 4/25/22, Callable 3/25/22 @ 100 | 3,443,000 | 3,566,741 | |||||||||
3.88%, 3/26/25 | 929,000 | 1,016,354 | |||||||||
4.60%, 3/9/26 (a) | 873,000 | 995,447 | |||||||||
4.45%, 9/29/27 (a) | 1,000,000 | 1,137,460 | |||||||||
3.88% (LIBOR03M+117bps), 1/24/39, Callable 1/24/38 @ 100 (e) | 813,000 | 941,267 | |||||||||
Enel Finance International NV, 2.88%, 5/25/22 (a) (b) | 3,685,000 | 3,809,406 | |||||||||
Fifth Third Bancorp 1.63%, 5/5/23, Callable 4/5/23 @ 100 (d) | 1,165,000 | 1,193,018 | |||||||||
3.65%, 1/25/24, Callable 12/25/23 @ 100 (a) | 5,053,000 | 5,507,669 | |||||||||
Ford Motor Credit Co. LLC, 4.06%, 11/1/24, Callable 10/1/24 @ 100 | 2,510,000 | 2,391,905 | |||||||||
General Motors Financial Co., Inc., 4.15%, 6/19/23, Callable 5/19/23 @ 100 | 966,000 | 1,008,185 | |||||||||
JPMorgan Chase & Co. 2.95%, 10/1/26, Callable 7/1/26 @ 100 | 3,400,000 | 3,726,570 | |||||||||
5.60%, 7/15/41 | 980,000 | 1,421,020 | |||||||||
KeyCorp, 2.25%, 4/6/27, MTN | 2,102,000 | 2,200,184 | |||||||||
Morgan Stanley 4.88%, 11/1/22 (a) | 2,718,000 | 2,955,472 | |||||||||
3.75%, 2/25/23 (a) | 3,000,000 | 3,234,300 | |||||||||
3.13%, 7/27/26, MTN | 5,500,000 | 6,065,784 | |||||||||
Newcrest Finance Pty Ltd. 5.75%, 11/15/41 (b) | 1,720,000 | 2,240,850 | |||||||||
4.20%, 5/13/50, Callable 11/13/49 @ 100 (b) (d) | 365,000 | 405,639 | |||||||||
NXP BV/NXP Funding LLC, 4.63%, 6/1/23 (b) | 2,500,000 | 2,733,900 | |||||||||
NXP BV/NXP Funding LLC/NXP USA, Inc., 2.70%, 5/1/25, Callable 4/1/25 @ 100 (b) | 1,503,000 | 1,573,851 | |||||||||
Regions Financial Corp., 2.25%, 5/18/25, Callable 4/18/25 @ 100 (d) | 1,958,000 | 2,049,380 | |||||||||
SVB Financial Group, 3.13%, 6/5/30, Callable 3/5/30 @ 100 | 1,128,000 | 1,209,385 | |||||||||
The Goldman Sachs Group, Inc. 2.35%, 11/15/21, Callable 11/15/20 @ 100 | 4,540,000 | 4,567,876 | |||||||||
5.75%, 1/24/22 (a) | 2,750,000 | 2,966,453 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Total Capital International SA, 2.99%, 6/29/41, Callable 12/29/40 @ 100 (d) | $ | 1,431,000 | $ | 1,462,310 | |||||||
Truist Financial Corp., 2.75%, 4/1/22, MTN, Callable 3/1/22 @ 100 | 3,550,000 | 3,678,794 | |||||||||
Unum Group, 4.00%, 6/15/29, Callable 3/15/29 @ 100 (d) | 1,713,000 | 1,769,118 | |||||||||
Wells Fargo & Co. 4.30%, 7/22/27, MTN | 3,553,000 | 4,064,312 | |||||||||
4.90%, 11/17/45 (a) | 890,000 | 1,140,232 | |||||||||
Zions Bancorp NA, 3.25%, 10/29/29, Callable 7/29/29 @ 100 | 2,000,000 | 1,956,400 | |||||||||
92,664,651 | |||||||||||
Health Care (3.7%): | |||||||||||
AbbVie, Inc., 3.20%, 11/21/29, Callable 8/21/29 @ 100 (a) (b) | 2,580,000 | 2,832,040 | |||||||||
Amgen, Inc., 4.40%, 5/1/45, Callable 11/1/44 @ 100 | 1,825,000 | 2,262,215 | |||||||||
Anthem, Inc., 2.38%, 1/15/25, Callable 12/15/24 @ 100 | 1,278,000 | 1,354,565 | |||||||||
Bristol-Myers Squibb Co., 3.40%, 7/26/29, Callable 4/26/29 @ 100 (b) | 2,880,000 | 3,325,393 | |||||||||
Gilead Sciences, Inc., 4.40%, 12/1/21, Callable 9/1/21 @ 100 (a) | 6,150,000 | 6,437,636 | |||||||||
HCA, Inc., 4.13%, 6/15/29, Callable 3/15/29 @ 100 | 1,716,000 | 1,893,366 | |||||||||
Humana, Inc., 2.90%, 12/15/22, Callable 11/15/22 @ 100 (a) | 1,234,000 | 1,290,011 | |||||||||
Merck & Co., Inc., 2.45%, 6/24/50, Callable 12/24/49 @ 100 (d) | 1,063,000 | 1,067,964 | |||||||||
Upjohn, Inc., 2.30%, 6/22/27, Callable 4/22/27 @ 100 (b) | 730,000 | 753,018 | |||||||||
21,216,208 | |||||||||||
Industrials (4.5%): | |||||||||||
Canadian National Railway Co., 3.20%, 8/2/46, Callable 2/2/46 @ 100 | 825,000 | 913,102 | |||||||||
Carlisle Cos., Inc., 2.75%, 3/1/30, Callable 12/1/29 @ 100 | 1,356,000 | 1,395,310 | |||||||||
Delta Air Lines, Inc., 3.80%, 4/19/23, Callable 3/19/23 @ 100 (a) | 2,465,000 | 2,192,174 | |||||||||
Hillenbrand, Inc., 4.50%, 9/15/26, Callable 7/15/26 @ 100 | 3,720,000 | 3,828,029 | |||||||||
IDEX Corp., 3.00%, 5/1/30, Callable 2/1/30 @ 100 | 2,068,000 | 2,160,915 | |||||||||
Kansas City Southern, 4.95%, 8/15/45, Callable 2/15/45 @ 100 | 1,440,000 | 1,861,056 | |||||||||
Oshkosh Corp., 3.10%, 3/1/30, Callable 12/1/29 @ 100 | 1,190,000 | 1,195,188 | |||||||||
PACCAR Financial Corp., 0.80%, 6/8/23, MTN | 1,785,000 | 1,791,426 | |||||||||
Rockwell Automation, Inc. 3.50%, 3/1/29, Callable 12/1/28 @ 100 (d) | 1,270,000 | 1,432,268 | |||||||||
6.25%, 12/1/37 | 1,151,000 | 1,600,972 | |||||||||
Roper Technologies, Inc., 2.95%, 9/15/29, Callable 6/15/29 @ 100 (a) | 2,989,000 | 3,256,277 | |||||||||
Snap-on, Inc., 4.10%, 3/1/48, Callable 9/1/47 @ 100 | 1,100,000 | 1,303,951 | |||||||||
Valmont Industries, Inc., 5.00%, 10/1/44, Callable 4/1/44 @ 100 (a) | 2,603,000 | 2,668,570 | |||||||||
25,599,238 | |||||||||||
Information Technology (4.9%): | |||||||||||
Apple, Inc., 4.65%, 2/23/46, Callable 8/23/45 @ 100 | 974,000 | 1,339,133 | |||||||||
Broadcom Corp., 3.00%, 1/15/22, Callable 12/15/21 @ 100 (a) (d) | 1,448,000 | 1,485,981 | |||||||||
Cadence Design Systems, Inc., 4.38%, 10/15/24, Callable 7/15/24 @ 100 | 2,969,000 | 3,304,675 | |||||||||
Intel Corp., 3.40%, 3/25/25, Callable 2/25/25 @ 100 (d) | 1,991,000 | 2,233,862 | |||||||||
Micron Technology, Inc. 4.19%, 2/15/27, Callable 12/15/26 @ 100 | 1,116,000 | 1,250,266 | |||||||||
5.33%, 2/6/29, Callable 11/6/28 @ 100 | 3,400,000 | 4,064,191 | |||||||||
NetApp, Inc. 3.25%, 12/15/22, Callable 9/15/22 @ 100 | 1,345,000 | 1,398,128 | |||||||||
1.88%, 6/22/25, Callable 5/22/25 @ 100 | 2,272,000 | 2,304,126 |
See notes to financial statements.
7
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
NVIDIA Corp., 2.20%, 9/16/21, Callable 8/16/21 @ 100 | $ | 1,230,000 | $ | 1,254,083 | |||||||
PayPal Holdings, Inc., 1.65%, 6/1/25, Callable 5/1/25 @ 100 | 3,282,000 | 3,395,492 | |||||||||
Texas Instruments, Inc., 4.15%, 5/15/48, Callable 11/15/47 @ 100 | 949,000 | 1,231,223 | |||||||||
Tyco Electronics Group SA, 7.13%, 10/1/37 | 650,000 | 992,921 | |||||||||
VMware, Inc., 2.95%, 8/21/22, Callable 7/21/22 @ 100 | 3,174,000 | 3,284,074 | |||||||||
27,538,155 | |||||||||||
Materials (1.7%): | |||||||||||
Celanese US Holdings LLC, 4.63%, 11/15/22 (a) | 1,870,000 | 1,986,632 | |||||||||
LYB International Finance II BV, 3.50%, 3/2/27, Callable 12/2/26 @ 100 (a) | 1,580,000 | 1,722,311 | |||||||||
Nucor Corp. 2.00%, 6/1/25, Callable 5/1/25 @ 100 | 1,265,000 | 1,310,097 | |||||||||
4.40%, 5/1/48, Callable 11/1/47 @ 100 | 882,000 | 1,063,392 | |||||||||
Rio Tinto Finance USA Ltd. 3.75%, 6/15/25, Callable 3/15/25 @ 100 | 1,415,000 | 1,602,474 | |||||||||
5.20%, 11/2/40 | 723,000 | 1,011,925 | |||||||||
Steel Dynamics, Inc., 2.40%, 6/15/25, Callable 5/15/25 @ 100 (d) | 392,000 | 402,921 | |||||||||
9,099,752 | |||||||||||
Real Estate (1.8%): | |||||||||||
Duke Realty LP, 3.05%, 3/1/50, Callable 9/1/49 @ 100 | 1,407,000 | 1,471,539 | |||||||||
Highwoods Realty LP, 3.63%, 1/15/23, Callable 10/15/22 @ 100 | 5,523,000 | 5,719,122 | |||||||||
Retail Properties of America, Inc., 4.00%, 3/15/25, Callable 12/15/24 @ 100 | 3,006,000 | 2,926,341 | |||||||||
10,117,002 | |||||||||||
Utilities (3.0%): | |||||||||||
Arizona Public Service Co., 2.95%, 9/15/27, Callable 6/15/27 @ 100 (d) | 1,800,000 | 1,943,154 | |||||||||
Consolidated Edison, Inc., 6.30%, 8/15/37 | 1,870,000 | 2,679,299 | |||||||||
Iberdrola International BV 6.75%, 9/15/33 | 373,000 | 512,730 | |||||||||
6.75%, 7/15/36 | 1,151,000 | 1,603,216 | |||||||||
Nevada Power Co., 6.65%, 4/1/36 (a) (d) | 600,000 | 851,952 | |||||||||
NextEra Energy Capital Holdings, Inc., 2.80%, 1/15/23, Callable 12/15/22 @ 100 (a) | 2,765,000 | 2,904,383 | |||||||||
Oklahoma G&E Co., 5.25%, 5/15/41, Callable 11/15/40 @ 100 | 1,546,000 | 1,910,315 | |||||||||
Public Service Electric & Gas Co., 4.00%, 6/1/44, Callable 12/1/43 @ 100 | 1,289,000 | 1,514,356 | |||||||||
Vistra Operations Co. LLC, 3.70%, 1/30/27, Callable 11/30/26 @ 100 (b) | 2,579,000 | 2,646,905 | |||||||||
16,566,310 | |||||||||||
Total Corporate Bonds (Cost $290,255,759) | 307,210,751 | ||||||||||
Residential Mortgage-Backed Securities (0.5%) | |||||||||||
Bear Stearns Alt-A Trust, Series 2003-3, Class 2A, 4.09%, 10/25/33, Callable 7/25/20 @ 100 (a) (c) | 916,666 | 901,868 | |||||||||
Credit Suisse First Boston Mortgage Securities Corp., Series 2002-HE16, Class M1, 1.50% (LIBOR01M+132bps), 10/25/32, Callable 7/25/20 @ 100 (e) | 763,156 | 745,515 | |||||||||
JPMorgan Mortgage Trust, Series 2004-S2, Class 1A3, 4.75%, 12/31/20, Callable 7/25/20 @ 100 (a) | 29,030 | 21,936 |
See notes to financial statements.
8
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares or Principal Amount | Value | |||||||||
JPMorgan Mortgage Trust, Series 2016-4, Class A5, 3.50%, 10/25/46, Callable 9/25/23 @ 100 (a) (b) (c) | $ | 974,547 | $ | 989,996 | |||||||
Total Residential Mortgage-Backed Securities (Cost $2,693,467) | 2,659,315 | ||||||||||
U.S. Government Mortgage-Backed Agencies (31.0%) | |||||||||||
Federal Home Loan Mortgage Corp. 5.00%, 6/15/23 – 7/1/39 (a) | 1,726,277 | 1,966,404 | |||||||||
Series 4763, Class VC, 4.00%, 4/15/29 | 536,890 | 567,517 | |||||||||
Series 4395, Class PA, 2.50%, 4/15/37 – 7/1/50 (a) | 4,994,094 | 5,234,334 | |||||||||
7.00%, 9/1/38 (a) | 42,810 | 54,277 | |||||||||
Series 4290, Class CA, 3.50%, 12/15/38 – 12/15/48 (a) | 26,317,912 | 28,235,733 | |||||||||
4.50%, 1/1/41 – 12/1/45 (a) | 6,735,761 | 7,520,362 | |||||||||
Series 4444, Class CH, 3.00%, 1/15/41 (a) | 193,339 | 198,282 | |||||||||
Series 4049, Class AB, 2.75%, 12/15/41 (a) | 990,649 | 1,017,900 | |||||||||
Series 4494, Class JA, 3.75%, 5/15/42 (a) | 4,222,111 | 4,407,542 | |||||||||
49,202,351 | |||||||||||
Federal National Mortgage Association 6.00%, 8/1/21 – 2/1/37 (a) | 2,316,136 | 2,757,730 | |||||||||
5.00%, 4/1/23 – 12/1/39 (a) | 1,035,974 | 1,185,713 | |||||||||
7.50%, 12/1/29 (a) | 37,029 | 43,964 | |||||||||
8.00%, 1/1/30 – 9/1/30 (a) | 16,815 | 20,160 | |||||||||
7.00%, 2/1/32 – 6/1/32 (a) | 32,215 | 39,679 | |||||||||
3.79% (LIBOR12M+166bps), 12/1/36 (a) (e) | 95,882 | 98,436 | |||||||||
5.50%, 1/1/38 – 2/1/39 (a) | 649,314 | 752,622 | |||||||||
4.50%, 12/1/38 – 6/1/40 (a) | 6,380,758 | 6,865,267 | |||||||||
Series 2013-33, Class UD, 2.50%, 4/25/39 – 12/25/47 (a) | 14,450,604 | 15,051,644 | |||||||||
3.50%, 8/1/39 – 12/25/50 | 22,161,134 | 23,223,274 | |||||||||
3.00%, 7/1/40 – 2/25/49 | 41,182,623 | 43,619,128 | |||||||||
4.00%, 11/1/43 – 6/1/49 (a) | 23,881,869 | 26,068,647 | |||||||||
119,726,264 | |||||||||||
Government National Mortgage Association 6.00%, 10/15/32 (a) | 69,179 | 80,928 | |||||||||
Series 2014-42, Class AD, 2.50%, 7/16/41 | 367,918 | 381,309 | |||||||||
4.50%, 10/20/49 | 986,128 | 1,053,273 | |||||||||
3.00%, 2/20/50 | 3,631,379 | 3,852,080 | |||||||||
5,367,590 | |||||||||||
Multi-family (0.0%): (f) | |||||||||||
Collateralized Mortgage Obligations (0.0%): (f) | |||||||||||
Government National Mortgage Association 6.00%, 12/15/33 (a) | 30,378 | 35,995 | |||||||||
Total U.S. Government Mortgage-Backed Agencies (Cost $168,066,237) | 174,332,200 | ||||||||||
Collateral for Securities Loaned^ (1.3%) | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 0.28% (g) | 121,906 | 121,906 | |||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 0.09% (g) | 3,689,579 | 3,689,579 |
See notes to financial statements.
9
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 0.30% (g) | 847,734 | $ | 847,734 | ||||||||
JPMorgan Prime Money Market Fund, Capital Class, 0.43% (g) | 485,098 | 485,098 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 0.41% (g) | 2,181,094 | 2,181,094 | |||||||||
Total Collateral for Securities Loaned (Cost $7,325,411) | 7,325,411 | ||||||||||
Total Investments (Cost $493,066,795) — 91.5% | 515,214,023 | ||||||||||
Other assets in excess of liabilities — 8.5% | 47,776,324 | ||||||||||
NET ASSETS — 100.00% | $ | 562,990,347 |
^ Purchased with cash collateral from securities on loan.
(a) All or a portion of this security 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, 2020, the fair value of these securities was $43,668,447 and amounted to 7.8% of net assets.
(c) 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, 2020.
(d) All or a portion of this security is on loan.
(e) Variable or Floating-Rate Security. Rate disclosed is as of June 30, 2020.
(f) Amount represents less than 0.05% of net assets.
(g) Rate disclosed is the daily yield on June 30, 2020.
bps — Basis points
LIBOR — London InterBank Offered Rate
LIBOR01M — 1 Month US Dollar LIBOR, rate disclosed as of June 30, 2020, based on the last reset date of the security
LIBOR03M — 3 Month US Dollar LIBOR, rate disclosed as of June 30, 2020, based on the last reset date of the security
LIBOR12M — 12 Month US Dollar LIBOR, rate disclosed as of June 30, 2020, based on the last reset date of the security
LLC — Limited Liability Company
LP — Limited Partnership
MTN — Medium Term Note
PLC — Public Limited Company
Futures Contracts Purchased
Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||
5-Year U.S. Treasury Note Futures | 252 | 9/30/20 | $ | 31,571,744 | $ | 31,687,031 | $ | 115,287 | |||||||||||||||
Ultra Long Term U.S. Treasury Bond Futures | 237 | 9/21/20 | 51,600,119 | 51,703,032 | 102,912 | ||||||||||||||||||
$ | 218,199 |
See notes to financial statements.
10
Victory Variable Insurance Funds Victory INCORE Investment Quality Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Futures Contracts Sold
Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||
10-Year U.S. Treasury Note Futures | 114 | 9/21/20 | $ | 15,752,887 | $ | 15,865,594 | $ | (112,707 | ) | ||||||||||||||
2-Year U.S. Treasury Note Futures | 25 | 9/30/20 | 5,520,653 | 5,520,703 | (50 | ) | |||||||||||||||||
$ | (112,757 | ) | |||||||||||||||||||||
Total unrealized appreciation | $ | 218,199 | |||||||||||||||||||||
Total unrealized depreciation | (112,757 | ) | |||||||||||||||||||||
Total net unrealized appreciation (depreciation) | $105,442 |
See notes to financial statements.
11
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2020 |
(Unaudited)
Victory INCORE Investment Quality Bond VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $493,066,795) | $ | 515,214,023 | (a) | ||||
Cash and cash equivalents | 13,827,510 | ||||||
Deposits with brokers for swap agreements | 2,789,978 | ||||||
Deposits with brokers for futures contracts | 5,907,075 | ||||||
Receivables: | |||||||
Interest and dividends | 3,246,984 | ||||||
Capital shares issued | 142,004 | ||||||
Investments sold | 29,504,233 | ||||||
From Adviser | 183,040 | ||||||
Prepaid expenses | 19,756 | ||||||
Total Assets | 570,834,603 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 7,325,411 | ||||||
Capital shares redeemed | 115,462 | ||||||
Variation margin on open futures contracts | 20,939 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 230,105 | ||||||
Administration fees | 27,392 | ||||||
Custodian fees | 4,498 | ||||||
Transfer agent fees | 69,514 | ||||||
Compliance fees | 491 | ||||||
Trustees' fees | 2,141 | ||||||
Other accrued expenses | 48,303 | ||||||
Total Liabilities | 7,844,256 | ||||||
NET ASSETS: | |||||||
Capital | 505,680,707 | ||||||
Total distributable earnings/(loss) | 57,309,640 | ||||||
Net Assets | $ | 562,990,347 | |||||
Shares Outstanding (unlimited shares authorized with a par value of $0.001 per share): | 42,698,167 | ||||||
Net asset value: | $ | 13.19 |
(a) Includes $7,118,763 of securities on loan.
See notes to financial statements.
12
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2020 |
(Unaudited)
Victory INCORE Investment Quality Bond VIP Series | |||||||
Investment Income: | |||||||
Interest | $ | 8,182,945 | |||||
Securities lending (net of fees) | 13,083 | ||||||
Total Income | 8,196,028 | ||||||
Expenses: | |||||||
Investment advisory fees | 1,477,742 | ||||||
Administration fees | 181,190 | ||||||
Sub-Administration fees | 7,462 | ||||||
Custodian fees | 15,282 | ||||||
Transfer agent fees | 407,264 | ||||||
Trustees' fees | 26,155 | ||||||
Compliance fees | 2,559 | ||||||
Legal and audit fees | 35,559 | ||||||
Other expenses | 51,327 | ||||||
Total Expenses | 2,204,540 | ||||||
Expenses waived/reimbursed by Adviser | (550,201 | ) | |||||
Net Expenses | 1,654,339 | ||||||
Net Investment Income (Loss) | 6,541,689 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities | 15,504,233 | ||||||
Net realized gains (losses) from futures contracts | 3,527,683 | ||||||
Net realized gains (losses) from swap agreements | (2,088,352 | ) | |||||
Net change in unrealized appreciation/depreciation on investment securities | 7,980,227 | ||||||
Net change in unrealized appreciation/depreciation on futures contracts | 269,034 | ||||||
Net change in unrealized appreciation/depreciation on swap agreements | (281,897 | ) | |||||
Net realized/unrealized gains on investments | 24,910,928 | ||||||
Change in net assets resulting from operations | $ | 31,452,617 |
See notes to financial statements.
13
Victory Variable Insurance Funds | Statements of Changes in Net Assets |
Victory INCORE Investment Quality Bond VIP Series | |||||||||||
Six Months Ended June 30, 2020 (Unaudited) | Year Ended December 31, 2019 | ||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 6,541,689 | $ | 15,495,740 | |||||||
Net realized gains (losses) from investments | 16,943,564 | 8,472,865 | |||||||||
Net change in unrealized appreciation/depreciation on investments | 7,967,364 | 23,179,343 | |||||||||
Change in net assets resulting from operations | 31,452,617 | 47,147,948 | |||||||||
Change in net assets resulting from distributions to shareholders | — | (17,229,625 | ) | ||||||||
Change in net assets resulting from capital transactions | (78,901,414 | ) | (64,480,616 | ) | |||||||
Change in net assets | (47,448,797 | ) | (34,562,293 | ) | |||||||
Net Assets: | |||||||||||
Beginning of period | 610,439,144 | 645,001,437 | |||||||||
End of period | $ | 562,990,347 | $ | 610,439,144 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 19,926,442 | $ | 37,119,834 | |||||||
Distributions reinvested | — | 17,229,625 | |||||||||
Cost of shares redeemed | (98,827,856 | ) | (118,830,075 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (78,901,414 | ) | $ | (64,480,616 | ) | |||||
Share Transactions: | |||||||||||
Issued | 1,552,051 | 2,998,867 | |||||||||
Reinvested | — | 1,380,579 | |||||||||
Redeemed | (7,664,714 | ) | (9,535,445 | ) | |||||||
Change in Shares | (6,112,663 | ) | (5,155,999 | ) |
See notes to financial statements.
14
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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)(a) | Net Realized and Unrealized Gains (Losses) on Investments | Total from Investment Activities | Net Investment Income | Net Realized Gains From Investments | Total Distributions | Capital Contribution from Prior Custodian, Net (See Note 8) | ||||||||||||||||||||||||||||
Victory INCORE Investment Quality Bond VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended 6/30/20 (unaudited) | $ | 12.51 | 0.14 | 0.54 | 0.68 | — | — | — | — | ||||||||||||||||||||||||||
Year Ended 12/31/19 | $ | 11.95 | 0.31 | 0.61 | 0.92 | (0.36 | ) | — | (0.36 | ) | — | ||||||||||||||||||||||||
Year Ended 12/31/18 | $ | 12.08 | 0.30 | (0.35 | ) | (0.05 | ) | (0.08 | ) | — | (e) | (0.08 | ) | — | |||||||||||||||||||||
Year Ended 12/31/17 | $ | 11.88 | 0.28 | 0.21 | 0.49 | (0.29 | ) | — | (0.29 | ) | — | ||||||||||||||||||||||||
Year Ended 12/31/16 | $ | 11.98 | 0.27 | 0.15 | 0.42 | (0.30 | ) | (0.22 | ) | (0.52 | ) | — | (e) | ||||||||||||||||||||||
Year Ended 12/31/15 | $ | 12.38 | 0.31 | (0.27 | ) | 0.04 | (0.32 | ) | (0.12 | ) | (0.44 | ) | — |
(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) 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.
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(b)(c) | Net Expenses(d) | Net Investment Income (Loss)(d) | Gross Expenses(d) | Net Assets, End of Period (000's) | Portfolio Turnover(b) | |||||||||||||||||||||||||
Victory INCORE Investment Quality Bond VIP Series | |||||||||||||||||||||||||||||||
Six Months Ended 6/30/20 (unaudited) | $ | 13.19 | 5.36 | % | 0.56 | % | 2.21 | % | 0.75 | % | $ | 562,990 | 35 | % | |||||||||||||||||
Year Ended 12/31/19 | $ | 12.51 | 7.72 | % | 0.56 | % | 2.46 | % | 0.74 | % | $ | 610,439 | 96 | % | |||||||||||||||||
Year Ended 12/31/18 | $ | 11.95 | (0.41 | )% | 0.56 | % | 2.52 | % | 0.62 | % | $ | 645,001 | 109 | % | |||||||||||||||||
Year Ended 12/31/17 | $ | 12.08 | 4.15 | % | 0.56 | % | 2.28 | % | 0.61 | % | $ | 726,721 | 83 | % | |||||||||||||||||
Year Ended 12/31/16 | $ | 11.88 | 3.53 | %(f) | 0.55 | % | 2.17 | % | 0.55 | % | $ | 716,292 | 142 | % | |||||||||||||||||
Year Ended 12/31/15 | $ | 11.98 | 0.33 | % | 0.56 | % | 2.47 | % | 0.56 | % | $ | 755,696 | 41 | % |
See notes to financial statements.
17
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2020 |
(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. Victory INCORE Investment Quality Bond VIP Series (the "Fund"), a series of the Trust, offers a single class of shares: Class I Shares. The Fund's shares are only available for purchase by certain separate accounts of insurance companies as investments for certain variable annuity plans and variable life insurance contracts issued by those insurance companies. The accompanying financial statements are those of the Fund.
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 generally accepted accounting principles 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.
18
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(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. To the extent this model is utilized, these valuations are considered 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, 2020, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed on the Schedule of Portfolio Investments.
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Asset-Backed Securities | $ | — | $ | 9,184,078 | $ | — | $ | 9,184,078 | |||||||||||
Collateralized Mortgage Obligations | — | 14,502,268 | — | 14,502,268 | |||||||||||||||
Corporate Bonds | — | 307,210,751 | — | 307,210,751 | |||||||||||||||
Residential Mortgage-Backed Securities | — | 2,659,315 | — | 2,659,315 | |||||||||||||||
U.S. Government Mortgage-Backed Agencies | — | 174,332,200 | — | 174,332,200 | |||||||||||||||
Collateral for Securities Loaned | 7,325,411 | — | — | 7,325,411 | |||||||||||||||
Total | $ | 7,325,411 | $ | 507,888,612 | $ | — | $ | 515,214,023 | |||||||||||
Other Financial Investments^: | |||||||||||||||||||
Assets: | |||||||||||||||||||
Futures Contracts | $ | 218,199 | $ | — | $ | — | $ | 218,199 | |||||||||||
Liabilities: | |||||||||||||||||||
Futures Contracts | (112,757 | ) | — | — | (112,757 | ) | |||||||||||||
Total | $ | 105,442 | $ | — | $ | — | $ | 105,442 |
^ Futures Contracts are valued at the unrealized appreciation (depreciation) on the investment.
For the six months ended June 30, 2020, there were no transfers in or out of the Level 3 fair value hierarchy.
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 on the Schedule of Portfolio Investments.
19
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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 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.
Derivatives 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
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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 Deposits with broker for futures contracts. As of June 30, 2020, 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.
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 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.
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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, 2020, the Fund entered into centrally cleared CDS agreements primarily for the strategy of asset allocation and risk exposure management. For the six months ended June 30, 2020, the Fund had no open centrally cleared CDS agreements.
Offsetting of Financial Assets and Derivatives Assets:
The Fund is subject to various Master Netting Arrangements, which govern the terms of certain transactions with select counterparties. The Master Netting Arrangements allow the Fund to close out and net total exposure to a counterparty in the event of a default with respect to all the transactions governed under a single agreement with a counterparty. The Master Netting Arrangements also specify collateral posting arrangements at pre-arranged exposure levels. Under the Master Netting Arrangements, collateral is routinely transferred if the total net exposure to certain transactions (net of existing collateral already in place) governed under the relevant Master Netting Arrangement with a counterparty in a given account exceeds a specified threshold depending on the counterparty and the type of Master Netting Arrangement.
The table below, as of June 30, 2020, discloses both gross information and net information about instruments and transactions eligible for offset on the Statement of Assets and Liabilities and instruments and transactions that are subject to an agreement similar to a master netting agreement as well as amounts related to collateral held at clearing brokers and counterparties.
Gross Amounts of Recognized Assets | Gross Amounts for Available Offset | Net Amounts Presented in the Statement of Assets and Liabilities | Cash Collateral Received | Net Amount | |||||||||||||||||||
Futures Contracts - Goldman Sachs & Co. | $ | 17,813 | $ | (17,813 | ) | $ | — | $ | — | $ | — | ||||||||||||
Gross Amounts of Recognized Liabilities | Gross Amounts for Available Offset | Net Amounts Presented in the Statement of Assets and Liabilities | Cash Collateral Pledged* | Net Amount | |||||||||||||||||||
Futures Contracts - Goldman Sachs & Co. | $ | 38,752 | $ | (17,813 | ) | $ | 20,939 | $ | 20,939 | $ | — |
* Cash collateral pledged may be in excess of the amounts shown in the table. The total cash collateral pledged by the Fund is disclosed on the Statement of Assets and Liabilities.
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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, 2020.
Assets | Liabilities | ||||||||||
Variation Margin Receivable on Open Futures Contracts* | Variation Margin Payable on Open Futures Contracts* | ||||||||||
Interest Rate Risk Exposure | $ | 218,199 | $ | 112,757 |
* Includes cumulative appreciation (depreciation) of futures contracts as reported on 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, 2020.
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: | $ | — | $ | (2,088,352 | ) | $ | — | $ | (281,897 | ) | |||||||||
Interest Rate Risk Exposure: | 3,527,683 | — | 269,034 | — |
All open derivative positions at period end are reflected on the Fund's Schedule of Portfolio Investments. The volume associated with derivative positions in the Fund was 13% and 4% for futures contracts and swap agreements, respectively, based on average monthly notional amounts in comparison to net assets during the year.
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 determined on the basis of coupon interest accrued using the effective interest method which adjusts, 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 recorded on the identified cost basis. Paydown gains or losses on applicable securities, if any, are recorded as components of interest income on 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
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
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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 on 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 on 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, 2020. 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 | ||||||||||||||||||
$ | 7,118,763 | $ | 7,118,763 | $ | — | $ | — | $ | — | $ | — |
* 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 on the Statement of Assets and Liabilities.
Distributions 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 (collectively, distributions to shareholders) 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.
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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 years, which includes the current fiscal tax year end). 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.
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, 2020 were as follows for the Fund:
Purchases (excluding US Government Securities) | Sales (excluding US Government Securities) | Purchases of US Government Securities | Sales of US Government Securities | ||||||||||||
$ | 194,588,409 | $ | 266,972,876 | $ | 89,499,727 | $ | 202,305,882 |
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, 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 Fund reimburses VCM and Citi for reasonable out-of-pocket expenses incurred in providing these services and certain other expenses specifically allocated to the Fund under the Fund Administration, Servicing, and Accounting Agreement. Amounts paid by the Fund to reimburse VCM for expenses incurred during the six months ended June 30, 2020, are reflected on the Statement of Operations as Sub-Administration fees.
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, 2020 |
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Trust in accordance with Rule 38a-1 under the 1940 Act. The Funds in the Victory Funds Complex, in 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 on the Statement of Operations.
Sidley Austin LLP provides legal services to the Trust.
Victory Capital Services, 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. Effective June 30, 2020, the Distributor's name was changed from Victory Capital Advisers, Inc.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2021. 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. As of June 30, 2020, 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 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. Amounts repaid to the Adviser during the six months ended June 30, 2020, if any, are reflected on the Statement of Operations as Recoupment of prior expenses waived/reimbursed by Adviser. As of June 30, 2020, the following amounts are available to be repaid to the Adviser.
Expires December 31, 2020 | Expires December 31, 2021 | Expires December 31, 2022 | Expires December 31, 2023 | Total | |||||||||||||||
$ | 362,552 | $ | 441,458 | $ | 1,148,942 | $ | 550,201 | $ | 2,503,153 |
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, 2020.
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 is 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
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
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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.
An outbreak of respiratory disease called COVID-19 was first detected in China in December 2019 and subsequently spread internationally. The transmission of COVID-19 and efforts to contain its spread have resulted in international, national and local border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and consumer activity, significant challenges in healthcare service preparation and delivery, quarantines and general concern and uncertainty. These negative impacts have caused significant volatility and declines in global financial markets, which have caused losses for Fund investors during and subsequent to period end. The impact of the COVID-19 pandemic may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession. Public health crises may exacerbate other pre-existing political, social, economic, market and financial risks. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2020, the Victory Funds Complex participated in a short-term demand note "Line of Credit" agreement with Citibank. The Line of Credit agreement with Citibank was renewed on June 29, 2020 with a termination date of June 28, 2021. Under the agreement with Citibank, the Victory Funds Complex and USAA Mutual 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 (herein, the "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. For the six months ended June 30, 2020, Citibank received an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. For the six months ended June 30, 2020, Citibank earned approximately $225 thousand in commitment fees from the combined Victory Funds Complex and USAA Mutual Funds Complex. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest (one month LIBOR plus one percent) on amounts borrowed. Effective June 29, 2020, under an amended Line of Credit agreement, Citibank will also receive an annual upfront fee of 0.10% on the $300 million committed line of credit. Each fund in the Victory Funds Complex will pay a pro-rata portion of the upfront fee. Interest charged to each Fund during the period, if applicable, 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, 2020.
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 Interest expense on interfund
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
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lending. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Interfund lending income.
The Fund did not utilize the Facility during the six months ended June 30, 2020.
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, 2020.
At December 31, 2019, the Fund had long-term capital loss carryforwards of $5,435,442 that are not subject to expiration.
During the year ended December 31, 2019, the Fund utilized $7,852,573 of capital loss carryforwards.
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, 2020, the shareholder listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund. Shareholders of record may hold Fund shares for the benefit of their customers.
Shareholder | Percent | ||||||
GIAC* | 99.9 | %* |
* The Guardian Insurance & Annuity Company, Inc. ("GIAC") is a wholly owned subsidiary of The Guardian Life Insurance Company of America. The amount represents indirect interests of variable annuity contract holders or variable life policyholders.
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Victory Variable Insurance Funds | Supplemental Information June 30, 2020 |
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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 quarter of each fiscal year on Form N-PORT. Forms N-PORT are available on the SEC's web site 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, 2020 through June 30, 2020.
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 1/1/20 | Actual Ending Account Value 6/30/20 | Hypothetical Ending Account Value 6/30/20 | Actual Expenses Paid During Period 1/1/20-6/30/20* | Hypothetical Expenses Paid During Period 1/1/20-6/30/20* | Annualized Expense Ratio During Period 1/1/20-6/30/20 | ||||||||||||||||||
$ | 1,000.00 | $ | 1,053.60 | $ | 1,022.08 | $ | 2.86 | $ | 2.82 | 0.56 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
29
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2020 |
(Unaudited)
Liquidity Risk Management Program
The Victory Funds have adopted and implemented a written liquidity risk management program (the "LRMP") as required by Rule 22e-4 under the Act. The LRMP is reasonably designed to assess and manage each Fund's liquidity risk, taking into consideration each Fund's investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed market conditions; its short and long-term cash flow projections; and its cash holdings and access to other liquidity management tools such as available funding sources including the Victory Funds Complex Interfund Lending Facility and Line of Credit (discussed in the Notes to Financial Statements). The Board approved the appointment of VCM as the administrator of the LRMP. At an in-person meeting held on February 20, 2020, VCM provided an oral and written report to the Trustees on the operation and effectiveness of the LRMP during the previous year.
VCM manages liquidity risks associated with the Funds' investments by monitoring, among other things, cash and cash equivalents, any use of derivatives, the concentration of investments, the appropriateness of each Fund's investment strategy, and by classifying every fund investment as either highly liquid, moderately liquid, less liquid or illiquid on at least a monthly basis. To assist with the classification of Fund investments, VCM has retained a third-party provider of liquidity evaluation services. This provider determines preliminary liquidity classifications for all portfolio holdings based upon portfolio-level data and certain assumptions provided by VCM. VCM reviews the preliminary liquidity classifications and, when appropriate, considers other information including input from the Funds' portfolio managers (including the portfolio managers employed by any investment sub-advisers) in determining final liquidity classifications.
The report from VCM concluded that the Funds did not experience any significant liquidity challenges during the covered period, and the Funds' LRMP is reasonably designed to assess and manage its liquidity risk. The report also concluded that the LRMP continues to operate adequately and effectively to enable VCM to oversee and manage liquidity risk and ensure each Fund is able to meet redemption requests without significant dilution to the remaining investors' interest in each Fund. During the review period, each Fund's portfolio consisted primarily of highly liquid investments, which are defined as cash and any investments reasonably expected to be converted to cash in current market conditions in three business days or less without significantly changing the market value of the investment. Therefore, the Fund has not adopted a Highly Liquid Investment Minimum. The Funds' investments were below the limitation on illiquid investments during the review period. Additionally, VCM indicated that no events occurred that would require the filing of Form N-LIQUID and recommended no material changes to the LRMP.
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 (6/20)
June 30, 2020
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 Objectives & 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 | |||||||
Proxy Voting and Portfolio Holdings Information | 22 | ||||||
Expense Examples | 22 | ||||||
Liquidity Risk Management Program | 23 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Services, 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, 2020 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: Victory High Yield VIP Series seeks to provide current income.
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, 2020 |
(Unaudited)
Security Description | Shares or Principal Amount | Value | |||||||||
Common Stocks (1.0%) | |||||||||||
Communication Services (0.8%): | |||||||||||
AMC Networks, Inc., Class A (a) (b) | 3,000 | $ | 70,170 | ||||||||
Cinemark Holdings, Inc. | 2,500 | 28,875 | |||||||||
Nexstar Media Group, Inc., Class A | 1,250 | 104,613 | |||||||||
203,658 | |||||||||||
Health Care (0.2%): | |||||||||||
Surgery Partners, Inc. (a) | 5,000 | 57,850 | |||||||||
Total Common Stocks (Cost $457,021) | 261,508 | ||||||||||
Senior Secured Loans (22.0%) | |||||||||||
Alphabet Holding Co., Inc., 2nd Lien Term Loan, 7.92% (LIBOR01M+775bps), 8/15/25, Callable 8/5/20 @ 100 (c) | $ | 500,000 | 446,665 | ||||||||
Avaya, Inc., 1st Lien Term Loan B, 4.43% (LIBOR01M+425bps), 12/15/24, Callable 8/5/20 @ 100 (c) | 313,960 | 289,001 | |||||||||
Bass Pro Group LLC, Term Loan B, 6.07% (LIBOR06M+500bps), 12/16/23, Callable 8/5/20 @ 100 (c) | 483,794 | 464,268 | |||||||||
CenturyLink, Inc., 2.42% (LIBOR01M+225bps), 3/15/27, Callable 7/31/20 @ 100 (c) | 249,373 | 234,551 | |||||||||
Clear Channel Outdoor Holdings, Inc., 4.26% (LIBOR03M+350bps), 11/25/26, Callable 8/5/20 @ 100 (c) | 248,125 | 224,305 | |||||||||
CPM Holdings, Inc., 1st Lien Term Loan, 3.92%-3.96% (LIBOR01M+375bps), 11/17/25, Callable 8/5/20 @ 100 (c) | 197,000 | 178,531 | |||||||||
Dayco Products LLC, 4.61% (LIBOR03M+425bps), 5/19/24, Callable 8/5/20 @ 100 (c) | 485,000 | 300,700 | |||||||||
Dynasty Acquisition Co., Inc., 1st Lien Term Loan, 4.95% (LIBOR03M+350bps), 4/6/26, Callable 8/5/20 @ 101 (c) | 121,547 | 103,467 | |||||||||
Dynasty Acquisition Co., Inc., 1st Lien Term Loan, 4.95% (LIBOR03M+350bps), 4/6/26, Callable 8/5/20 @ 101 (c) | 226,077 | 192,448 | |||||||||
GTT Communications, Inc., 1st Lien Term Loan B, 2.92% (LIBOR01M+275bps), 5/31/25, Callable 8/5/20 @ 100 (c) | 123,737 | 90,690 | |||||||||
Holley Purchaser, Inc., 1st Lien Term Loan, 5.76% (LIBOR03M+500bps), 10/24/25, Callable 8/5/20 @ 100 (c) | 197,000 | 160,555 | |||||||||
II-VI, Inc., 3.67% (LIBOR01M+350bps), 9/24/26 (c) | 248,125 | 240,681 | |||||||||
LifeScan Global Corp., 1st Lien Term Loan, 7.18% (LIBOR06M+600bps), 6/19/24, Callable 8/5/20 @ 100 (c) | 447,500 | 403,198 | |||||||||
Navistar, Inc., 1st Lien Term Loan B, 3.70% (LIBOR01M+350bps), 11/2/24, Callable 8/5/20 @ 100 (c) | 242,528 | 229,088 | |||||||||
Nexstar Broadcasting, Inc., 1st Lien Term Loan, 2.92% (LIBOR01M+275bps), 6/20/26 (c) | 240,156 | 227,935 | |||||||||
Packaging Coordinators Midco, Inc., 2nd Lien Term Loan, 9.83% (LIBOR06M+875bps), 7/1/24, Callable 8/5/20 @ 100 (c) | 250,000 | 242,500 | |||||||||
Radiate Holdco LLC, 3.75% (LIBOR01M+300bps), 2/1/24, Callable 8/5/20 @ 100 (c) | 239,966 | 228,567 | |||||||||
Reynolds Group Holdings, Inc., 1st Lien Term Loan B, 2.92% (LIBOR01M+275bps), 2/5/23, Callable 8/5/20 @ 100 (c) | 251,051 | 239,227 | |||||||||
SIWF Holdings, Inc., 9.57% (LIBOR06M+850bps), 5/26/26, Callable 8/5/20 @ 101 (c) | 500,000 | 417,499 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory High Yield VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Specialty Building Products Holdings LLC, 1st Lien Term Loan, 5.92% (LIBOR01M+575bps), 10/1/25, Callable 8/5/20 @ 100 (c) | $ | 493,750 | $ | 469,062 | |||||||
Spectacle Gary Holdings LLC, 11.00% (LIBOR+900bps), 10/17/25 (c) (d) (e) | 16,892 | 15,541 | |||||||||
Spectacle Gary Holdings LLC, 11.00% (LIBOR03M+900bps), 12/23/25, Callable 6/23/21 @ 109 (c) | 233,108 | 214,459 | |||||||||
Stars Group Holdings BV, 4.95% (LIBOR03M+350bps), 6/27/25, Callable 8/5/20 @ 100 (c) | 246,402 | 244,667 | |||||||||
Tenneco, Inc., 1st Lien Term Loan B, 3.17% (LIBOR01M+300bps), 6/18/25, Callable 8/5/20 @ 100 (c) | 197,000 | 169,749 | |||||||||
Total Senior Secured Loans (Cost $6,636,546) | 6,027,354 | ||||||||||
Corporate Bonds (72.8%) | |||||||||||
Communication Services (6.0%): | |||||||||||
AMC Networks, Inc., 4.75%, 8/1/25, Callable 8/1/21 @ 102.38 | 400,000 | 393,983 | |||||||||
Consolidated Communications, Inc., 6.50%, 10/1/22, Callable 8/6/20 @ 101.63 (b) (f) | 250,000 | 230,260 | |||||||||
Cumulus Media New Holdings, Inc., 6.75%, 7/1/26, Callable 7/1/22 @ 103.38 (g) | 500,000 | 461,464 | |||||||||
Lamar Media Corp. 3.75%, 2/15/28, Callable 2/15/23 @ 101.88 (g) | 150,000 | 142,127 | |||||||||
4.00%, 2/15/30, Callable 2/15/25 @ 102 (g) | 150,000 | 143,999 | |||||||||
Sinclair Television Group, Inc., 5.50%, 3/1/30, Callable 12/1/24 @ 102.75 (b) (g) | 250,000 | 230,833 | |||||||||
TEGNA, Inc., 4.63%, 3/15/28, Callable 3/15/23 @ 102.31 (g) | 50,000 | 45,914 | |||||||||
1,648,580 | |||||||||||
Consumer Discretionary (18.9%): | |||||||||||
1011778 BC ULC/New Red Finance, Inc., 4.38%, 1/15/28, Callable 11/15/22 @ 102.19 (g) | 220,000 | 215,622 | |||||||||
Beazer Homes USA, Inc., 5.88%, 10/15/27, Callable 10/15/22 @ 102.94 | 400,000 | 382,064 | |||||||||
Boyd Gaming Corp. 8.63%, 6/1/25, Callable 6/1/22 @ 104.31 (g) | 300,000 | 313,635 | |||||||||
6.38%, 4/1/26, Callable 4/1/21 @ 103.19 | 392,000 | 372,537 | |||||||||
Caesars Resort Collection LLC/CRC Finco, Inc., 5.25%, 10/15/25, Callable 10/15/20 @ 102.63 (g) | 250,000 | 217,553 | |||||||||
Diamond Sports Group LLC/Diamond Sports Finance Co., 6.63%, 8/15/27, Callable 8/15/22 @ 103.31 (f) (g) | 200,000 | 107,046 | |||||||||
Eldorado Resorts, Inc., 6.00%, 9/15/26 | 400,000 | 442,112 | |||||||||
Ford Motor Co., 9.00%, 4/22/25, Callable 3/22/25 @ 100 (f) | 250,000 | 270,265 | |||||||||
Golden Nugget, Inc., 8.75%, 10/1/25, Callable 10/1/20 @ 104.38 (f) (g) | 500,000 | 294,090 | |||||||||
Hanesbrands, Inc., 5.38%, 5/15/25, Callable 5/15/22 @ 102.69 (g) | 250,000 | 252,985 | |||||||||
Installed Building Products, Inc., 5.75%, 2/1/28, Callable 2/1/23 @ 102.88 (g) | 200,000 | 201,812 | |||||||||
Mattel, Inc., 5.45%, 11/1/41, Callable 5/1/41 @ 100 | 250,000 | 207,168 | |||||||||
MGM Resorts International, 5.50%, 4/15/27, Callable 1/15/27 @ 100 (b) | 250,000 | 241,625 | |||||||||
Panther BF Aggregator 2 LP/Panther Finance Co., Inc., 8.50%, 5/15/27, Callable 5/15/22 @ 104.25 (g) | 250,000 | 251,580 | |||||||||
Scientific Games International, Inc., 8.25%, 3/15/26, Callable 3/15/22 @ 104.13 (g) | 300,000 | 268,983 | |||||||||
The Enterprise Development Authority, 12.00%, 7/15/24, Callable 7/15/21 @ 109 (f) (g) | 500,000 | 503,425 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory High Yield VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
The William Carter Co., 5.50%, 5/15/25, Callable 5/15/22 @ 102.75 (g) | $ | 100,000 | $ | 103,028 | |||||||
Yum! Brands, Inc., 5.35%, 11/1/43, Callable 5/1/43 @ 100 | 550,000 | 546,501 | |||||||||
5,192,031 | |||||||||||
Consumer Staples (6.1%): | |||||||||||
Albertsons Cos., Inc./Safeway, Inc./New Albertsons LP/Albertsons LLC, 5.88%, 2/15/28, Callable 8/15/22 @ 104.41 (g) | 125,000 | 128,945 | |||||||||
B&G Foods, Inc., 5.25%, 4/1/25, Callable 8/6/20 @ 103.94 | 200,000 | 201,164 | |||||||||
Cott Holdings, Inc., 5.50%, 4/1/25, Callable 7/17/20 @ 104.13 (f) (g) | 250,000 | 251,738 | |||||||||
Dole Food Co., Inc., 7.25%, 6/15/25, Callable 8/6/20 @ 103.63 (g) | 500,000 | 480,855 | |||||||||
Post Holdings, Inc., 5.00%, 8/15/26, Callable 8/15/21 @ 102.5 (g) | 250,000 | 251,185 | |||||||||
Simmons Foods, Inc., 7.75%, 1/15/24, Callable 1/15/21 @ 103.88 (g) | 330,000 | 344,018 | |||||||||
1,657,905 | |||||||||||
Energy (0.5%): | |||||||||||
EQT Corp., 7.00%, 2/1/30, Callable 11/1/29 @ 100 | 130,000 | 133,848 | |||||||||
Financials (10.0%): | |||||||||||
Acrisure LLC/Acrisure Finance, Inc., 8.13%, 2/15/24, Callable 2/15/21 @ 104.06 (g) | 225,000 | 233,856 | |||||||||
BCPE Cycle Merger Sub II, Inc., 10.63%, 7/15/27, Callable 7/15/22 @ 105.31 (g) | 300,000 | 308,949 | |||||||||
Capitol Investment Merger Sub 2 LLC, 10.00%, 8/1/24, Callable 8/1/21 @ 105 (g) | 250,000 | 249,450 | |||||||||
Compass Group Diversified Holdings LLC, 8.00%, 5/1/26, Callable 5/1/21 @ 104 (f) (g) | 500,000 | 510,010 | |||||||||
Downstream Development Authority of the Quapaw Tribe of Oklahoma, 10.50%, 2/15/23, Callable 8/6/20 @ 107.25 (g) | 500,000 | 419,285 | |||||||||
Gray Television, Inc., 7.00%, 5/15/27, Callable 5/15/22 @ 105.25 (g) | 120,000 | 123,797 | |||||||||
Intelsat Jackson Holdings SA, 8.50%, 10/15/24, Callable 10/15/20 @ 106.38 (g) (h) | 250,000 | 150,473 | |||||||||
LABL Escrow Issuer LLC, 10.50%, 7/15/27, Callable 7/15/22 @ 105.25 (f) (g) | 250,000 | 265,988 | |||||||||
Resideo Funding, Inc., 6.13%, 11/1/26, Callable 11/1/21 @ 104.59 (g) | 300,000 | 293,025 | |||||||||
Wolverine Escrow LLC, 13.13%, 11/15/27, Callable 11/15/22 @ 109.84 (b) (g) | 250,000 | 164,603 | |||||||||
2,719,436 | |||||||||||
Health Care (8.4%): | |||||||||||
Air Medical Group Holdings, Inc., 6.38%, 5/15/23, Callable 8/6/20 @ 100 (g) | 500,000 | 471,934 | |||||||||
Endo Dac/Endo Finance LLC/Endo Finco, Inc., 6.00%, 6/30/28, Callable 6/30/23 @ 104.5 (g) | 190,000 | 122,550 | |||||||||
Ortho-Clinical Diagnostics, Inc./Ortho-Clinical Diagnostics SA, 7.25%, 2/1/28, Callable 2/1/23 @ 103.63 (g) | 250,000 | 253,845 | |||||||||
Radiology Partners, Inc., 9.25%, 2/1/28, Callable 2/1/23 @ 104.63 (f) (g) | 300,000 | 282,645 | |||||||||
Regional Care Hospital Partners Holdings, Inc./LifePoint Health, Inc., 9.75%, 12/1/26, Callable 12/1/21 @ 104.88 (g) | 300,000 | 309,462 | |||||||||
Surgery Center Holdings, Inc., 10.00%, 4/15/27, Callable 4/15/22 @ 105 (b) (g) | 250,000 | 252,700 | |||||||||
Tenet Healthcare Corp., 6.75%, 6/15/23 | 200,000 | 198,458 | |||||||||
Verscend Escrow Corp., 9.75%, 8/15/26, Callable 8/15/21 @ 104.88 (g) | 400,000 | 430,960 | |||||||||
2,322,554 | |||||||||||
Industrials (14.3%): | |||||||||||
Ahern Rentals, Inc., 7.38%, 5/15/23, Callable 8/6/20 @ 101.84 (g) | 500,000 | 226,590 | |||||||||
Algeco Global Finance 2 PLC, 10.00%, 8/15/23, Callable 7/17/20 @ 105 (b) (f) (g) | 300,000 | 251,712 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory High Yield VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares or Principal Amount | Value | |||||||||
Apex Tool Group LLC/BC Mountain Finance, Inc., 9.00%, 2/15/23, Callable 8/6/20 @ 101 (b) (g) | $ | 250,000 | $ | 174,945 | |||||||
Aramark Services, Inc., 6.38%, 5/1/25, Callable 5/1/22 @ 103.19 (g) | 250,000 | 258,135 | |||||||||
Beacon Escrow Corp., 4.88%, 11/1/25, Callable 11/1/20 @ 102.44 (b) (g) | 470,000 | 420,386 | |||||||||
Bombardier, Inc., 7.88%, 4/15/27, Callable 4/15/22 @ 103.94 (g) | 400,000 | 260,727 | |||||||||
Cargo Aircraft Management, Inc., 4.75%, 2/1/28, Callable 2/1/23 @ 102.38 (g) | 200,000 | 198,618 | |||||||||
Hillenbrand, Inc., 5.75%, 6/15/25, Callable 6/15/22 @ 102.88 | 100,000 | 103,495 | |||||||||
Howmet Aerospace, Inc., 6.88%, 5/1/25, Callable 4/1/25 @ 100 (f) | 250,000 | 271,265 | |||||||||
Mileage Plus Holdings LLC/Mileage Plus Intellectual Property Assets Ltd., 6.50%, 6/20/27, Callable 6/30/23 @ 103.25 (d) (g) | 250,000 | 249,455 | |||||||||
Pisces Midco, Inc., 8.00%, 4/15/26, Callable 4/15/21 @ 104 (b) (g) | 250,000 | 252,395 | |||||||||
SRS Distribution, Inc., 8.25%, 7/1/26, Callable 7/1/21 @ 104.13 (b) (f) (g) | 250,000 | 252,393 | |||||||||
TransDigm, Inc., 6.50%, 7/15/24, Callable 8/6/20 @ 101.63 | 400,000 | 382,300 | |||||||||
Triumph Group, Inc., 6.25%, 9/15/24, Callable 9/15/20 @ 103.13 (g) | 150,000 | 127,500 | |||||||||
WESCO Distribution, Inc., 7.25%, 6/15/28, Callable 6/15/23 @ 103.63 (g) | 250,000 | 264,968 | |||||||||
XPO Logistics, Inc., 6.25%, 5/1/25, Callable 5/1/22 @ 103.13 (g) | 250,000 | 261,790 | |||||||||
3,956,674 | |||||||||||
Information Technology (0.9%): | |||||||||||
Colt Merger Sub, Inc., 8.13%, 7/1/27, Callable 7/1/23 @ 104.06 (d) (g) | 250,000 | 241,648 | |||||||||
Materials (7.0%): | |||||||||||
Ardagh Packaging Finance PLC/Ardagh Holdings USA, Inc., 5.25%, 8/15/27, Callable 8/15/22 @ 102.63 (g) | 250,000 | 245,320 | |||||||||
Greif, Inc., 6.50%, 3/1/27, Callable 3/1/22 @ 103.25 (g) | 400,000 | 407,944 | |||||||||
Intertape Polymer Group, Inc., 7.00%, 10/15/26, Callable 10/15/21 @ 103.5 (g) | 670,000 | 688,471 | |||||||||
Plastipak Holdings, Inc., 6.25%, 10/15/25, Callable 10/15/20 @ 103.13 (g) | 330,000 | 320,559 | |||||||||
Titan Acquisition Ltd./Titan Co-Borrower LLC, 7.75%, 4/15/26, Callable 4/15/21 @ 103.88 (f) (g) | 250,000 | 236,738 | |||||||||
1,899,032 | |||||||||||
Real Estate (0.7%): | |||||||||||
Adams Homes, Inc., 7.50%, 2/15/25, Callable 2/15/22 @ 103.75 (g) | 200,000 | 196,152 | |||||||||
Total Corporate Bonds (Cost $20,968,252) | 19,967,860 | ||||||||||
Collateral for Securities Loaned^ (8.3%) | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 0.28% (i) | 37,800 | 37,800 | |||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 0.09% (i) | 1,144,034 | 1,144,034 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 0.30% (i) | 262,858 | 262,858 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 0.43% (i) | 150,415 | 150,415 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 0.41% (i) | 676,295 | 676,295 | |||||||||
Total Collateral for Securities Loaned (Cost $2,271,402) | 2,271,402 | ||||||||||
Total Investments (Cost $30,333,221) — 104.1% | 28,528,124 | ||||||||||
Liabilities in excess of other assets — (4.1)% | (1,115,116 | ) | |||||||||
NET ASSETS — 100.00% | $ | 27,413,008 |
^ Purchased with cash collateral from securities on loan.
(a) Non-income producing security.
See notes to financial statements.
7
Victory Variable Insurance Funds Victory High Yield VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
(b) All or a portion of this security is on loan.
(c) Variable or Floating-Rate Security. Rate disclosed is as of June 30, 2020.
(d) Security purchased on a when-issued basis.
(e) 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.
(f) All or a portion of this security has been segregated as collateral for securities purchased on a when-issued basis.
(g) 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, 2020, the fair value of these securities was $15,590,815 and amounted to 56.9% of net assets.
(h) Defaulted security.
(i) Rate disclosed is the daily yield on June 30, 2020.
bps — Basis points
LIBOR — London InterBank Offered Rate
LIBOR01M — 1 Month US Dollar LIBOR, rate disclosed as of June 30, 2020, based on the last reset date of the security
LIBOR03M — 3 Month US Dollar LIBOR, rate disclosed as of June 30, 2020, based on the last reset date of the security
LIBOR06M — 6 Month US Dollar LIBOR, rate disclosed as of June 30, 2020, based on the last reset date of the security
LLC — Limited Liability Company
LP — Limited Partnership
PLC — Public Limited Company
ULC — Unlimited Liability Company
See notes to financial statements.
8
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2020 |
(Unaudited)
Victory High Yield VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $30,333,221) | $ | 28,528,124 | (a) | ||||
Cash and cash equivalents | 573,881 | ||||||
Receivables: | |||||||
Interest and dividends | 420,752 | ||||||
Capital shares issued | 68,174 | ||||||
Investments sold | 634,118 | ||||||
From Adviser | 7,472 | ||||||
Prepaid expenses | 1,000 | ||||||
Total Assets | 30,233,521 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 2,271,402 | ||||||
Investments purchased | 513,767 | ||||||
Capital shares redeemed | 745 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 13,670 | ||||||
Administration fees | 1,360 | ||||||
Custodian fees | 2,454 | ||||||
Transfer agent fees | 3,444 | ||||||
Compliance fees | 25 | ||||||
Other accrued expenses | 13,646 | ||||||
Total Liabilities | 2,820,513 | ||||||
NET ASSETS: | |||||||
Capital | 30,035,592 | ||||||
Total distributable earnings/(loss) | (2,622,584 | ) | |||||
Net Assets | $ | 27,413,008 | |||||
Shares Outstanding (unlimited shares authorized with a par value of $0.001 per share): | 3,940,645 | ||||||
Net asset value: | $ | 6.96 |
(a) Includes $2,157,070 of securities on loan.
See notes to financial statements.
9
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2020 |
(Unaudited)
Victory High Yield VIP Series | |||||||
Investment Income: | |||||||
Dividends | $ | 2,300 | |||||
Interest | 1,001,090 | ||||||
Securities lending (net of fees) | 8,473 | ||||||
Total Income | 1,011,863 | ||||||
Expenses: | |||||||
Investment advisory fees | 83,657 | ||||||
Administration fees | 8,534 | ||||||
Sub-Administration fees | 7,462 | ||||||
Custodian fees | 6,083 | ||||||
Transfer agent fees | 19,207 | ||||||
Trustees' fees | 1,440 | ||||||
Compliance fees | 122 | ||||||
Legal and audit fees | 7,156 | ||||||
Printing fees | 7,735 | ||||||
Other expenses | 4,859 | ||||||
Total Expenses | 146,255 | ||||||
Expenses waived/reimbursed by Adviser | (22,246 | ) | |||||
Net Expenses | 124,009 | ||||||
Net Investment Income (Loss) | 887,854 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities | (34,095 | ) | |||||
Net change in unrealized appreciation/depreciation on investment securities | (2,511,523 | ) | |||||
Net realized/unrealized losses on investments | (2,545,618 | ) | |||||
Change in net assets resulting from operations | $ | (1,657,764 | ) |
See notes to financial statements.
10
Victory Variable Insurance Funds | Statements of Changes in Net Assets |
Victory High Yield VIP Series | |||||||||||
Six Months Ended June 30, 2020 (Unaudited) | Year Ended December 31, 2019 | ||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 887,854 | $ | 1,971,424 | |||||||
Net realized gains (losses) from investments | (34,095 | ) | 11,875 | ||||||||
Net change in unrealized appreciation/depreciation on investments | (2,511,523 | ) | 2,697,750 | ||||||||
Change in net assets resulting from operations | (1,657,764 | ) | 4,681,049 | ||||||||
Change in net assets resulting from distributions to shareholders | — | (2,209,102 | ) | ||||||||
Change in net assets resulting from capital transactions | (1,668,766 | ) | (2,650,644 | ) | |||||||
Change in net assets | (3,326,530 | ) | (178,697 | ) | |||||||
Net Assets: | |||||||||||
Beginning of period | 30,739,538 | 30,918,235 | |||||||||
End of period | $ | 27,413,008 | $ | 30,739,538 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 783,362 | $ | 1,334,140 | |||||||
Distributions reinvested | — | 2,209,102 | |||||||||
Cost of shares redeemed | (2,452,128 | ) | (6,193,886 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (1,668,766 | ) | $ | (2,650,644 | ) | |||||
Share Transactions: | |||||||||||
Issued | 114,750 | 176,852 | |||||||||
Reinvested | — | 300,558 | |||||||||
Redeemed | (351,626 | ) | (822,666 | ) | |||||||
Change in Shares | (236,876 | ) | (345,256 | ) |
See notes to financial statements.
11
Victory Variable Insurance Funds | Financial Highlights |
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholders 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 | Return of Capital | Total Distributions | |||||||||||||||||||||||||
Victory High Yield VIP Series | |||||||||||||||||||||||||||||||
Six Months Ended 6/30/2020 (unaudited) | $ | 7.36 | 0.22 | (0.62 | ) | (0.40 | ) | — | — | — | |||||||||||||||||||||
Year Ended 12/31/19 | $ | 6.84 | 0.47 | 0.62 | 1.09 | (0.57 | ) | — | (0.57 | ) | |||||||||||||||||||||
Year Ended 12/31/18 | $ | 6.86 | 0.45 | (0.43 | ) | 0.02 | (0.04 | ) | — | (0.04 | ) | ||||||||||||||||||||
Year Ended 12/31/17 | $ | 6.63 | 0.42 | 0.24 | 0.66 | (0.43 | ) | — | (0.43 | ) | |||||||||||||||||||||
Year Ended 12/31/16 | $ | 6.13 | 0.41 | 0.53 | 0.94 | (0.45 | ) | — | (0.45 | ) | |||||||||||||||||||||
Year Ended 12/31/15 | $ | 6.90 | 0.43 | (0.75 | ) | (0.32 | ) | (0.44 | ) | (0.01 | ) | (0.45 | ) |
* Includes adjustment in accordance with U.S. generally accepted accounting principles.
(a) Per share net investment income (loss) has been calculated using the average daily shares method.
(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) Not annualized for periods less than one year.
(d) Annualized for periods less than one year.
(e) The Fund received monies related to a nonrecurring refund from the prior Custodian. The corresponding impact to the total return was less than 0.15% for the period shown. (See Note 8)
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 Contribution from Prior Custodian, Net (see Note 8) | Net Asset Value, End of Period | Total Return(b)(c)* | Net Expenses(d) | Net Investment Income (Loss)(d) | Gross Expenses(d) | Net Assets, End of Period (000's) | Portfolio Turnover(c) | ||||||||||||||||||||||||||||
Victory High Yield VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended 6/30/2020 (unaudited) | — | $ | 6.96 | (5.43 | )% | 0.89 | % | 6.37 | % | 1.05 | % | $ | 27,413 | 42 | % | ||||||||||||||||||||
Year Ended 12/31/19 | — | $ | 7.36 | 15.89 | % | 0.89 | % | 6.22 | % | 0.99 | % | $ | 30,739 | 60 | % | ||||||||||||||||||||
Year Ended 12/31/18 | — | $ | 6.84 | 0.29 | % | 0.83 | % | 6.38 | % | 0.83 | % | $ | 30,918 | 94 | % | ||||||||||||||||||||
Year Ended 12/31/17 | — | $ | 6.86 | 9.94 | % | 0.79 | % | 6.02 | % | 0.79 | % | $ | 37,411 | 173 | % | ||||||||||||||||||||
Year Ended 12/31/16 | 0.01 | $ | 6.63 | 15.44 | %(e) | 0.87 | % | 6.31 | % | 0.87 | % | $ | 38,842 | 159 | % | ||||||||||||||||||||
Year Ended 12/31/15 | — | $ | 6.13 | (4.58 | )% | 0.89 | % | 6.15 | % | 0.89 | % | $ | 38,503 | 148 | % |
See notes to financial statements.
13
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2020 |
(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. Victory High Yield VIP Series (the "Fund"), a series of the Trust, offers a single class of shares: Class I Shares. The Fund's shares are only available for purchase by certain separate accounts of insurance companies as investments for certain variable annuity plans and variable life insurance contracts issued by those insurance companies. The accompanying financial statements are those of the Fund.
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 generally accepted accounting principles 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, 2020 |
(Unaudited)
Investments in open-end investment companies are valued at net asset value ("NAV"). 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, 2020, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed on the Schedule of Portfolio Investments.
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks | $ | 261,508 | $ | — | $ | — | $ | 261,508 | |||||||||||
Senior Secured Loans | — | 6,027,354 | — | 6,027,354 | |||||||||||||||
Corporate Bonds | — | 19,967,860 | — | 19,967,860 | |||||||||||||||
Collateral for Securities Loaned | 2,271,402 | — | — | 2,271,402 | |||||||||||||||
Total | $ | 2,532,910 | $ | 25,995,214 | $ | — | $ | 28,528,124 |
For the six months ended June 30, 2020, there were no transfers in or out of the Level 3 fair value hierarchy.
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 NAV. 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 on 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 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.
15
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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 determined on the basis of coupon interest accrued using effective interest method which adjusts, 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 recorded on the identified cost basis. Paydown gains or losses on applicable securities, if any, are recorded as components of interest income on the Statement of Operations.
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 on 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 on 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.
16
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
Securities lending income is disclosed on 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, 2020. 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 | ||||||||||||||||||
$ | 2,157,070 | $ | 2,157,070 | $ | — | $ | — | $ | — | $ | — |
* Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by each Fund is disclosed on the Statement of Assets and Liabilities.
Distributions 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 (collectively, distributions to shareholders) 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 years, which includes the current fiscal tax year end). 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, 2020 |
(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, 2020 were as follows for the Fund:
Purchases | Sales | ||||||
$ | 11,516,848 | $ | 12,413,839 |
For the six months ended June 30, 2020, 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. 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, 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 Fund reimburses VCM and Citi for reasonable out-of-pocket expenses incurred in providing these services and certain other expenses specifically allocated to the Fund under the Fund Administration, Servicing, and Accounting Agreement. Amounts paid by the Fund to reimburse VCM for expenses incurred during the six months ended June 30, 2020, are reflected on the Statement of Operations as Sub-Administration fees.
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 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 on the Statement of Operations.
Sidley Austin LLP provides legal services to the Trust.
18
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
Victory Capital Services, 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. Effective June 30, 2020, the Distributor's name was changed from Victory Capital Advisers, Inc.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2021. 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. As of June 30, 2020, 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 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. Amounts repaid to the Adviser during the six months ended June 30, 2020, if any, are reflected on the Statement of Operations as Recoupment of prior expenses waived/reimbursed by Adviser. As of June 30, 2020, the following amounts are available to be repaid to the Adviser.
Expires December 31, 2022 | Expires December 31, 2023 | Total | |||||||||
$ | 32,348 | $ | 22,245 | $ | 54,593 |
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, 2020.
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 is 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.
An outbreak of respiratory disease called COVID-19 was first detected in China in December 2019 and subsequently spread internationally. The transmission of COVID-19 and efforts to contain its spread have resulted in international, national and local border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and consumer activity,
19
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
significant challenges in healthcare service preparation and delivery, quarantines and general concern and uncertainty. These negative impacts have caused significant volatility and declines in global financial markets, which have caused losses for Fund investors during and subsequent to period end. The impact of the COVID-19 pandemic may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession. Public health crises may exacerbate other pre-existing political, social, economic, market and financial risks. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2020, the Victory Funds Complex participated in a short-term demand note "Line of Credit" agreement with Citibank. The Line of Credit agreement with Citibank was renewed on June 29, 2020 with a termination date of June 28, 2021. Under the agreement with Citibank, the Victory Funds Complex and USAA Mutual 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 (herein, the "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. For the six months ended June 30, 2020, Citibank received an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. For the six months ended June 30, 2020, Citibank earned approximately $225 thousand in commitment fees from the combined Victory Funds Complex and USAA Mutual Funds Complex. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest (one month LIBOR plus one percent) on amounts borrowed. Effective June 29, 2020, under an amended Line of Credit agreement, Citibank will also receive an annual upfront fee of 0.10% on the $300 million committed line of credit. Each fund in the Victory Funds Complex will pay a pro-rata portion of the upfront fee. Interest charged to each Fund during the period, if applicable, 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, 2020.
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 Interest expense on interfund lending. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Interfund lending income.
The Fund did not utilize the Facility during the six months ended June 30, 2020.
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, 2020.
20
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
At December 31, 2019, the Fund had short-term and long-term capital loss carryforwards of $949,620 and $2,690,456, respectively.
During the year ended December 31, 2019, the Fund utilized $11,713 of capital loss carryforwards.
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, 2020, the shareholder listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund. Shareholders of record may hold Fund shares for the benefit of their customers.
Shareholder | Percent | ||||||
GIAC* | 100.0 | %* |
* The Guardian Insurance & Annuity Company, Inc. ("GIAC") and Park Avenue are wholly owned subsidiaries of The Guardian Life Insurance Company of America. The amount represents indirect interests of variable annuity contract holders or variable life policyholders.
21
Victory Variable Insurance Funds | Supplemental Information June 30, 2020 |
(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 quarter of each fiscal year on Form N-PORT. Forms N-PORT are available on the SEC's web site 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, 2020 through June 30, 2020.
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 1/1/20 | Actual Ending Account Value 6/30/20 | Hypothetical Ending Account Value 6/30/20 | Actual Expenses Paid During Period 1/1/20-6/30/20* | Hypothetical Expenses Paid During Period 1/1/20-6/30/20* | Annualized Expense Ratio During Period 1/1/20-6/30/20 | ||||||||||||||||||
$ | 1,000.00 | $ | 945.70 | $ | 1,020.44 | $ | 4.31 | $ | 4.47 | 0.89 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
22
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2020 |
(Unaudited)
Liquidity Risk Management Program:
The Victory Funds have adopted and implemented a written liquidity risk management program (the "LRMP") as required by Rule 22e-4 under the Act. The LRMP is reasonably designed to assess and manage each Fund's liquidity risk, taking into consideration each Fund's investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed market conditions; its short and long-term cash flow projections; and its cash holdings and access to other liquidity management tools such as available funding sources including the Victory Funds Complex Interfund Lending Facility and Line of Credit (discussed in the Notes to Financial Statements). The Board approved the appointment of VCM as the administrator of the LRMP. At an in-person meeting held on February 20, 2020, VCM provided an oral and written report to the Trustees on the operation and effectiveness of the LRMP during the previous year.
VCM manages liquidity risks associated with the Funds' investments by monitoring, among other things, cash and cash equivalents, any use of derivatives, the concentration of investments, the appropriateness of each Fund's investment strategy, and by classifying every fund investment as either highly liquid, moderately liquid, less liquid or illiquid on at least a monthly basis. To assist with the classification of Fund investments, VCM has retained a third-party provider of liquidity evaluation services. This provider determines preliminary liquidity classifications for all portfolio holdings based upon portfolio-level data and certain assumptions provided by VCM. VCM reviews the preliminary liquidity classifications and, when appropriate, considers other information including input from the Funds' portfolio managers (including the portfolio managers employed by any investment sub-advisers) in determining final liquidity classifications.
The report from VCM concluded that the Funds did not experience any significant liquidity challenges during the covered period, and the Funds' LRMP is reasonably designed to assess and manage its liquidity risk. The report also concluded that the LRMP continues to operate adequately and effectively to enable VCM to oversee and manage liquidity risk and ensure each Fund is able to meet redemption requests without significant dilution to the remaining investors' interest in each Fund. During the review period, each Fund's portfolio consisted primarily of highly liquid investments, which are defined as cash and any investments reasonably expected to be converted to cash in current market conditions in three business days or less without significantly changing the market value of the investment. Therefore, the Fund has not adopted a Highly Liquid Investment Minimum. The Funds' investments were below the limitation on illiquid investments during the review period. Additionally, VCM indicated that no events occurred that would require the filing of Form N-LIQUID and recommended no material changes to the LRMP.
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-HYVIP-SAR (6/20)
June 30, 2020
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 Objectives & 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 | |||||||
Proxy Voting and Portfolio Holdings Information | 27 | ||||||
Expense Examples | 27 | ||||||
Liquidity Risk Management Program | 28 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Services, 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, 2020 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: 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, 2020 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Asset-Backed Securities (4.1%) | |||||||||||
AmeriCredit Automobile Receivables Trust, Series 2016-3, Class C, 2.24%, 4/8/22, Callable 3/8/21 @ 100 (a) | $ | 1,032,233 | $ | 1,035,567 | |||||||
AmeriCredit Automobile Receivables Trust, Series 2017-2, Class B, 2.40%, 5/18/22, Callable 1/18/22 @ 100 (a) | 982,264 | 986,039 | |||||||||
AmeriCredit Automobile Receivables Trust, Series 2018-1, Class B, 3.26%, 1/18/24, Callable 10/18/22 @ 100 (a) | 2,800,000 | 2,871,433 | |||||||||
Chrysler Capital Auto Receivables Trust, Series 2016-BA, Class B, 2.22%, 5/16/22, Callable 7/15/21 @ 100 (a) (b) | 1,700,000 | 1,707,375 | |||||||||
Santander Drive Auto Receivables Trust, Series 2016-3, Class C, 2.46%, 3/15/22, Callable 2/15/21 @ 100 (a) | 250,668 | 250,984 | |||||||||
Santander Drive Auto Receivables Trust, Series 2018-2, Class B, 3.03%, 9/15/22, Callable 5/15/22 @ 100 (a) | 215,872 | 216,056 | |||||||||
Santander Drive Auto Receivables Trust, Series 2020-1, Class A2A, 2.07%, 1/17/23, Callable 2/15/25 @ 100 (a) | 570,000 | 574,704 | |||||||||
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 | 1,590,200 | |||||||||
Total Asset-Backed Securities (Cost $9,135,248) | 9,232,358 | ||||||||||
Collateralized Mortgage Obligations (3.3%) | |||||||||||
Benefit Street Partners CLO III Ltd., Series 2013-IIIA, Class AIR, 2.39% (LIBOR03M+125bps), 7/20/29, Callable 7/20/20 @ 100 (a) (b) (c) | 1,500,000 | 1,482,279 | |||||||||
Galaxy CLO Ltd., Series 2017-24A, Class A, 2.34% (LIBOR03M+112bps), 1/15/31, Callable 7/15/20 @ 100 (a) (b) (c) | 1,000,000 | 973,765 | |||||||||
GS Mortgage Securities Trust, Series 2012-GC6, Class B, 5.84%, 1/10/45 (a) (b) (d) | 2,000,000 | 2,003,133 | |||||||||
Steele Creek CLO Ltd., Series 2017-1A, Class A, 2.47% (LIBOR03M+125bps), 1/15/30, Callable 7/15/20 @ 100 (a) (b) (c) | 2,175,000 | 2,101,330 | |||||||||
Voya CLO Ltd., Series 2017-4A, Class A1, 2.35% (LIBOR03M+113bps), 10/15/30, Callable 7/15/20 @ 100 (a) (b) (c) | 1,000,000 | 980,965 | |||||||||
Total Collateralized Mortgage Obligations (Cost $7,793,716) | 7,541,472 | ||||||||||
Corporate Bonds (52.6%) | |||||||||||
Communication Services (4.3%): | |||||||||||
Activision Blizzard, Inc., 2.60%, 6/15/22, Callable 5/15/22 @ 100 (a) | 420,000 | 435,784 | |||||||||
AT&T, Inc. 3.20%, 3/1/22 (a) | 468,000 | 488,246 | |||||||||
4.25%, 3/1/27, Callable 12/1/26 @ 100 (a) | 471,000 | 538,631 | |||||||||
Comcast Corp., 3.10%, 4/1/25, Callable 3/1/25 @ 100 (a) | 1,182,000 | 1,300,070 | |||||||||
Electronic Arts, Inc., 3.70%, 3/1/21, Callable 2/1/21 @ 100 (a) | 2,255,000 | 2,296,311 | |||||||||
Sirius XM Radio, Inc., 4.63%, 7/15/24, Callable 7/15/21 @ 102.31 (a) (b) | 879,000 | 900,878 | |||||||||
Verizon Communications, Inc. 5.15%, 9/15/23 (a) | 1,835,000 | 2,093,093 | |||||||||
3.38%, 2/15/25 (a) | 325,000 | 361,689 | |||||||||
1.49% (LIBOR03M+110bps), 5/15/25, Callable 3/15/25 @ 100 (a) (c) | 719,000 | 727,628 | |||||||||
Vodafone Group PLC, 2.95%, 2/19/23 (a) (e) | 619,000 | 652,624 | |||||||||
9,794,954 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory INCORE Low Duration Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Consumer Discretionary (6.2%): | |||||||||||
Best Buy Co., Inc. 5.50%, 3/15/21, Callable 12/15/20 @ 100 (a) (e) | $ | 2,115,000 | $ | 2,161,065 | |||||||
4.45%, 10/1/28, Callable 7/1/28 @ 100 (a) | 375,000 | 434,546 | |||||||||
BorgWarner, Inc., 4.63%, 9/15/20 (a) | 859,000 | 863,879 | |||||||||
D.R. Horton, Inc., 4.75%, 2/15/23, Callable 11/15/22 @ 100 (a) | 3,006,000 | 3,246,269 | |||||||||
General Motors Co., 4.88%, 10/2/23 (a) | 1,191,000 | 1,264,723 | |||||||||
Hasbro, Inc., 3.15%, 5/15/21, Callable 3/15/21 @ 100 (a) | 2,622,000 | 2,657,187 | |||||||||
LGI Homes, Inc., 6.88%, 7/15/26, Callable 7/15/21 @ 103.44 (a) (b) (e) | 256,000 | 263,529 | |||||||||
NVR, Inc., 3.95%, 9/15/22, Callable 6/15/22 @ 100 (a) | 2,985,000 | 3,167,294 | |||||||||
14,058,492 | |||||||||||
Consumer Staples (7.3%): | |||||||||||
Altria Group, Inc., 4.40%, 2/14/26, Callable 12/14/25 @ 100 (a) | 568,000 | 653,103 | |||||||||
BAT Capital Corp., 4.70%, 4/2/27, Callable 2/2/27 @ 100 (a) | 1,450,000 | 1,662,918 | |||||||||
Church & Dwight Co., Inc., 2.45%, 8/1/22, Callable 7/1/22 @ 100 (a) | 795,000 | 820,559 | |||||||||
Constellation Brands, Inc. 1.09% (LIBOR03M+70bps), 11/15/21, Callable 8/6/20 @ 100 (a) (c) | 2,500,000 | 2,495,025 | |||||||||
4.25%, 5/1/23 (a) | 954,000 | 1,044,783 | |||||||||
4.65%, 11/15/28, Callable 8/15/28 @ 100 (a) | 343,000 | 405,056 | |||||||||
Heineken NV, 3.40%, 4/1/22 (b) | 1,420,000 | 1,481,926 | |||||||||
Ingredion, Inc., 4.63%, 11/1/20 (a) (e) | 900,000 | 909,675 | |||||||||
Kerry Group Financial Services Unlimited Co., 3.20%, 4/9/23, Callable 1/9/23 @ 100 (a) (b) | 2,202,000 | 2,301,068 | |||||||||
Keurig Dr Pepper, Inc., 4.06%, 5/25/23, Callable 4/25/23 @ 100 (a) | 1,270,000 | 1,383,309 | |||||||||
Pernod Ricard SA, 4.25%, 7/15/22 (a) (b) | 767,000 | 818,320 | |||||||||
Suntory Holdings Ltd., 2.55%, 6/28/22, Callable 5/28/22 @ 100 (a) (b) | 2,080,000 | 2,140,944 | |||||||||
Tyson Foods, Inc., 3.90%, 9/28/23, Callable 8/28/23 @ 100 (a) | 400,000 | 436,312 | |||||||||
16,552,998 | |||||||||||
Energy (3.6%): | |||||||||||
Continental Resources, Inc., 4.50%, 4/15/23, Callable 1/15/23 @ 100 (a) (e) | 732,000 | 700,648 | |||||||||
Ecopetrol SA, 5.88%, 9/18/23 (a) | 454,000 | 487,551 | |||||||||
EQM Midstream Partners LP, 4.75%, 7/15/23, Callable 6/15/23 @ 100 (a) | 918,000 | 924,995 | |||||||||
LUKOIL International Finance BV, 6.13%, 11/9/20 (a) (b) | 2,815,000 | 2,865,671 | |||||||||
Marathon Petroleum Corp., 3.40%, 12/15/20, Callable 11/15/20 @ 100 (a) | 1,040,000 | 1,049,735 | |||||||||
Plains All American Pipeline LP/PAA Finance Corp., 2.85%, 1/31/23, Callable 10/31/22 @ 100 (a) | 925,000 | 935,138 | |||||||||
Valero Energy Corp. 2.70%, 4/15/23 (a) | 1,001,000 | 1,038,838 | |||||||||
4.00%, 4/1/29, Callable 1/1/29 @ 100 (a) | 350,000 | 390,313 | |||||||||
8,392,889 | |||||||||||
Financials (10.2%): | |||||||||||
Bank of America Corp. 2.33% (LIBOR03M+63bps), 10/1/21, Callable 10/1/20 @ 100 (a) (c) | 754,000 | 757,024 | |||||||||
4.20%, 8/26/24, MTN (a) | 421,000 | 467,066 | |||||||||
Capital One Financial Corp. 3.45%, 4/30/21, Callable 3/30/21 @ 100 (a) | 3,500,000 | 3,574,060 | |||||||||
3.30%, 10/30/24, Callable 9/30/24 @ 100 (a) | 627,000 | 674,476 | |||||||||
Citigroup, Inc. 1.39% (LIBOR03M+107bps), 12/8/21, Callable 11/8/21 @ 100 (a) (c) | 1,500,000 | 1,506,045 | |||||||||
4.45%, 9/29/27 (a) | 371,000 | 421,998 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory INCORE Low Duration Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Dana Financing Luxembourg Sarl, 5.75%, 4/15/25, Callable 8/6/20 @ 104.31 (a) (b) | $ | 808,000 | $ | 820,289 | |||||||
Enel Finance International NV, 2.88%, 5/25/22 (a) (b) | 1,525,000 | 1,576,484 | |||||||||
Fifth Third Bancorp 1.63%, 5/5/23, Callable 4/5/23 @ 100 | 1,880,000 | 1,925,214 | |||||||||
3.65%, 1/25/24, Callable 12/25/23 @ 100 (a) | 731,000 | 796,775 | |||||||||
Ford Motor Credit Co. LLC, 3.10%, 5/4/23 (a) | 1,500,000 | 1,420,950 | |||||||||
Level 3 Financing, Inc. 5.13%, 5/1/23, Callable 8/6/20 @ 100 (a) | 750,000 | 750,068 | |||||||||
5.38%, 1/15/24, Callable 8/6/20 @ 101.34 (a) | 325,000 | 327,623 | |||||||||
Morgan Stanley, 4.88%, 11/1/22 (a) | 918,000 | 998,206 | |||||||||
Newcrest Finance Pty Ltd., 4.20%, 10/1/22 (a) (b) | 1,756,000 | 1,851,210 | |||||||||
The Goldman Sachs Group, Inc. 1.56% (LIBOR03M+117bps), 11/15/21, Callable 11/15/20 @ 100 (a) (c) | 1,500,000 | 1,504,440 | |||||||||
2.64% (LIBOR03M+175bps), 10/28/27, Callable 10/28/26 @ 100 (a) (c) | 1,500,000 | 1,518,285 | |||||||||
Zions Bancorp NA 3.50%, 8/27/21 (a) | 1,465,000 | 1,499,794 | |||||||||
3.35%, 3/4/22, Callable 2/4/22 @ 100 (a) | 910,000 | 937,892 | |||||||||
23,327,899 | |||||||||||
Health Care (3.2%): | |||||||||||
AbbVie, Inc., 2.30%, 5/14/21, Callable 4/14/21 @ 100 (a) | 1,094,000 | 1,109,338 | |||||||||
Biogen, Inc., 3.63%, 9/15/22 | 925,000 | 982,655 | |||||||||
Bristol-Myers Squibb Co., 2.88%, 2/19/21 (a) (b) | 3,020,000 | 3,067,474 | |||||||||
Humana, Inc. 3.15%, 12/1/22, Callable 9/1/22 @ 100 (a) | 921,000 | 968,818 | |||||||||
2.90%, 12/15/22, Callable 11/15/22 @ 100 (a) | 515,000 | 538,376 | |||||||||
Upjohn, Inc., 1.13%, 6/22/22 (b) | 475,000 | 477,856 | |||||||||
7,144,517 | |||||||||||
Industrials (2.8%): | |||||||||||
AerCap Ireland Capital DAC/AerCap Global Aviation Trust, 4.63%, 10/30/20 (a) | 2,015,000 | 2,023,765 | |||||||||
Delta Air Lines, Inc., 3.80%, 4/19/23, Callable 3/19/23 @ 100 (a) | 1,025,000 | 911,553 | |||||||||
EnPro Industries, Inc., 5.75%, 10/15/26, Callable 10/15/21 @ 104.31 (a) | 1,000,000 | 999,950 | |||||||||
Fortive Corp., 3.15%, 6/15/26, Callable 3/15/26 @ 100 (a) (e) | 176,000 | 193,098 | |||||||||
Roper Technologies, Inc., 2.95%, 9/15/29, Callable 6/15/29 @ 100 (a) | 358,000 | 390,012 | |||||||||
Sensata Technologies BV, 5.63%, 11/1/24 (a) (b) | 785,000 | 835,279 | |||||||||
Waste Management, Inc., 2.40%, 5/15/23, Callable 3/15/23 @ 100 (a) | 782,000 | 814,930 | |||||||||
6,168,587 | |||||||||||
Information Technology (4.6%): | |||||||||||
Broadcom Corp., 3.00%, 1/15/22, Callable 12/15/21 @ 100 (a) (e) | 861,000 | 883,584 | |||||||||
FLIR Systems, Inc., 3.13%, 6/15/21, Callable 5/15/21 @ 100 (a) | 2,050,000 | 2,082,698 | |||||||||
Lam Research Corp., 4.00%, 3/15/29, Callable 12/15/28 @ 100 (a) | 459,000 | 544,911 | |||||||||
Lam Research Group, 2.80%, 6/15/21, Callable 5/15/21 @ 100 (a) | 2,928,000 | 2,992,621 | |||||||||
Marvell Technology Group Ltd., 4.20%, 6/22/23, Callable 5/22/23 @ 100 | 842,000 | 906,354 | |||||||||
NetApp, Inc., 3.38%, 6/15/21 (a) | 1,310,000 | 1,338,532 | |||||||||
PayPal Holdings, Inc., 2.20%, 9/26/22 (a) | 1,710,000 | 1,769,611 | |||||||||
10,518,311 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory INCORE Low Duration Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Principal Amount | Value | |||||||||
Materials (3.6%): | |||||||||||
Anglo American Capital PLC, 4.13%, 4/15/21 (a) (b) | $ | 3,275,000 | $ | 3,338,633 | |||||||
Celanese US Holdings LLC, 4.63%, 11/15/22 (a) | 780,000 | 828,649 | |||||||||
Louisiana — Pacific Corp., 4.88%, 9/15/24, Callable 8/6/20 @ 103.66 (a) | 500,000 | 505,955 | |||||||||
LYB International Finance II BV, 3.50%, 3/2/27, Callable 12/2/26 @ 100 (a) (e) | 502,000 | 547,215 | |||||||||
Lyondellbasell Industries NV, 6.00%, 11/15/21, Callable 8/17/21 @ 100 (a) | 800,000 | 845,384 | |||||||||
Nucor Corp., 4.13%, 9/15/22, Callable 6/15/22 @ 100 (a) | 1,527,000 | 1,626,759 | |||||||||
Steel Dynamics, Inc., 5.25%, 4/15/23 (a) | 495,000 | 499,331 | |||||||||
8,191,926 | |||||||||||
Real Estate (4.1%): | |||||||||||
American Tower Corp., 3.00%, 6/15/23 (a) | 1,000,000 | 1,067,150 | |||||||||
CubeSmart LP, 4.80%, 7/15/22, Callable 4/15/22 @ 100 (a) | 2,731,000 | 2,893,604 | |||||||||
Duke Realty LP, 3.63%, 4/15/23, Callable 1/15/23 @ 100 (a) | 1,229,000 | 1,305,542 | |||||||||
Highwoods Realty LP, 3.20%, 6/15/21, Callable 4/15/21 @ 100 (a) | 2,200,000 | 2,235,178 | |||||||||
Piedmont Operating Partnership LP, 3.40%, 6/1/23, Callable 3/1/23 @ 100 (a) | 1,680,000 | 1,712,374 | |||||||||
Weingarten Realty Investors, 3.38%, 10/15/22, Callable 7/15/22 @ 100 (a) | 300,000 | 307,059 | |||||||||
9,520,907 | |||||||||||
Utilities (2.7%): | |||||||||||
Eversource Energy, 2.50%, 3/15/21, Callable 2/15/21 @ 100 (a) | 1,950,000 | 1,974,024 | |||||||||
Exelon Corp. 3.50%, 6/1/22, Callable 5/1/22 @ 100 (a) (f) | 2,117,000 | 2,213,472 | |||||||||
3.95%, 6/15/25, Callable 3/15/25 @ 100 (a) | 541,000 | 608,230 | |||||||||
NextEra Energy Capital Holdings, Inc., 2.80%, 1/15/23, Callable 12/15/22 @ 100 (a) | 1,345,000 | 1,412,801 | |||||||||
6,208,527 | |||||||||||
Total Corporate Bonds (Cost $116,134,119) | 119,880,007 | ||||||||||
Residential Mortgage-Backed Securities (3.5%) | |||||||||||
Bear Stearns Alt-A Trust, Series 2003-3, Class 2A, 4.09%, 10/25/33, Callable 7/25/20 @ 100 (a) (d) | 388,467 | 382,196 | |||||||||
Bear Stearns Alt-A Trust, Series 2004-6, Class 1A, 0.82% (LIBOR01M+64bps), 7/25/34, Callable 7/25/20 @ 100 (a) (c) | 39,058 | 38,789 | |||||||||
Credit Suisse First Boston Mortgage Securities Corp., Series 2003-23, Class 2A8, 4.50%, 12/31/49 (a) | 2,366 | 2,416 | |||||||||
Credit Suisse First Boston Mortgage Securities Corp., Series 2004-AR7, Class 4A1, 3.48%, 11/25/34, Callable 7/25/20 @ 100 (a) (d) | 285,970 | 277,523 | |||||||||
JPMorgan Mortgage Trust, Series 2004-S2, Class 1A3, 4.75%, 12/31/20, Callable 7/25/20 @ 100 (a) | 1,906 | 1,440 | |||||||||
JPMorgan Mortgage Trust, Series 2016-4, Class A5, 3.50%, 10/25/46, Callable 9/25/23 @ 100 (a) (b) (d) | 389,819 | 395,998 | |||||||||
JPMorgan Mortgage Trust, Series 2004-S1, Class 1A7, 5.00%, 9/25/34, Callable 7/25/20 @ 100 (a) | 1,564 | 1,404 | |||||||||
JPMorgan Mortgage Trust, Series 2016-3, Class 1A3, 3.50%, 10/25/46, Callable 9/25/24 @ 100 (a) (b) (d) | 838,693 | 846,766 | |||||||||
JPMorgan Mortgage Trust, Series 2014-5, Class A11, 2.96%, 10/25/29, Callable 8/25/23 @ 100 (a) (b) (d) | 1,461,379 | 1,482,021 |
See notes to financial statements.
7
Victory Variable Insurance Funds Victory INCORE Low Duration Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares or Principal Amount | Value | |||||||||
JPMorgan Mortgage Trust, Series 2017-1, Class A5, 3.50%, 1/25/47, Callable 5/25/25 @ 100 (a) (b) (d) | $ | 511,893 | $ | 519,996 | |||||||
JPMorgan Mortgage Trust, Series 2017-3, Class 2A2, 2.50%, 8/25/47, Callable 10/25/26 @ 100 (a) (b) (d) | 1,773,735 | 1,794,166 | |||||||||
Madison Park Funding Ltd., Series 2007-4A, Class AR, 2.04% (LIBOR03M+120bps), 7/29/30, Callable 7/29/20 @ 100 (a) (b) (c) | 1,750,000 | 1,711,500 | |||||||||
Residential Asset Securities Corp., Series 2005-KS1, Class M1, 0.86% (LIBOR01M+68bps), 2/25/35, Callable 7/25/20 @ 100 (a) (c) | 407,145 | 400,553 | |||||||||
Total Residential Mortgage-Backed Securities (Cost $7,894,175) | 7,854,768 | ||||||||||
U.S. Government Mortgage-Backed Agencies (12.0%) | |||||||||||
Federal Home Loan Mortgage Corp. 5.00%, 6/15/23 – 8/1/40 (a) | 708,218 | 807,109 | |||||||||
5.50%, 10/25/23 (a) | 3,450 | 3,669 | |||||||||
Series 4207, Class JD, 1.50%, 5/15/28 (a) | 1,825,839 | 1,857,187 | |||||||||
Series 4430, Class NG, 2.50%, 2/15/38 (a) | 1,011,682 | 1,021,940 | |||||||||
7.00%, 9/1/38 (a) | 3,641 | 4,617 | |||||||||
Series 4320, Class AP, 3.50%, 7/15/39 (a) | 720,254 | 778,217 | |||||||||
Series 3713, Class PA, 2.00%, 2/15/40 – 3/15/40 (a) | 4,802,781 | 4,870,214 | |||||||||
Series 4444, Class CH, 3.00%, 1/15/41 (a) | 1,972,057 | 2,022,481 | |||||||||
Series 4049, Class AB, 2.75%, 12/15/41 (a) | 403,972 | 415,084 | |||||||||
11,780,518 | |||||||||||
Federal National Mortgage Association Series 2012-63, Class VG, 4.00%, 8/25/23 (a) | 295,207 | 298,154 | |||||||||
Series 2010-156, Class DY, 3.50%, 1/25/26 – 3/25/44 (a) | 2,886,856 | 2,976,984 | |||||||||
6.00%, 2/1/37 (a) | 883,418 | 1,052,527 | |||||||||
Series 2013-33, Class UD, 2.50%, 4/25/39 – 5/25/40 (a) | 2,092,028 | 2,131,893 | |||||||||
Series 2011-21, Class PA, 4.50%, 5/25/40 (a) | 1,652,488 | 1,745,928 | |||||||||
Series 2011-101, Class LA, 3.00%, 10/25/40 (a) | 594,329 | 611,580 | |||||||||
5.00%, 2/1/41 – 10/1/41 (a) | 2,779,382 | 3,169,398 | |||||||||
11,986,464 | |||||||||||
Government National Mortgage Association Series 2016-156, Class AP, 2.25%, 12/20/42 (a) | 2,599,475 | 2,623,187 | |||||||||
Series 2018-22, Class JA, 3.00%, 1/20/44 (a) | 868,625 | 896,700 | |||||||||
3,519,887 | |||||||||||
Total U.S. Government Mortgage-Backed Agencies (Cost $26,622,229) | 27,286,869 | ||||||||||
U.S. Treasury Obligations (22.1%) | |||||||||||
U.S. Treasury Notes 1.50%, 8/31/21 (a) | 4,941,000 | 5,017,238 | |||||||||
0.38%, 3/31/22 (a) | 1,526,000 | 1,531,603 | |||||||||
0.13%, 4/15/22 (a) | 19,221,224 | 19,495,101 | |||||||||
0.13%, 6/30/22 | 18,000,000 | 17,988,750 | |||||||||
0.50%, 3/15/23 (a) | 6,405,000 | 6,462,045 | |||||||||
Total U.S. Treasury Obligations (Cost $50,135,491) | 50,494,737 |
See notes to financial statements.
8
Victory Variable Insurance Funds Victory INCORE Low Duration Bond VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Collateral for Securities Loaned^ (0.7%) | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 0.28% (g) | 25,755 | $ | 25,755 | ||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 0.09% (g) | 779,488 | 779,488 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 0.30% (g) | 179,099 | 179,099 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 0.43% (g) | 102,485 | 102,485 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 0.41% (g) | 460,794 | 460,794 | |||||||||
Total Collateral for Securities Loaned (Cost $1,547,621) | 1,547,621 | ||||||||||
Total Investments (Cost $219,262,599) — 98.3% | 223,837,832 | ||||||||||
Other assets in excess of liabilities — 1.7% | 3,786,780 | ||||||||||
NET ASSETS — 100.00% | $ | 227,624,612 |
^ Purchased with cash collateral from securities on loan.
(a) All or a portion of this security 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, 2020, the fair value of these securities was $40,329,055 and amounted to 17.7% of net assets.
(c) Variable or Floating-Rate Security. Rate disclosed is as of June 30, 2020.
(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, 2020.
(e) All or a portion of this security is on loan.
(f) Variable Rate Demand Notes that provide the rights to sell the security at face value on either that day or within the rate-reset period. The interest rate is reset on the put date at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. These securities do not indicate a reference rate and spread in their description.
(g) Rate disclosed is the daily yield on June 30, 2020.
bps — Basis points
LIBOR — London InterBank Offered Rate
LIBOR01M — 1 Month US Dollar LIBOR, rate disclosed as of June 30, 2020, based on the last reset date of the security
LIBOR03M — 3 Month US Dollar LIBOR, rate disclosed as of June 30, 2020, 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, 2020 |
(Unaudited)
Futures Contracts Purchased
Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||
2-Year U.S. Treasury Note Futures | 337 | 9/30/20 | $ | 74,422,040 | $ | 74,419,078 | $ | (2,962 | ) |
Futures Contracts Sold
Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||
10-Year U.S. Treasury Note Futures | 42 | 9/21/20 | $ | 5,841,136 | $ | 5,845,219 | $ | (4,083 | ) | ||||||||||||||
5-Year U.S. Treasury Note Futures | 80 | 9/30/20 | 10,047,848 | 10,059,375 | (11,527 | ) | |||||||||||||||||
$ | (15,610 | ) | |||||||||||||||||||||
Total unrealized appreciation | $ | — | |||||||||||||||||||||
Total unrealized depreciation | (18,572 | ) | |||||||||||||||||||||
Total net unrealized appreciation (depreciation) | $ | (18,572 | ) |
See notes to financial statements.
10
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2020 |
(Unaudited)
Victory INCORE Low Duration Bond VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $219,262,599) | $ | 223,837,832 | (a) | ||||
Cash and cash equivalents | 20,024,807 | ||||||
Deposits with brokers for swap agreements | 1,144,279 | ||||||
Deposits with brokers for futures contracts | 1,038,925 | ||||||
Receivables: | |||||||
Interest and dividends | 1,147,294 | ||||||
Capital shares issued | 72,003 | ||||||
Variation margin on open futures contracts | 17,518 | ||||||
From Adviser | 76,258 | ||||||
Prepaid expenses | 8,307 | ||||||
Total Assets | 247,367,223 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 1,547,621 | ||||||
Investments purchased | 17,990,156 | ||||||
Capital shares redeemed | 41,763 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 84,253 | ||||||
Administration fees | 11,130 | ||||||
Custodian fees | 1,907 | ||||||
Transfer agent fees | 28,560 | ||||||
Compliance fees | 203 | ||||||
Trustees' fees | 485 | ||||||
Other accrued expenses | 36,533 | ||||||
Total Liabilities | 19,742,611 | ||||||
NET ASSETS: | |||||||
Capital | 219,567,458 | ||||||
Total distributable earnings/(loss) | 8,057,154 | ||||||
Net Assets | $ | 227,624,612 | |||||
Shares Outstanding (unlimited shares authorized with a par value of $0.001 per share): | 21,209,852 | ||||||
Net asset value: | $ | 10.73 |
(a) Includes $1,495,849 of securities on loan.
See notes to financial statements.
11
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2020 |
(Unaudited)
Victory INCORE Low Duration Bond VIP Series | |||||||
Investment Income: | |||||||
Interest | $ | 2,840,772 | |||||
Securities lending (net of fees) | 2,599 | ||||||
Total Income | 2,843,371 | ||||||
Expenses: | |||||||
Investment advisory fees | 552,967 | ||||||
Administration fees | 75,337 | ||||||
Sub-Administration fees | 7,448 | ||||||
Custodian fees | 8,087 | ||||||
Transfer agent fees | 170,233 | ||||||
Trustees' fees | 11,027 | ||||||
Compliance fees | 1,067 | ||||||
Legal and audit fees | 17,871 | ||||||
Other expenses | 31,409 | ||||||
Total Expenses | 875,446 | ||||||
Expenses waived/reimbursed by Adviser | (224,569 | ) | |||||
Net Expenses | 650,877 | ||||||
Net Investment Income (Loss) | 2,192,494 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities | 620,959 | ||||||
Net realized gains (losses) from futures contracts | 958,939 | ||||||
Net realized gains (losses) from swap agreements | (460,749 | ) | |||||
Net change in unrealized appreciation/depreciation on investment securities | 3,239,435 | ||||||
Net change in unrealized appreciation/depreciation on futures contracts | (21,975 | ) | |||||
Net change in unrealized appreciation/depreciation on swap agreements | (114,772 | ) | |||||
Net realized/unrealized gains on investments | 4,221,837 | ||||||
Change in net assets resulting from operations | $ | 6,414,331 |
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, 2020 (Unaudited) | Year Ended December 31, 2019 | ||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 2,192,494 | $ | 5,645,849 | |||||||
Net realized gains (losses) from investments | 1,119,149 | (992,868 | ) | ||||||||
Net change in unrealized appreciation/depreciation on investments | 3,102,688 | 4,952,625 | |||||||||
Change in net assets resulting from operations | 6,414,331 | 9,605,606 | |||||||||
Change in net assets resulting from distributions to shareholders | — | (5,011,793 | ) | ||||||||
Change in net assets resulting from capital transactions | (33,487,323 | ) | (14,344,949 | ) | |||||||
Change in net assets | (27,072,992 | ) | (9,751,136 | ) | |||||||
Net Assets: | |||||||||||
Beginning of period | 254,697,604 | 264,448,740 | |||||||||
End of period | $ | 227,624,612 | $ | 254,697,604 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 11,133,110 | $ | 20,029,224 | |||||||
Distributions reinvested | — | 5,011,793 | |||||||||
Cost of shares redeemed | (44,620,433 | ) | (39,385,966 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (33,487,323 | ) | $ | (14,344,949 | ) | |||||
Share Transactions: | |||||||||||
Issued | 1,061,904 | 1,914,121 | |||||||||
Reinvested | — | 480,517 | |||||||||
Redeemed | (4,236,044 | ) | (3,753,428 | ) | |||||||
Change in Shares | (3,174,140 | ) | (1,358,790 | ) |
See notes to financial statements.
13
Victory Variable Insurance Funds | Financial Highlights |
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholders 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 | Total Distributions | ||||||||||||||||||||||
Victory INCORE Low Duration Bond VIP Series | |||||||||||||||||||||||||||
Six Months Ended 6/30/20 (unaudited) | $ | 10.45 | 0.09 | 0.19 | 0.28 | — | — | ||||||||||||||||||||
Year Ended 12/31/19 | $ | 10.27 | 0.23 | 0.16 | 0.39 | (0.21 | ) | (0.21 | ) | ||||||||||||||||||
Year Ended 12/31/18 | $ | 10.22 | 0.19 | (0.09 | ) | 0.10 | (0.05 | ) | (0.05 | ) | |||||||||||||||||
Year Ended 12/31/17 | $ | 10.20 | 0.15 | 0.02 | 0.17 | (0.15 | ) | (0.15 | ) | ||||||||||||||||||
Year Ended 12/31/16 | $ | 10.13 | 0.12 | 0.09 | 0.21 | (0.14 | ) | (0.14 | ) | ||||||||||||||||||
Year Ended 12/31/15 | $ | 10.22 | 0.14 | (0.09 | ) | 0.05 | (0.14 | ) | (0.14 | ) |
(a) Per share net investment income (loss) has been calculated using the average daily shares method.
(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) Not annualized for periods less than one year.
(d) Annualized for periods less than one year.
(e) Portfolio turnover increased due to a change within the portfolio holdings during the year.
(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 0.005% for the period shown. (See Note 8)
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 Contribution from Prior Custodian, Net (See Note 8 | Net Asset Value, End of Period | Total Return(b)(c) | Net Expenses(d) | Net Investment Income (Loss)(d) | Gross Expenses(d) | Net Assets, End of Period (000's) | Portfolio Turnover(c) | ||||||||||||||||||||||||||||
Victory INCORE Low Duration Bond VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended 6/30/20 (unaudited) | — | $ | 10.73 | 2.68 | % | 0.53 | % | 1.79 | % | 0.71 | % | $ | 227,625 | 44 | % | ||||||||||||||||||||
Year Ended 12/31/19 | — | $ | 10.45 | 3.79 | % | 0.53 | % | 2.16 | % | 0.71 | % | $ | 254,698 | 75 | % | ||||||||||||||||||||
Year Ended 12/31/18 | — | $ | 10.27 | 1.01 | % | 0.53 | % | 1.85 | % | 0.58 | % | $ | 264,449 | 55 | % | ||||||||||||||||||||
Year Ended 12/31/17 | — | $ | 10.22 | 1.64 | % | 0.53 | % | 1.44 | % | 0.58 | % | $ | 292,306 | 91 | %(e) | ||||||||||||||||||||
Year Ended 12/31/16 | — | (f) | $ | 10.20 | 2.04 | %(g) | 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 | % |
See notes to financial statements.
15
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2020 |
(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. Victory INCORE Low Duration Bond VIP Series (the "Fund"), a series of the Trust, offers a single class of shares: Class I Shares. The Fund's shares are only available for purchase by certain separate accounts of insurance companies as investments for certain variable annuity plans and variable life insurance contracts issued by those insurance companies. The accompanying financial statements are those of the Fund.
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 generally accepted accounting principles 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, 2020 |
(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. To the extent this model is utilized, these valuations are considered 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, 2020, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed on the Schedule of Portfolio Investments.
LEVEL 1 | LEVEL 2 | LEVEL 3 | Total | ||||||||||||||||
Asset-Backed Securities | $ | — | $ | 9,232,358 | $ | — | $ | 9,232,358 | |||||||||||
Collateralized Mortgage Obligations | — | 7,541,472 | — | 7,541,472 | |||||||||||||||
Corporate Bonds | — | 119,880,007 | — | 119,880,007 | |||||||||||||||
Residential Mortgage-Backed Securities | — | 7,854,768 | — | 7,854,768 | |||||||||||||||
U.S. Government Mortgage-Backed Agencies | — | 27,286,869 | — | 27,286,869 | |||||||||||||||
U.S. Treasury Obligations | — | 50,494,737 | — | 50,494,737 | |||||||||||||||
Collateral for Securities Loaned | 1,547,621 | — | 1,547,621 | ||||||||||||||||
Total | $ | 1,547,621 | $ | 222,290,211 | $ | — | $ | 223,837,832 | |||||||||||
Other Financial Investments^: | |||||||||||||||||||
Liabilities: | |||||||||||||||||||
Futures Contracts | $ | (18,572 | ) | $ | — | $ | — | $ | (18,572 | ) | |||||||||
Total | $ | (18,572 | ) | $ | — | $ | — | $ | (18,572 | ) |
^ Futures Contracts are valued at the unrealized appreciation (depreciation) on the investment.
For the six months ended June 30, 2020, there were no transfers in or out of the Level 3 fair value hierarchy.
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 on the Schedule of Portfolio Investments.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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 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 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
18
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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, 2020, 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.
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 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.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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, 2020, the Fund entered into centrally cleared CDS agreements primarily for the strategy of asset allocation and risk exposure management. For the six months ended, June 30, 2020, the Fund held no centrally cleared CDS agreements.
Offsetting of Financial Assets and Derivatives Assets:
The Fund is subject to various Master Netting Arrangements, which govern the terms of certain transactions with select counterparties. The Master Netting Arrangements allow the Fund to close out and net total exposure to a counterparty in the event of a default with respect to all the transactions governed under a single agreement with a counterparty. The Master Netting Arrangements also specify collateral posting arrangements at pre-arranged exposure levels. Under the Master Netting Arrangements, collateral is routinely transferred if the total net exposure to certain transactions (net of existing collateral already in place) governed under the relevant Master Netting Arrangement with a counterparty in a given account exceeds a specified threshold depending on the counterparty and the type of Master Netting Arrangement.
The table below, as of June 30, 2020, discloses both gross information and net information about instruments and transactions eligible for offset on the Statement of Assets and Liabilities and instruments and transactions that are subject to an agreement similar to a master netting agreement as well as amounts related to collateral held at clearing brokers and counterparties.
Gross Amounts of Recognized Assets | Gross Amounts Available for Offset | Net Amounts Presented on the Statement of Assets and Liabilities | Cash Collateral Received | Net Amount | |||||||||||||||||||
Futures Contracts-Goldman Sachs & Co. | $ | 17,518 | $ | — | $ | 17,518 | $ | — | $ | 17,518 |
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, 2020.
Assets | Liabilities | ||||||||||
Variation Margin Receivable on Open Futures Contracts* | Variation Margin Payable on Open Futures Contracts* | ||||||||||
Interest Rate Risk Exposure: | $ | — | $ | 18,572 |
* Includes cumulative appreciation (depreciation) of futures contracts as reported on the Schedule of Portfolio Investments. Only current day's variation margin for futures contracts are reported within the Statement of Assets and Liabilities.
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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, 2020.
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: | $ | — | $ | (460,749 | ) | $ | — | $ | (114,772 | ) | |||||||||
Interest Rate Risk Exposure: | 958,939 | — | (21,975 | ) | — |
All open derivative positions at period end are reflected on the Fund's Schedule of Portfolio Investments. The volume associated with derivative positions in the Fund was 25% and 5% for futures contracts and swap agreements, respectively, based on average monthly notional amounts in comparison to net assets during the year.
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 determined on the basis of coupon interest accrued using the effective interest method which adjusts, 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 recorded on the identified cost basis. Paydown gains or losses on applicable securities, if any, are recorded as components of interest income on the Statement of Operations.
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 on 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 on 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 on 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, 2020 |
(Unaudited)
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, 2020. 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 | ||||||||||||||||||
$ | 1,495,849 | $ | 1,495,849 | $ | — | $ | — | $ | — | $ | — |
* Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by each Fund is disclosed on the Statement of Assets and Liabilities.
Distributions 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 (collectively, distributions to shareholders) 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 years, which includes the current fiscal tax year end). 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, 2020 |
(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, 2020 were as follows for the Fund:
Purchases (excluding US Government Securities) | Sales (excluding US Government Securities) | Purchases of US Government Securities | Sales of US Government Securities | ||||||||||||
$ | 102,435,034 | $ | 117,643,003 | $ | 62,456,090 | $ | 81,793,217 |
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, 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 Fund reimburses VCM and Citi for reasonable out-of-pocket expenses incurred in providing these services and certain other expenses specifically allocated to the Fund under the Fund Administration, Servicing, and Accounting Agreement. Amounts paid by the Fund to reimburse VCM for expenses incurred during the six months ended June 30, 2020, are reflected on the Statement of Operations as Sub-Administration fees.
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 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 on the Statement of Operations.
Sidley Austin LLP provides legal services to the Trust.
Victory Capital Services, 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
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Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
Distributor and the Trust. Effective June 30, 2020, the Distributor's name was changed from Victory Capital Advisers, Inc.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2021. 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. As of June 30, 2020, 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 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. Amounts repaid to the Adviser during the six months ended June 30, 2020, if any, are reflected on the Statement of Operations as Recoupment of prior expenses waived/reimbursed by Adviser. As of June 30, 2020, the following amounts are available to be repaid to the Adviser.
Expires December 31, 2020 | Expires December 31, 2021 | Expires December 31, 2022 | Expires December 31, 2023 | Total | |||||||||||||||
$ | 132,033 | $ | 155,683 | $ | 459,668 | $ | 224,569 | $ | 971,953 |
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, 2020.
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 is 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.
An outbreak of respiratory disease called COVID-19 was first detected in China in December 2019 and subsequently spread internationally. The transmission of COVID-19 and efforts to contain its spread have resulted in international, national and local border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and consumer activity, significant challenges in healthcare service preparation and delivery, quarantines and general concern and uncertainty. These negative impacts have caused significant volatility and declines in global financial markets, which have caused losses for Fund investors during and subsequent to period end. The impact
24
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
of the COVID-19 pandemic may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession. Public health crises may exacerbate other pre-existing political, social, economic, market and financial risks. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2020, the Victory Funds Complex participated in a short-term demand note "Line of Credit" agreement with Citibank. The Line of Credit agreement with Citibank was renewed on June 29, 2020 with a termination date of June 28, 2021. Under the agreement with Citibank, the Victory Funds Complex and USAA Mutual 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 (herein, the "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. For the six months ended June 30, 2020, Citibank received an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. For the six months ended June 30, 2020, Citibank earned approximately $225 thousand in commitment fees from the combined Victory Funds Complex and USAA Mutual Funds Complex. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest (one month LIBOR plus one percent) on amounts borrowed. Effective June 29, 2020, under an amended Line of Credit agreement, Citibank will also receive an annual upfront fee of 0.10% on the $300 million committed line of credit. Each fund in the Victory Funds Complex will pay a pro-rata portion of the upfront fee. Interest charged to each Fund during the period, if applicable, 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, 2020.
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 Interest expense on interfund lending. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Interfund lending income.
The Fund did not utilize the Facility during the six months ended June 30, 2020.
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, 2020.
At December 31, 2019, the Fund had short-term and long-term capital loss carryforwards of $1,664,163 and $4,234,148, respectively.
25
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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, 2020, the shareholder listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund. Shareholders of record may hold Fund shares for the benefit of their customers.
Shareholder | Percent | ||||||
GIAC* | 100.0 | %* |
* The Guardian Insurance & Annuity Company, Inc. ("GIAC") is a wholly owned subsidiary of The Guardian Life Insurance Company of America. The amount represents indirect interests of variable annuity contract holders or variable life policyholders.
26
Victory Variable Insurance Funds | Supplemental Information June 30, 2020 |
(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 quarter of each fiscal year on Form N-PORT. Forms N-PORT are available on the SEC's web site 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, 2020 through June 30, 2020.
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 1/1/20 | Actual Ending Account Value 6/30/20 | Hypothetical Ending Account Value 6/30/20 | Actual Expenses Paid During Period 1/1/20-6/30/20* | Hypothetical Expenses Paid During Period 1/1/20-6/30/20* | Annualized Expense Ratio During Period 1/1/20-6/30/20 | ||||||||||||||||||
$ | 1,000.00 | $ | 1,026.80 | $ | 1,022.23 | $ | 2.67 | $ | 2.66 | 0.53 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
27
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2020 |
(Unaudited)
Liquidity Risk Management Program:
The Victory Funds have adopted and implemented a written liquidity risk management program (the "LRMP") as required by Rule 22e-4 under the Act. The LRMP is reasonably designed to assess and manage each Fund's liquidity risk, taking into consideration each Fund's investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed market conditions; its short and long-term cash flow projections; and its cash holdings and access to other liquidity management tools such as available funding sources including the Victory Funds Complex Interfund Lending Facility and Line of Credit (discussed in the Notes to Financial Statements). The Board approved the appointment of VCM as the administrator of the LRMP. At an in-person meeting held on February 20, 2020, VCM provided an oral and written report to the Trustees on the operation and effectiveness of the LRMP during the previous year.
VCM manages liquidity risks associated with the Funds' investments by monitoring, among other things, cash and cash equivalents, any use of derivatives, the concentration of investments, the appropriateness of each Fund's investment strategy, and by classifying every fund investment as either highly liquid, moderately liquid, less liquid or illiquid on at least a monthly basis. To assist with the classification of Fund investments, VCM has retained a third-party provider of liquidity evaluation services. This provider determines preliminary liquidity classifications for all portfolio holdings based upon portfolio-level data and certain assumptions provided by VCM. VCM reviews the preliminary liquidity classifications and, when appropriate, considers other information including input from the Funds' portfolio managers (including the portfolio managers employed by any investment sub-advisers) in determining final liquidity classifications.
The report from VCM concluded that the Funds did not experience any significant liquidity challenges during the covered period, and the Funds' LRMP is reasonably designed to assess and manage its liquidity risk. The report also concluded that the LRMP continues to operate adequately and effectively to enable VCM to oversee and manage liquidity risk and ensure each Fund is able to meet redemption requests without significant dilution to the remaining investors' interest in each Fund. During the review period, each Fund's portfolio consisted primarily of highly liquid investments, which are defined as cash and any investments reasonably expected to be converted to cash in current market conditions in three business days or less without significantly changing the market value of the investment. Therefore, the Fund has not adopted a Highly Liquid Investment Minimum. The Funds' investments were below the limitation on illiquid investments during the review period. Additionally, VCM indicated that no events occurred that would require the filing of Form N-LIQUID and recommended no material changes to the LRMP.
28
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 (6/20)
June 30, 2020
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 Objectives & Portfolio Holdings | 3 | ||||||
Schedule of Portfolio Investments | 4 | ||||||
Statement of Assets and Liabilities | 10 | ||||||
Statement of Operations | 11 | ||||||
Statements of Changes in Net Assets | 12 | ||||||
Financial Highlights | 14 | ||||||
Notes to Financial Statements | 16 | ||||||
Supplemental Information | |||||||
Proxy Voting and Portfolio Holdings Information | 24 | ||||||
Expense Examples | 24 | ||||||
Liquidity Risk Management Program | 25 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Services, 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, 2020 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: 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, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Common Stocks (97.0%) | |||||||||||
Australia (5.8%): | |||||||||||
Financials (1.4%): | |||||||||||
Macquarie Group Ltd. | 21,401 | $ | 1,775,595 | ||||||||
Health Care (1.4%): | |||||||||||
CSL Ltd. | 8,930 | 1,775,558 | |||||||||
Materials (2.0%): | |||||||||||
BHP Group Ltd. | 107,541 | 2,676,760 | |||||||||
Real Estate (1.0%): | |||||||||||
Scentre Group | 892,122 | 1,353,972 | |||||||||
7,581,885 | |||||||||||
Belgium (1.0%): | |||||||||||
Information Technology (1.0%): | |||||||||||
Melexis NV | 17,042 | 1,296,248 | |||||||||
China (2.4%): | |||||||||||
Communication Services (1.5%): | |||||||||||
Tencent Holdings Ltd. | 30,700 | 1,967,243 | |||||||||
Financials (0.9%): | |||||||||||
China Merchants Bank Co. Ltd., Class H | 247,500 | 1,146,980 | |||||||||
3,114,223 | |||||||||||
Denmark (1.3%): | |||||||||||
Consumer Staples (1.3%): | |||||||||||
Royal Unibrew A/S (a) | 20,693 | 1,725,190 | |||||||||
France (9.9%): | |||||||||||
Consumer Discretionary (4.7%): | |||||||||||
Cie Generale des Etablissements Michelin SCA (a) | 11,208 | 1,168,147 | |||||||||
Faurecia SE (a) | 35,555 | 1,396,790 | |||||||||
LVMH Moet Hennessy Louis Vuitton SE | 8,098 | 3,574,930 | |||||||||
6,139,867 | |||||||||||
Energy (1.8%): | |||||||||||
Gaztransport Et Technigaz SA | 10,146 | 778,519 | |||||||||
TOTAL SA (b) | 40,437 | 1,559,057 | |||||||||
2,337,576 | |||||||||||
Financials (0.2%): | |||||||||||
AXA SA (a) | 13,370 | 281,321 | |||||||||
Information Technology (1.5%): | |||||||||||
Capgemini SE | 17,167 | 1,980,932 | |||||||||
Materials (1.7%): | |||||||||||
Arkema SA | 23,239 | 2,233,639 | |||||||||
12,973,335 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory RS International VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Germany (7.2%): | |||||||||||
Financials (1.5%): | |||||||||||
Allianz SE | 10,038 | $ | 2,051,018 | ||||||||
Industrials (2.0%): | |||||||||||
Siemens AG, Registered Shares | 14,710 | 1,734,712 | |||||||||
Washtec AG (a) | 21,935 | 903,879 | |||||||||
2,638,591 | |||||||||||
Information Technology (2.6%): | |||||||||||
SAP SE | 24,121 | 3,371,581 | |||||||||
Real Estate (1.1%): | |||||||||||
Vonovia SE (a) | 22,867 | 1,397,585 | |||||||||
9,458,775 | |||||||||||
Hong Kong (2.1%): | |||||||||||
Financials (1.0%): | |||||||||||
AIA Group Ltd. | 146,600 | 1,371,860 | |||||||||
Real Estate (1.1%): | |||||||||||
CK Asset Holdings Ltd. | 241,000 | 1,445,265 | |||||||||
2,817,125 | |||||||||||
Ireland (1.1%): | |||||||||||
Industrials (1.1%): | |||||||||||
Experian PLC | 40,607 | 1,425,025 | |||||||||
Italy (4.8%): | |||||||||||
Financials (1.1%): | |||||||||||
Banca Generali SpA (a) | 46,568 | 1,400,121 | |||||||||
Health Care (1.3%): | |||||||||||
Recordati SpA | 34,232 | 1,712,781 | |||||||||
Utilities (2.4%): | |||||||||||
Enel SpA | 372,433 | 3,220,698 | |||||||||
6,333,600 | |||||||||||
Japan (22.7%): | |||||||||||
Communication Services (2.2%): | |||||||||||
Kakaku.com, Inc. | 41,900 | 1,067,519 | |||||||||
Nippon Telegraph & Telephone Corp. | 75,900 | 1,768,674 | |||||||||
2,836,193 | |||||||||||
Consumer Discretionary (4.0%): | |||||||||||
Hikari Tsushin, Inc. | 5,900 | 1,349,212 | |||||||||
Toyota Motor Corp. | 61,900 | 3,893,066 | |||||||||
5,242,278 | |||||||||||
Consumer Staples (1.6%): | |||||||||||
Kobe Bussan Co. Ltd. | 22,100 | 1,255,135 | |||||||||
Toyo Suisan Kaisha Ltd. | 14,400 | 804,696 | |||||||||
2,059,831 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory RS International VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Financials (2.2%): | |||||||||||
Jafco Co. Ltd. | 19,600 | $ | 662,906 | ||||||||
Mitsubishi UFJ Financial Group, Inc. | 306,500 | 1,206,406 | |||||||||
Tokio Marine Holdings, Inc. | 23,900 | 1,046,321 | |||||||||
2,915,633 | |||||||||||
Health Care (3.1%): | |||||||||||
Hoya Corp. | 25,000 | 2,394,307 | |||||||||
Shionogi & Co. Ltd. | 26,600 | 1,668,940 | |||||||||
4,063,247 | |||||||||||
Industrials (4.7%): | |||||||||||
en-japan, Inc. | 24,400 | 607,440 | |||||||||
Fuji Electric Co. Ltd. | 34,500 | 949,708 | |||||||||
Hitachi Construction Machinery Co. Ltd. | 45,900 | 1,275,230 | |||||||||
ITOCHU Corp. | 41,700 | 902,422 | |||||||||
Kyowa Exeo Corp. | 27,800 | 667,542 | |||||||||
OKUMA Corp. | 16,000 | 688,189 | |||||||||
Sanwa Holdings Corp. | 113,600 | 1,021,018 | |||||||||
6,111,549 | |||||||||||
Information Technology (3.1%): | |||||||||||
Fujitsu Ltd. | 17,000 | 1,990,693 | |||||||||
Oracle Corp. | 11,100 | 1,316,784 | |||||||||
Ulvac, Inc. | 25,600 | 743,317 | |||||||||
4,050,794 | |||||||||||
Real Estate (0.6%): | |||||||||||
Sumitomo Realty & Development Co. Ltd. | 28,900 | 797,828 | |||||||||
Utilities (1.2%): | |||||||||||
Chubu Electric Power Co., Inc. | 129,900 | 1,629,425 | |||||||||
29,706,778 | |||||||||||
Macau (0.7%): | |||||||||||
Consumer Discretionary (0.7%): | |||||||||||
Wynn Macau Ltd. | 526,400 | 913,030 | |||||||||
Netherlands (4.2%): | |||||||||||
Communication Services (1.0%): | |||||||||||
Koninklijke KPN NV | 492,218 | 1,309,150 | |||||||||
Financials (1.2%): | |||||||||||
ING Groep NV | 226,330 | 1,577,594 | |||||||||
Industrials (2.0%): | |||||||||||
Wolters Kluwer NV | 32,851 | 2,567,557 | |||||||||
5,454,301 | |||||||||||
New Zealand (1.0%): | |||||||||||
Health Care (1.0%): | |||||||||||
Fisher & Paykel Healthcare Corp. Ltd. | 54,958 | 1,265,663 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory RS International VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Norway (1.4%): | |||||||||||
Energy (0.5%): | |||||||||||
Aker BP ASA | 36,616 | $ | 677,901 | ||||||||
Financials (0.9%): | |||||||||||
SpareBank 1 SMN | 136,685 | 1,118,279 | |||||||||
1,796,180 | |||||||||||
Russian Federation (0.6%): | |||||||||||
Materials (0.6%): | |||||||||||
Evraz PLC | 210,492 | 745,668 | |||||||||
Spain (1.5%): | |||||||||||
Communication Services (1.2%): | |||||||||||
Telefonica SA | 330,362 | 1,579,916 | |||||||||
Financials (0.3%): | |||||||||||
Banco Santander SA | 172,306 | 421,505 | |||||||||
2,001,421 | |||||||||||
Sweden (2.5%): | |||||||||||
Industrials (2.5%): | |||||||||||
Atlas Copco AB, Class B | 68,811 | 2,557,733 | |||||||||
Epiroc AB, Class B | 59,088 | 725,909 | |||||||||
3,283,642 | |||||||||||
Switzerland (12.5%): | |||||||||||
Consumer Staples (4.2%): | |||||||||||
Nestle SA, Registered Shares | 49,932 | 5,537,453 | |||||||||
Financials (1.9%): | |||||||||||
Cembra Money Bank AG | 9,463 | 925,283 | |||||||||
UBS Group AG, Registered Shares | 133,542 | 1,542,692 | |||||||||
2,467,975 | |||||||||||
Health Care (6.4%): | |||||||||||
Novartis AG, Registered Shares | 42,554 | 3,708,329 | |||||||||
Roche Holding AG | 13,245 | 4,589,935 | |||||||||
8,298,264 | |||||||||||
16,303,692 | |||||||||||
United Kingdom (14.3%): | |||||||||||
Consumer Discretionary (1.1%): | |||||||||||
Next PLC | 24,183 | 1,463,918 | |||||||||
Consumer Staples (4.0%): | |||||||||||
Diageo PLC | 59,241 | 1,968,690 | |||||||||
Imperial Brands PLC | 82,227 | 1,565,069 | |||||||||
Unilever PLC | 30,955 | 1,669,472 | |||||||||
5,203,231 |
See notes to financial statements.
7
Victory Variable Insurance Funds Victory RS International VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Energy (2.0%): | |||||||||||
BP PLC | 288,350 | $ | 1,104,500 | ||||||||
Royal Dutch Shell PLC, Class A | 95,411 | 1,527,399 | |||||||||
2,631,899 | |||||||||||
Financials (2.5%): | |||||||||||
Close Brothers Group PLC | 71,231 | 975,033 | |||||||||
HSBC Holdings PLC | 165,362 | 768,408 | |||||||||
Legal & General Group PLC | 547,451 | 1,492,241 | |||||||||
3,235,682 | |||||||||||
Health Care (0.8%): | |||||||||||
Smith & Nephew PLC | 58,943 | 1,098,142 | |||||||||
Industrials (1.2%): | |||||||||||
RELX PLC | 65,468 | 1,515,058 | |||||||||
Materials (2.7%): | |||||||||||
Croda International PLC | 10,239 | 664,923 | |||||||||
Rio Tinto PLC | 50,846 | 2,860,967 | |||||||||
3,525,890 | |||||||||||
18,673,820 | |||||||||||
Total Common Stocks (Cost $117,012,349) | 126,869,601 | ||||||||||
Rights (0.1%) | |||||||||||
Spain (0.1%): | |||||||||||
Communication Services (0.1%): | |||||||||||
Telefonica SA, Expires 7/16/20 (a) | 296,266 | 58,278 | |||||||||
Total Rights (Cost $64,241) | 58,278 | ||||||||||
Exchange-Traded Funds (1.2%) | |||||||||||
United States (1.2%): | |||||||||||
iShares MSCI EAFE ETF | 25,318 | 1,541,106 | |||||||||
Total Exchange-Traded Funds (Cost $1,471,265) | 1,541,106 | ||||||||||
Collateral for Securities Loaned^ (1.2%) | |||||||||||
United States (1.2%): | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 0.28% (c) | 27,144 | 27,144 | |||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 0.09% (c) | 821,532 | 821,532 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 0.30% (c) | 188,759 | 188,759 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 0.43% (c) | 108,013 | 108,013 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 0.41% (c) | 485,649 | 485,649 | |||||||||
Total Collateral for Securities Loaned (Cost $1,631,097) | 1,631,097 | ||||||||||
Total Investments (Cost $120,178,952) — 99.5% | 130,100,082 | ||||||||||
Other assets in excess of liabilities — 0.5% | �� | 685,342 | |||||||||
NET ASSETS — 100.00% | $ | 130,785,424 |
^ Purchased with cash collateral from securities on loan.
See notes to financial statements.
8
Victory Variable Insurance Funds Victory RS International VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
(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, 2020.
ETF — Exchange-Traded Fund
PLC — Public Limited Company
See notes to financial statements.
9
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2020 |
(Unaudited)
Victory RS International VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $120,178,952) | $ | 130,100,082 | (a) | ||||
Foreign currency, at value (Cost $215,914) | 215,412 | ||||||
Cash and cash equivalents | 1,159,078 | ||||||
Receivables: | |||||||
Interest and dividends | 116,604 | ||||||
Capital shares issued | 195,847 | ||||||
Reclaims | 734,732 | ||||||
From Adviser | 12,648 | ||||||
Prepaid expenses | 4,783 | ||||||
Total Assets | 132,539,186 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 1,631,097 | ||||||
Capital shares redeemed | 3,172 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 85,986 | ||||||
Administration fees | 6,454 | ||||||
Custodian fees | 6,979 | ||||||
Transfer agent fees | 51 | ||||||
Compliance fees | 110 | ||||||
Other accrued expenses | 19,913 | ||||||
Total Liabilities | 1,753,762 | ||||||
NET ASSETS: | |||||||
Capital | 115,182,189 | ||||||
Total distributable earnings/(loss) | 15,603,235 | ||||||
Net Assets | $ | 130,785,424 | |||||
Shares Outstanding (unlimited shares authorized with a par value of $0.001 per share): | 8,332,604 | ||||||
Net asset value: | $ | 15.70 |
(a) Includes $1,543,442 of securities on loan.
See notes to financial statements.
10
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2020 |
(Unaudited)
Victory RS International VIP Series | |||||||
Investment Income: | |||||||
Dividends | $ | 2,575,619 | |||||
Interest | 6,660 | ||||||
Securities lending (net of fees) | 14,562 | ||||||
Foreign tax withholding | (287,163 | ) | |||||
Total Income | 2,309,678 | ||||||
Expenses: | |||||||
Investment advisory fees | 514,754 | ||||||
Administration fees | 39,353 | ||||||
Sub-Administration fees | 7,462 | ||||||
Custodian fees | 22,419 | ||||||
Transfer agent fees | 199 | ||||||
Trustees' fees | 5,927 | ||||||
Compliance fees | 555 | ||||||
Legal and audit fees | 10,974 | ||||||
Other expenses | 28,058 | ||||||
Total Expenses | 629,701 | ||||||
Expenses waived/reimbursed by Adviser | (31,772 | ) | |||||
Net Expenses | 597,929 | ||||||
Net Investment Income (Loss) | 1,711,749 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities and foreign currency translations | 236,298 | ||||||
Net change in unrealized appreciation/depreciation on investment securities and foreign currency translations | (17,269,664 | ) | |||||
Net realized/unrealized losses on investments | (17,033,366 | ) | |||||
Change in net assets resulting from operations | $ | (15,321,617 | ) |
See notes to financial statements.
11
Victory Variable Insurance Funds | Statements of Changes in Net Assets |
Victory RS International VIP Series | |||||||||||
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | ||||||||||
(Unaudited) | |||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 1,711,749 | $ | 3,711,382 | |||||||
Net realized gains (losses) from investments | 236,298 | 2,838,117 | |||||||||
Net change in unrealized appreciation/depreciation on investments | (17,269,664 | ) | 23,830,462 | ||||||||
Change in net assets resulting from operations | (15,321,617 | ) | 30,379,961 | ||||||||
Change in net assets resulting from distributions to shareholders | — | (12,127,758 | ) | ||||||||
Change in net assets resulting from capital transactions | (2,927,104 | ) | (11,741,589 | ) | |||||||
Change in net assets | (18,248,721 | ) | 6,510,614 | ||||||||
Net Assets: | |||||||||||
Beginning of period | 149,034,145 | 142,523,531 | |||||||||
End of period | $ | 130,785,424 | $ | 149,034,145 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 5,130,944 | $ | 2,897,082 | |||||||
Distributions reinvested | — | 12,127,758 | |||||||||
Cost of shares redeemed | (8,058,048 | ) | (26,766,429 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (2,927,104 | ) | $ | (11,741,589 | ) | |||||
Share Transactions: | |||||||||||
Issued | 334,715 | 165,264 | |||||||||
Reinvested | — | 684,295 | |||||||||
Redeemed | (529,828 | ) | (1,532,898 | ) | |||||||
Change in Shares | (195,113 | ) | (683,339 | ) |
See notes to financial statements.
12
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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)(a) | Net Realized and Unrealized Gains (Losses) on Investments | Total from Investment Activities | Net Investment Income | Net Realized Gains From Investments | Total Distributions | Capital Contribution from Prior Custodian, Net (See Note 8) | ||||||||||||||||||||||||||||
Victory RS International VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended 6/30/20 (unaudited) | $ | 17.48 | 0.20 | (1.98 | ) | (1.78 | ) | — | — | — | — | ||||||||||||||||||||||||
Year Ended 12/31/19 | $ | 15.47 | 0.43 | 3.09 | 3.52 | (0.39 | ) | (1.12 | ) | (1.51 | ) | — | |||||||||||||||||||||||
Year Ended 12/31/18 | $ | 17.64 | 0.38 | (2.26 | ) | (1.88 | ) | (0.15 | ) | (0.14 | ) | (0.29 | ) | — | |||||||||||||||||||||
Year Ended 12/31/17 | $ | 14.31 | 0.31 | 3.36 | 3.67 | (0.34 | ) | — | (0.34 | ) | — | ||||||||||||||||||||||||
Year Ended 12/31/16 | $ | 14.39 | 0.30 | (0.10 | ) | 0.20 | (0.31 | ) | — | (0.31 | ) | 0.03 | |||||||||||||||||||||||
Year Ended 12/31/15 | $ | 14.63 | 0.31 | (0.19 | ) | 0.12 | (0.32 | ) | (0.04 | ) | (0.36 | ) | — |
(a) Per share net investment income (loss) has been calculated using the average daily shares method.
(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) Not annualized for period less than one year.
(d) Annualized for periods less than one year.
(e) The Fund received monies related to a nonrecurring refund from the prior Custodian. The corresponding impact to the total return was less than 0.23% for the period shown. (See Note 8)
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 | ||||||||||||||||||||||||||||||
Net Asset Value, End of Period | Total Return(b)(c) | Net Expenses(d) | Net Investment Income (Loss)(d) | Gross Expenses(d) | Net Assets, End of Period (000's) | Portfolio Turnover(c) | |||||||||||||||||||||||||
Victory RS International VIP Series | |||||||||||||||||||||||||||||||
Six Months Ended 6/30/20 (unaudited) | $ | 15.70 | (10.18 | )% | 0.93 | % | 2.66 | % | 0.98 | % | $ | 130,785 | 28 | % | |||||||||||||||||
Year Ended 12/31/19 | $ | 17.48 | 22.79 | % | 0.93 | % | 2.49 | % | 0.96 | % | $ | 149,034 | 32 | % | |||||||||||||||||
Year Ended 12/31/18 | $ | 15.47 | (10.66 | )% | 0.93 | % | 2.20 | % | 0.94 | % | $ | 142,524 | 44 | % | |||||||||||||||||
Year Ended 12/31/17 | $ | 17.64 | 25.68 | % | 0.93 | % | 1.93 | % | 0.95 | % | $ | 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 | % |
See notes to financial statements.
15
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2020 |
(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. Victory RS International VIP Series (the "Fund"), a series of the Trust, offers a single class of shares: Class I Shares. The Fund's shares are only available for purchase by certain separate accounts of insurance companies as investments for certain variable annuity plans and variable life insurance contracts issued by those insurance companies. The accompanying financial statements are those of the Fund.
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 generally accepted accounting principles 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.
16
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
Investments in open-end investment companies are valued at net asset value ("NAV"). 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 NAV 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, 2020, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed on the Schedule of Portfolio Investments.
LEVEL 1 | LEVEL 2 | LEVEL 3 | Total | ||||||||||||||||
Common Stocks | $ | — | $ | 126,869,601 | $ | — | $ | 126,869,601 | |||||||||||
Rights | 58,278 | — | — | 58,278 | |||||||||||||||
Exchange-Traded Funds | 1,541,106 | — | — | 1,541,106 | |||||||||||||||
Collateral for Securities Loaned | 1,631,097 | — | — | 1,631,097 | |||||||||||||||
Total | $ | 3,230,481 | $ | 126,869,601 | $ | — | $ | 130,100,082 |
For the six months ended June 30, 2020, there were no transfers in or out of the Level 3 fair value hierarchy.
Investment Companies:
The Fund may invest in ETF, 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. A 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.
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
17
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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, 2020, 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 determined on the basis of coupon interest accrued using the effective interest method which adjusts, 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 recorded on the identified cost basis.
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 on 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 on 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, 2020. 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 | ||||||||||||||||||
$ | 1,543,442 | $ | 1,543,442 | $ | — | $ | — | $ | — | $ | — |
* 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 on the Statement of Assets and Liabilities.
18
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(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.
Distributions 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 (collectively, distributions to shareholders) 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 years, which includes the current fiscal tax year end). 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.
19
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(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, 2020, were as follows for the Fund:
Purchases | Sales | ||||||
$ | 36,194,384 | $ | 36,102,622 |
For the six months ended June 30, 2020 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, 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 Fund reimburses VCM and Citi for reasonable out-of-pocket expenses incurred in providing these services and certain other expenses specifically allocated to the Fund under the Fund Administration, Servicing, and Accounting Agreement. Amounts paid by the Fund to reimburse VCM for expenses incurred during the six months ended June 30, 2020, are reflected on the Statement of Operations as Sub-Administration fees.
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 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 on the Statement of Operations.
Sidley Austin LLP provides legal services to the Trust.
Victory Capital Services, 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. Effective June 30, 2020, the Distributor's name was changed from Victory Capital Advisers, Inc.
20
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
Effective May 1, 2020, the Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2021. 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. As of June 30, 2020, the expense limit (excluding voluntary waivers) is 0.93%. Prior to May 1, 2020, the expense limit (excluding voluntary waivers) was 0.83%.
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 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. Amounts repaid to the Adviser during the six months ended June 30, 2020, if any, are reflected on the Statement of Operations as Recoupment of prior expenses waived/reimbursed by Adviser. As of June 30, 2020, the following amounts are available to be repaid to the Adviser.
Expires December 31, 2020 | Expires December 31, 2021 | Expires December 31, 2022 | Expires December 31, 2023 | Total | |||||||||||||||
$ | 39,115 | $ | 15,196 | $ | 37,537 | $ | 31,772 | $ | 123,620 |
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, 2020.
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 is 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 is 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 is 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.
21
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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.
An outbreak of respiratory disease called COVID-19 was first detected in China in December 2019 and subsequently spread internationally. The transmission of COVID-19 and efforts to contain its spread have resulted in international, national and local border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and consumer activity, significant challenges in healthcare service preparation and delivery, quarantines and general concern and uncertainty. These negative impacts have caused significant volatility and declines in global financial markets, which have caused losses for Fund investors during and subsequent to period end. The impact of the COVID-19 pandemic may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession. Public health crises may exacerbate other pre-existing political, social, economic, market and financial risks. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2020, the Victory Funds Complex participated in a short-term demand note "Line of Credit" agreement with Citibank. The Line of Credit agreement with Citibank was renewed on June 29, 2020 with a termination date of June 28, 2021. Under the agreement with Citibank, the Victory Funds Complex and USAA Mutual 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 (herein, the "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. For the six months ended June 30, 2020, Citibank received an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. For the six months ended June 30, 2020, Citibank earned approximately $225 thousand in commitment fees from the combined Victory Funds Complex and USAA Mutual Funds Complex. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest (one month LIBOR plus one percent) on amounts borrowed. Effective June 29, 2020, under an amended Line of Credit agreement, Citibank will also receive an annual upfront fee of 0.10% on the $300 million committed line of credit. Each fund in the Victory Funds Complex will pay a pro-rata portion of the upfront fee. Interest charged to each Fund during the period, if applicable, 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, 2020.
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 Interest expense on interfund
22
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
lending. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Interfund lending income.
The Fund did not utilize the Facility during the six months ended June 30, 2020.
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, 2020.
At December 31, 2019, the Fund had no capital loss carryforwards for federal income tax purposes.
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 the six months ended June 30, 2020, the shareholder listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund. Shareholders of record may hold Fund shares for the benefit of their customers.
Shareholder | Percent | ||||||
GIAC* | 99.8 | %* |
* The Guardian Insurance & Annuity Company, Inc. ("GIAC") is a wholly owned subsidiary of The Guardian Life Insurance Company of America. The amount represents indirect interests of variable annuity contract holders or variable life policyholders.
23
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2020 |
(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 quarter of each fiscal year on Form N-PORT. Forms N-PORT are available on the SEC's web site 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, 2020 through June 30, 2020.
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 1/1/20 | Actual Ending Account Value 6/30/20 | Hypothetical Ending Account Value 6/30/20 | Actual Expenses Paid During Period 1/1/20-6/30/20* | Hypothetical Expenses Paid During Period 1/1/20-6/30/20* | Annualized Expense Ratio During Period 1/1/20-6/30/20 | ||||||||||||||||||
$ | 1,000.00 | $ | 898.20 | $ | 1,020.24 | $ | 4.39 | $ | 4.67 | 0.93 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
24
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2020 |
(Unaudited)
Liquidity Risk Management Program:
The Victory Funds have adopted and implemented a written liquidity risk management program (the "LRMP") as required by Rule 22e-4 under the Act. The LRMP is reasonably designed to assess and manage each Fund's liquidity risk, taking into consideration each Fund's investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed market conditions; its short and long-term cash flow projections; and its cash holdings and access to other liquidity management tools such as available funding sources including the Victory Funds Complex Interfund Lending Facility and Line of Credit (discussed in the Notes to Financial Statements). The Board approved the appointment of VCM as the administrator of the LRMP. At an in-person meeting held on February 20, 2020, VCM provided an oral and written report to the Trustees on the operation and effectiveness of the LRMP during the previous year.
VCM manages liquidity risks associated with the Funds' investments by monitoring, among other things, cash and cash equivalents, any use of derivatives, the concentration of investments, the appropriateness of each Fund's investment strategy, and by classifying every fund investment as either highly liquid, moderately liquid, less liquid or illiquid on at least a monthly basis. To assist with the classification of Fund investments, VCM has retained a third-party provider of liquidity evaluation services. This provider determines preliminary liquidity classifications for all portfolio holdings based upon portfolio-level data and certain assumptions provided by VCM. VCM reviews the preliminary liquidity classifications and, when appropriate, considers other information including input from the Funds' portfolio managers (including the portfolio managers employed by any investment sub-advisers) in determining final liquidity classifications.
The report from VCM concluded that the Funds did not experience any significant liquidity challenges during the covered period, and the Funds' LRMP is reasonably designed to assess and manage its liquidity risk. The report also concluded that the LRMP continues to operate adequately and effectively to enable VCM to oversee and manage liquidity risk and ensure each Fund is able to meet redemption requests without significant dilution to the remaining investors' interest in each Fund. During the review period, each Fund's portfolio consisted primarily of highly liquid investments, which are defined as cash and any investments reasonably expected to be converted to cash in current market conditions in three business days or less without significantly changing the market value of the investment. Therefore, the Fund has not adopted a Highly Liquid Investment Minimum. The Funds' investments were below the limitation on illiquid investments during the review period. Additionally, VCM indicated that no events occurred that would require the filing of Form N-LIQUID and recommended no material changes to the LRMP.
25
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 (6/20)
June 30, 2020
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 Objectives & 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 | |||||||
Proxy Voting and Portfolio Holdings Information | 19 | ||||||
Expense Examples | 19 | ||||||
Liquidity Risk Management Program | 20 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Services, 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, 2020 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: 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, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Common Stocks (98.5%) | |||||||||||
Communication Services (11.2%): | |||||||||||
Alphabet, Inc., Class A (a) | 26,245 | $ | 37,216,722 | ||||||||
Facebook, Inc., Class A (a) | 163,930 | 37,223,585 | |||||||||
Verizon Communications, Inc. | 197,960 | 10,913,535 | |||||||||
85,353,842 | |||||||||||
Consumer Discretionary (7.0%): | |||||||||||
AutoZone, Inc. (a) | 5,470 | 6,170,816 | |||||||||
Dollar Tree, Inc. (a) | 91,350 | 8,466,318 | |||||||||
LKQ Corp. (a) | 772,080 | 20,228,496 | |||||||||
McDonald's Corp. | 50,360 | 9,289,909 | |||||||||
O'Reilly Automotive, Inc. (a) (b) | 14,650 | 6,177,466 | |||||||||
Target Corp. | 34,930 | 4,189,155 | |||||||||
54,522,160 | |||||||||||
Consumer Staples (7.6%): | |||||||||||
Keurig Dr Pepper, Inc. | 1,048,480 | 29,776,832 | |||||||||
Mondelez International, Inc., Class A | 552,670 | 28,258,017 | |||||||||
58,034,849 | |||||||||||
Energy (5.1%): | |||||||||||
Chevron Corp. | 225,470 | 20,118,688 | |||||||||
Enterprise Products Partners LP | 1,065,780 | 19,365,223 | |||||||||
39,483,911 | |||||||||||
Financials (20.0%): | |||||||||||
Aflac, Inc. | 213,910 | 7,707,177 | |||||||||
Bank of America Corp. | 393,790 | 9,352,513 | |||||||||
Brown & Brown, Inc. (b) | 494,930 | 20,173,347 | |||||||||
Cboe Global Markets, Inc. | 81,800 | 7,630,304 | |||||||||
Chubb Ltd. | 105,240 | 13,325,489 | |||||||||
Citigroup, Inc. | 137,590 | 7,030,849 | |||||||||
JPMorgan Chase & Co. | 201,520 | 18,954,971 | |||||||||
Marsh & McLennan Cos., Inc. | 114,130 | 12,254,138 | |||||||||
RenaissanceRe Holdings Ltd. | 175,020 | 29,933,671 | |||||||||
The Progressive Corp. | 154,670 | 12,390,614 | |||||||||
U.S. Bancorp | 207,300 | 7,632,786 | |||||||||
Voya Financial, Inc. (b) | 163,250 | 7,615,613 | |||||||||
154,001,472 | |||||||||||
Health Care (13.7%): | |||||||||||
Cigna Corp. | 120,850 | 22,677,502 | |||||||||
Humana, Inc. | 55,380 | 21,473,595 | |||||||||
Johnson & Johnson | 157,900 | 22,205,477 | |||||||||
Pfizer, Inc. | 432,590 | 14,145,693 | |||||||||
Quest Diagnostics, Inc. | 89,660 | 10,217,654 | |||||||||
UnitedHealth Group, Inc. | 50,155 | 14,793,217 | |||||||||
105,513,138 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory RS Large Cap Alpha VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
Security Description | Shares | Value | |||||||||
Industrials (8.7%): | |||||||||||
Dover Corp. | 38,470 | $ | 3,714,663 | ||||||||
Eaton Corp. PLC | 191,040 | 16,712,179 | |||||||||
Johnson Controls International PLC | 230,410 | 7,866,197 | |||||||||
Parker-Hannifin Corp. | 85,310 | 15,634,764 | |||||||||
Raytheon Technologies Corp. (b) | 207,521 | 12,787,444 | |||||||||
Union Pacific Corp. | 59,700 | 10,093,479 | |||||||||
66,808,726 | |||||||||||
Information Technology (5.3%): | |||||||||||
Broadridge Financial Solutions, Inc. | 109,820 | 13,858,186 | |||||||||
Leidos Holdings, Inc. | 149,780 | 14,029,892 | |||||||||
Visa, Inc., Class A (b) | 67,270 | 12,994,546 | |||||||||
40,882,624 | |||||||||||
Materials (4.7%): | |||||||||||
Newmont Corp. | 143,770 | 8,876,360 | |||||||||
Sealed Air Corp. (b) | 826,460 | 27,149,211 | |||||||||
36,025,571 | |||||||||||
Real Estate (6.0%): | |||||||||||
Equity Commonwealth | 705,910 | 22,730,302 | |||||||||
Equity LifeStyle Properties, Inc. (b) | 259,700 | 16,226,056 | |||||||||
Invitation Homes, Inc. | 274,520 | 7,557,536 | |||||||||
46,513,894 | |||||||||||
Utilities (9.2%): | |||||||||||
Duke Energy Corp. (b) | 162,220 | 12,959,756 | |||||||||
Exelon Corp. | 438,660 | 15,918,971 | |||||||||
FirstEnergy Corp. | 371,140 | 14,392,809 | |||||||||
Vistra Corp. | 1,476,420 | 27,490,940 | |||||||||
70,762,476 | |||||||||||
Total Common Stocks (Cost $701,064,954) | 757,902,663 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory RS Large Cap Alpha VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
Security Description | Shares | Value | |||||||||
Collateral for Securities Loaned^ (0.8%) | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 0.28% (c) | 101,902 | $ | 101,902 | ||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 0.09% (c) | 3,084,133 | 3,084,133 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 0.30% (c) | 708,624 | 708,624 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 0.43% (c) | 405,495 | 405,495 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 0.41% (c) | 1,823,184 | 1,823,184 | |||||||||
Total Collateral for Securities Loaned (Cost $6,123,338) | 6,123,338 | ||||||||||
Total Investments (Cost $707,188,292) — 99.3% | 764,026,001 | ||||||||||
Other assets in excess of liabilities — 0.7% | 5,284,771 | ||||||||||
NET ASSETS — 100.00% | $ | 769,310,772 |
^ 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, 2020.
LP — Limited Partnership
PLC — Public Limited Company
See notes to financial statements.
6
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2020 |
(Unaudited)
Victory RS Large Cap Alpha VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $707,188,292) | $ | 764,026,001 | (a) | ||||
Cash and cash equivalents | 11,322,945 | ||||||
Receivables: | |||||||
Interest and dividends | 574,439 | ||||||
Capital shares issued | 137,120 | ||||||
Investments sold | 9,866,054 | ||||||
From Adviser | 231,380 | ||||||
Prepaid expenses | 30,545 | ||||||
Total Assets | 786,188,484 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 6,123,338 | ||||||
Investments purchased | 9,904,571 | ||||||
Capital shares redeemed | 343,500 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 324,775 | ||||||
Administration fees | 38,996 | ||||||
Custodian fees | 6,021 | ||||||
Transfer agent fees | 92,220 | ||||||
Compliance fees | 675 | ||||||
Trustees' fees | 695 | ||||||
Other accrued expenses | 42,921 | ||||||
Total Liabilities | 16,877,712 | ||||||
NET ASSETS: | |||||||
Capital | 698,540,348 | ||||||
Total distributable earnings/(loss) | 70,770,424 | ||||||
Net Assets | $ | 769,310,772 | |||||
Shares (unlimited shares authorized with a par value of $0.001 per share): | 19,635,839 | ||||||
Net asset value: | $ | 39.18 |
(a) Includes $6,028,592 of securities on loan.
See notes to financial statements.
7
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2020 |
(Unaudited)
Victory RS Large Cap Alpha VIP Series | |||||||
Investment Income: | |||||||
Dividends | $ | 9,395,774 | |||||
Interest | 124,467 | ||||||
Securities lending (net of fees) | 20,534 | ||||||
Foreign tax withholding | (23,423 | ) | |||||
Total Income | 9,517,352 | ||||||
Expenses: | |||||||
Investment advisory fees | 2,014,736 | ||||||
Administration fees | 246,230 | ||||||
Sub-Administration fees | 5,916 | ||||||
Custodian fees | 19,646 | ||||||
Transfer agent fees | 557,206 | ||||||
Trustees' fees | 36,521 | ||||||
Compliance fees | 3,481 | ||||||
Legal and audit fees | 44,723 | ||||||
Other expenses | 55,020 | ||||||
Total Expenses | 2,983,479 | ||||||
Expenses waived/reimbursed by Adviser | (770,261 | ) | |||||
Net Expenses | 2,213,218 | ||||||
Net Investment Income (Loss) | 7,304,134 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities and foreign currency translations | (63,696,560 | ) | |||||
Net change in unrealized appreciation/depreciation on investment securities | (120,961,116 | ) | |||||
Net realized/unrealized losses on investments | (184,657,676 | ) | |||||
Change in net assets resulting from operations | $ | (177,353,542 | ) |
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, 2020 (Unaudited) | Year Ended December 31, 2019 | ||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 7,304,134 | $ | 12,784,675 | |||||||
Net realized gains (losses) from investments | (63,696,560 | ) | 55,134,556 | ||||||||
Net change in unrealized appreciation/depreciation on investments | (120,961,116 | ) | 181,336,352 | ||||||||
Change in net assets resulting from operations | (177,353,542 | ) | 249,255,583 | ||||||||
Change in net assets resulting from distributions to shareholders | — | (147,135,028 | ) | ||||||||
Change in net assets resulting from capital transactions | (12,030,614 | ) | 9,584,172 | ||||||||
Change in net assets | (189,384,156 | ) | 111,704,727 | ||||||||
Net Assets: | |||||||||||
Beginning of period | 958,694,928 | 846,990,201 | |||||||||
End of period | $ | 769,310,772 | $ | 958,694,928 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | 36,358,018 | 4,367,525 | |||||||||
Distributions reinvested | — | 147,135,028 | |||||||||
Cost of shares redeemed | (48,388,632 | ) | (141,918,381 | ) | |||||||
Change in net assets resulting from capital transactions | (12,030,614 | ) | 9,584,172 | ||||||||
Share Transactions: | |||||||||||
Issued | 946,767 | 85,475 | |||||||||
Reinvested | — | 3,050,512 | |||||||||
Redeemed | (1,170,549 | ) | (2,771,086 | ) | |||||||
Change in Shares | (223,782 | ) | 364,901 |
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)(a) | 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 June 30, 2020 (unaudited) | $ | 48.27 | 0.37 | (9.46 | ) | (9.09 | ) | — | — | — | |||||||||||||||||||||
Year Ended December 31, 2019 | $ | 43.45 | 0.70 | 12.75 | 13.45 | (0.48 | ) | (8.15 | ) | (8.63 | ) | ||||||||||||||||||||
Year Ended December 31, 2018 | $ | 54.01 | 0.60 | (5.44 | ) | (4.84 | ) | (0.02 | ) | (5.70 | ) | (5.72 | ) | ||||||||||||||||||
Year Ended December 31, 2017 | $ | 45.98 | 0.51 | 8.07 | 8.58 | (0.55 | ) | — | (0.55 | ) | |||||||||||||||||||||
Year Ended December 31, 2016 | $ | 44.26 | 0.50 | 3.50 | 4.00 | (0.52 | ) | (1.76 | ) | (2.28 | ) | ||||||||||||||||||||
Year Ended December 31, 2015 | $ | 50.63 | 0.60 | (1.64 | ) | (1.04 | ) | (0.67 | ) | (4.66 | ) | (5.33 | ) |
(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) 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 Portfolios | Financial Highlights — continued |
For a Share Outstanding Throughout Each Period
Ratios to Average Net Assets | Supplemental Data | ||||||||||||||||||||||||||||||||||
Capital Contribution from Prior Custodian, Net (See Note 8) | Net Asset Value, End of Period | Total Return(b)(c) | Net Expenses(d) | Net Investment Income (Loss)(d) | Gross Expenses(d) | Net Assets, End of Period (000's) | Portfolio Turnover(b) | ||||||||||||||||||||||||||||
Victory RS Large Cap Alpha VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2020 (unaudited) | — | $ | 39.18 | (18.83 | )% | 0.55 | % | 1.82 | % | 0.74 | % | $ | 769,311 | 60 | % | ||||||||||||||||||||
Year Ended December 31, 2019 | — | $ | 48.27 | 31.16 | % | 0.55 | % | 1.37 | % | 0.73 | % | $ | 958,695 | 50 | % | ||||||||||||||||||||
Year Ended December 31, 2018 | — | $ | 43.45 | (9.00 | )% | 0.55 | % | 1.10 | % | 0.62 | % | $ | 846,990 | 60 | % | ||||||||||||||||||||
Year Ended December 31, 2017 | — | $ | 54.01 | 18.67 | % | 0.55 | % | 1.02 | % | 0.60 | % | $ | 1,060,740 | 56 | % | ||||||||||||||||||||
Year Ended December 31, 2016 | — | (e) | $ | 45.98 | 9.03 | %(f) | 0.54 | % | 1.12 | % | 0.54 | % | $ | 1,020,600 | 84 | % | |||||||||||||||||||
Year Ended December 31, 2015 | — | $ | 44.26 | (2.01 | )% | 0.55 | % | 1.20 | % | 0.55 | % | $ | 1,015,821 | 47 | % |
See notes to financial statements.
11
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2020 |
(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. Victory RS Large Cap Alpha VIP Series (the "Fund"), a series of the Trust, offers a single class of shares: Class I Shares. The Fund's shares are only available for purchase by certain separate accounts of insurance companies as investments for certain variable annuity plans and variable life insurance contracts issued by those insurance companies. The accompanying financial statements are those of the Fund.
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 generally accepted accounting principles 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.
12
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(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, 2020, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed on the Schedule of Portfolio Investments.
LEVEL 1 | LEVEL 2 | LEVEL 3 | Total | ||||||||||||||||
Common Stocks | $ | 757,902,663 | $ | — | $ | — | $ | 757,902,663 | |||||||||||
Collateral for Securities Loaned | 6,123,338 | — | — | 6,123,338 | |||||||||||||||
Total | $ | 764,026,001 | $ | — | $ | — | $ | 764,026,001 |
For the six months ended June 30, 2020, there were no transfers in or out of the Level 3 fair value hierarchy.
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 determined on the basis of coupon interest accrued using the effective interest method which adjusts, 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 recorded on the identified cost basis.
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 on 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 on 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, 2020. These transactions are accounted for as secured borrowings
13
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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 | ||||||||||||||||||
$ | 6,028,592 | $ | 6,028,592 | $ | — | $ | — | $ | — | $ | — |
* 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 on the Statement of Assets and Liabilities.
Distributions 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 (collectively, distributions to shareholders) 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 years, which includes the current fiscal tax year end). 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.
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, 2020 were as follows for the Fund:
Purchases | Sales | ||||||
$ | 490,718,868 | $ | 472,096,916 |
For the six months ended June 30, 2020, there were no purchases or sales of U.S. Government Securities.
14
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(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 0.50% 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, 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 Fund reimburses VCM and Citi for reasonable out-of-pocket expenses incurred in providing these services and certain other expenses specifically allocated to the Fund under the Fund Administration, Servicing, and Accounting Agreement. Amounts paid by the Fund to reimburse VCM for expenses incurred during the six months ended June 30, 2020, are reflected on the Statement of Operations as Sub-Administration fees.
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 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 on the Statement of Operations.
Sidley Austin LLP provides legal services to the Trust.
Victory Capital Services, 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. Effective June 30, 2020, the Distributor's name was changed from Victory Capital Advisers, Inc.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2021. 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. As of June 30, 2020, the expense limit (excluding voluntary waivers) is 0.55%.
15
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(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 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. 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. As of June 30, 2020, the following amounts are available to be repaid to the Adviser.
Expires December 31, 2020 | Expires December 31, 2021 | Expires December 31, 2022 | Expires December 31, 2023 | Total | |||||||||||||||
$ | 522,796 | $ | 690,695 | $ | 1,698,805 | $ | 770,261 | $ | 3,682,557 |
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, 2020.
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 is 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.
An outbreak of respiratory disease called COVID-19 was first detected in China in December 2019 and subsequently spread internationally. The transmission of COVID-19 and efforts to contain its spread have resulted in international, national and local border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and consumer activity, significant challenges in healthcare service preparation and delivery, quarantines and general concern and uncertainty. These negative impacts have caused significant volatility and declines in global financial markets, which have caused losses for Fund investors during and subsequent to period end. The impact of the COVID-19 pandemic may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession. Public health crises may exacerbate other pre-existing political, social, economic, market and financial risks. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted.
16
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2020, the Victory Funds Complex participated in a short-term demand note "Line of Credit" agreement with Citibank. The Line of Credit agreement with Citibank was renewed on June 29, 2020 with a termination date of June 28, 2021. Under the agreement with Citibank, the Victory Funds Complex and USAA Mutual 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 (herein, the "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. For the six months ended June 30, 2020, Citibank received an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. For the six months ended June 30, 2020, Citibank earned approximately $225 thousand in commitment fees from the combined Victory Funds Complex and USAA Mutual Funds Complex. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest (one month LIBOR plus one percent) on amounts borrowed. Effective June 29, 2020, under an amended Line of Credit agreement, Citibank will also receive an annual upfront fee of 0.10% on the $300 million committed line of credit. Each fund in the Victory Funds Complex will pay a pro-rata portion of the upfront fee. Interest charged to each Fund during the period, if applicable, 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, 2020.
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 Interest expense on interfund lending. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Interfund lending income.
The Fund did not utilize the Facility during the six months ended June 30, 2020.
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, 2020.
At December 31, 2019, the Fund had no capital loss carryforwards for federal income tax purposes.
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
17
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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, 2020, the shareholder listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund. Shareholders of record may hold Fund shares for the benefit of their customers.
Shareholder | Percent | ||||||
GIAC* | 99.8 | %* |
* The Guardian Insurance & Annuity Company, Inc. ("GIAC") is a wholly owned subsidiary of The Guardian Life Insurance Company of America. The amount represents indirect interests of variable annuity contract holders or variable life policyholders.
18
Victory Variable Insurance Funds | Supplemental Information June 30, 2020 |
(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 quarter of each fiscal year on Form N-PORT. Forms N-PORT are available on the SEC's web site 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, 2020 through June 30, 2020.
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 1/1/20 | Actual Ending Account Value 6/30/20 | Hypothetical Ending Account Value 6/30/20 | Actual Expenses Paid During Period 1/1/20-6/30/20* | Hypothetical Expenses Paid During Period 1/1/20-6/30/20* | Annualized Expense Ratio During Period 1/1/20-6/30/20 | ||||||||||||||||||
$ | 1,000.00 | $ | 811.70 | $ | 1,022.13 | $ | 2.48 | $ | 2.77 | 0.55 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
19
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2020 |
(Unaudited)
Liquidity Risk Management Program:
The Victory Funds have adopted and implemented a written liquidity risk management program (the "LRMP") as required by Rule 22e-4 under the Act. The LRMP is reasonably designed to assess and manage each Fund's liquidity risk, taking into consideration each Fund's investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed market conditions; its short and long-term cash flow projections; and its cash holdings and access to other liquidity management tools such as available funding sources including the Victory Funds Complex Interfund Lending Facility and Line of Credit (discussed in the Notes to Financial Statements). The Board approved the appointment of VCM as the administrator of the LRMP. At an in-person meeting held on February 20, 2020, VCM provided an oral and written report to the Trustees on the operation and effectiveness of the LRMP during the previous year.
VCM manages liquidity risks associated with the Funds' investments by monitoring, among other things, cash and cash equivalents, any use of derivatives, the concentration of investments, the appropriateness of each Fund's investment strategy, and by classifying every fund investment as either highly liquid, moderately liquid, less liquid or illiquid on at least a monthly basis. To assist with the classification of Fund investments, VCM has retained a third-party provider of liquidity evaluation services. This provider determines preliminary liquidity classifications for all portfolio holdings based upon portfolio-level data and certain assumptions provided by VCM. VCM reviews the preliminary liquidity classifications and, when appropriate, considers other information including input from the Funds' portfolio managers (including the portfolio managers employed by any investment sub-advisers) in determining final liquidity classifications.
The report from VCM concluded that the Funds did not experience any significant liquidity challenges during the covered period, and the Funds' LRMP is reasonably designed to assess and manage its liquidity risk. The report also concluded that the LRMP continues to operate adequately and effectively to enable VCM to oversee and manage liquidity risk and ensure each Fund is able to meet redemption requests without significant dilution to the remaining investors' interest in each Fund. During the review period, each Fund's portfolio consisted primarily of highly liquid investments, which are defined as cash and any investments reasonably expected to be converted to cash in current market conditions in three business days or less without significantly changing the market value of the investment. Therefore, the Fund has not adopted a Highly Liquid Investment Minimum. The Funds' investments were below the limitation on illiquid investments during the review period. Additionally, VCM indicated that no events occurred that would require the filing of Form N-LIQUID and recommended no material changes to the LRMP.
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.
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 (6/20)
June 30, 2020
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 Objectives & 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 | |||||||
Proxy Voting and Portfolio Holdings Information | 21 | ||||||
Expense Examples | 21 | ||||||
Liquidity Risk Management Program | 22 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Services, 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, 2020 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: 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, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Common Stocks (98.9%) | |||||||||||
Biotechnology (22.2%): | |||||||||||
Adaptimmune Therapeutics PLC, ADR (a) | 49,440 | $ | 494,894 | ||||||||
Aimmune Therapeutics, Inc. (a) (b) | 54,160 | 905,014 | |||||||||
Allogene Therapeutics, Inc. (a) (b) | 17,690 | 757,486 | |||||||||
Amicus Therapeutics, Inc. (a) | 93,119 | 1,404,234 | |||||||||
Apellis Pharmaceuticals, Inc. (a) | 30,970 | 1,011,480 | |||||||||
Arcus Biosciences, Inc. (a) | 23,150 | 572,731 | |||||||||
Arena Pharmaceuticals, Inc. (a) | 16,090 | 1,012,866 | |||||||||
Ascendis Pharma A/S, ADR (a) | 7,040 | 1,041,216 | |||||||||
Avidity Biosciences, Inc. (a) | 21,640 | 611,546 | |||||||||
bluebird bio, Inc. (a) | 17,872 | 1,090,907 | |||||||||
Blueprint Medicines Corp. (a) | 14,236 | 1,110,408 | |||||||||
Celyad SA, ADR (a) (b) | 18,330 | 199,064 | |||||||||
Constellation Pharmaceuticals, Inc. (a) | 19,870 | 597,094 | |||||||||
CytomX Therapeutics, Inc. (a) | 58,420 | 486,639 | |||||||||
Epizyme, Inc. (a) | 57,860 | 929,232 | |||||||||
Equillium, Inc. (a) | 40,457 | 119,348 | |||||||||
Fate Therapeutics, Inc. (a) | 45,520 | 1,561,790 | |||||||||
Generation Bio Co. (a) | 20,460 | 429,660 | |||||||||
Gossamer Bio, Inc. (a) (b) | 38,670 | 502,710 | |||||||||
Immunomedics, Inc. (a) | 20,080 | 711,635 | |||||||||
Invitae Corp. (a) | 28,660 | 868,111 | |||||||||
Iovance Biotherapeutics, Inc. (a) | 34,534 | 947,958 | |||||||||
Krystal Biotech, Inc. (a) | 7,427 | 307,626 | |||||||||
Kura Oncology, Inc. (a) | 52,490 | 855,587 | |||||||||
Mirati Therapeutics, Inc. (a) | 9,530 | 1,088,040 | |||||||||
Myovant Sciences Ltd. (a) | 50,353 | 1,038,279 | |||||||||
ORIC Pharmaceuticals, Inc. (a) (b) | 15,400 | 519,442 | |||||||||
Replimune Group, Inc. (a) | 27,730 | 689,091 | |||||||||
Sage Therapeutics, Inc. (a) (b) | 10,820 | 449,896 | |||||||||
Twist Bioscience Corp. (a) | 15,170 | 687,201 | |||||||||
23,001,185 | |||||||||||
Communication Services (4.7%): | |||||||||||
Bandwidth, Inc., Class A (a) (b) | 27,900 | 3,543,300 | |||||||||
Cardlytics, Inc. (a) (b) | 8,270 | 578,735 | |||||||||
EverQuote, Inc., Class A (a) | 11,970 | 696,175 | |||||||||
4,818,210 | |||||||||||
Consumer Discretionary (8.2%): | |||||||||||
Arco Platform Ltd., Class A (a) | 21,390 | 930,037 | |||||||||
Denny's Corp. (a) | 9,700 | 97,970 | |||||||||
Eldorado Resorts, Inc. (a) (b) | 27,050 | 1,083,622 | |||||||||
Fox Factory Holding Corp. (a) (b) | 8,180 | 675,750 | |||||||||
Frontdoor, Inc. (a) | 20,020 | 887,487 | |||||||||
Ollie's Bargain Outlet Holdings, Inc. (a) (b) | 6,830 | 666,950 | |||||||||
Planet Fitness, Inc., Class A (a) | 13,340 | 808,004 | |||||||||
Skyline Champion Corp. (a) | 18,080 | 440,067 | |||||||||
Strategic Education, Inc. | 11,620 | 1,785,413 |
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, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Wingstop, Inc. (b) | 3,650 | $ | 507,241 | ||||||||
YETI Holdings, Inc. (a) | 13,830 | 590,956 | |||||||||
8,473,497 | |||||||||||
Consumer Staples (6.1%): | |||||||||||
BellRing Brands, Inc., Class A (a) | 92,550 | 1,845,447 | |||||||||
BJ's Wholesale Club Holdings, Inc. (a) | 21,620 | 805,777 | |||||||||
elf Beauty, Inc. (a) | 62,350 | 1,189,015 | |||||||||
Freshpet, Inc. (a) | 9,640 | 806,482 | |||||||||
Hostess Brands, Inc. (a) | 134,550 | 1,644,201 | |||||||||
6,290,922 | |||||||||||
Electronic Equipment, Instruments & Components (0.9%): | |||||||||||
Itron, Inc. (a) | 13,760 | 911,600 | |||||||||
Energy (0.4%): | |||||||||||
Amyris, Inc. PIPE (a) (c) (d) | 113,500 | 444,920 | |||||||||
Financials (5.1%): | |||||||||||
Assetmark Financial Holdings, Inc. (a) | 16,390 | 447,283 | |||||||||
eHealth, Inc. (a) | 7,320 | 719,117 | |||||||||
Essent Group Ltd. | 13,990 | 507,417 | |||||||||
FirstCash, Inc., Class A | 9,366 | 632,018 | |||||||||
LendingTree, Inc. (a) (b) | 1,440 | 416,923 | |||||||||
PRA Group, Inc. (a) (b) | 35,160 | 1,359,285 | |||||||||
Walker & Dunlop, Inc. | 14,170 | 719,978 | |||||||||
Western Alliance Bancorp | 13,670 | 517,683 | |||||||||
5,319,704 | |||||||||||
Health Care Equipment & Supplies (5.5%): | |||||||||||
CryoPort, Inc. (a) (b) | 23,280 | 704,220 | |||||||||
iRhythm Technologies, Inc. (a) (b) | 13,900 | 1,610,871 | |||||||||
Masimo Corp. (a) | 4,420 | 1,007,716 | |||||||||
Nevro Corp. (a) | 11,030 | 1,317,754 | |||||||||
Silk Road Medical, Inc. (a) (b) | 24,130 | 1,010,806 | |||||||||
5,651,367 | |||||||||||
Health Care Providers & Services (3.7%): | |||||||||||
Hanger, Inc. (a) | 30,150 | 499,284 | |||||||||
HealthEquity, Inc. (a) | 15,890 | 932,266 | |||||||||
LHC Group, Inc. (a) | 14,080 | 2,454,426 | |||||||||
3,885,976 | |||||||||||
Health Care Technology (2.1%): | |||||||||||
Health Catalyst, Inc. (a) (b) | 30,706 | 895,694 | |||||||||
Inspire Medical System, Inc. (a) | 14,990 | 1,304,430 | |||||||||
2,200,124 | |||||||||||
Industrials (12.9%): | |||||||||||
Advanced Drainage Systems, Inc. | 18,860 | 931,684 | |||||||||
Axon Enterprise, Inc. (a) (b) | 8,270 | 811,535 | |||||||||
ESCO Technologies, Inc. | 7,420 | 627,213 | |||||||||
Evoqua Water Technologies Corp. (a) | 46,500 | 864,900 |
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, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
FTI Consulting, Inc. (a) | 13,530 | $ | 1,549,862 | ||||||||
Generac Holdings, Inc. (a) | 8,510 | 1,037,624 | |||||||||
Kornit Digital Ltd. (a) | 10,500 | 560,490 | |||||||||
Mercury Systems, Inc. (a) | 21,870 | 1,720,294 | |||||||||
Saia, Inc. (a) | 930 | 103,397 | |||||||||
Simpson Manufacturing Co., Inc. | 14,050 | 1,185,258 | |||||||||
SiteOne Landscape Supply, Inc. (a) (b) | 13,920 | 1,586,462 | |||||||||
Trex Co., Inc. (a) (b) | 8,970 | 1,166,728 | |||||||||
Watts Water Technologies, Inc., Class A | 16,070 | 1,301,670 | |||||||||
13,447,117 | |||||||||||
IT Services (7.4%): | |||||||||||
Evo Payments, Inc., Class A (a) | 38,050 | 868,682 | |||||||||
LiveRamp Holdings, Inc. (a) | 27,360 | 1,161,979 | |||||||||
Repay Holdings Corp. (a) | 27,210 | 670,182 | |||||||||
Wix.com Ltd. (a) | 15,130 | 3,876,609 | |||||||||
WNS Holdings Ltd., ADR (a) | 19,266 | 1,059,245 | |||||||||
7,636,697 | |||||||||||
Pharmaceuticals (1.3%): | |||||||||||
Assembly Biosciences, Inc. (a) | 22,140 | 516,305 | |||||||||
GW Pharmaceuticals PLC, ADR (a) (b) | 6,650 | 816,088 | |||||||||
1,332,393 | |||||||||||
Semiconductors & Semiconductor Equipment (6.6%): | |||||||||||
Advanced Energy Industries, Inc. (a) | 19,080 | 1,293,433 | |||||||||
Cabot Microelectronics Corp. | 8,580 | 1,197,253 | |||||||||
Lattice Semiconductor Corp. (a) | 62,700 | 1,780,053 | |||||||||
MACOM Technology Solutions Holdings, Inc. (a) | 40,000 | 1,374,000 | |||||||||
Silicon Laboratories, Inc. (a) (b) | 11,770 | 1,180,178 | |||||||||
6,824,917 | |||||||||||
Software (11.8%): | |||||||||||
ACI Worldwide, Inc. (a) (b) | 49,760 | 1,343,022 | |||||||||
Avaya Holdings Corp. (a) (b) | 107,570 | 1,329,565 | |||||||||
Bill.com Holdings, Inc. (a) | 5,900 | 532,239 | |||||||||
Cornerstone OnDemand, Inc. (a) | 8,490 | 327,374 | |||||||||
Envestnet, Inc. (a) | 17,850 | 1,312,689 | |||||||||
Everbridge, Inc. (a) | 21,560 | 2,983,043 | |||||||||
Five9, Inc. (a) | 8,160 | 903,067 | |||||||||
Q2 Holdings, Inc. (a) (b) | 15,120 | 1,297,145 | |||||||||
Varonis Systems, Inc. (a) | 24,790 | 2,193,419 | |||||||||
12,221,563 | |||||||||||
Total Common Stocks (Cost $82,751,178) | 102,460,192 |
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, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Preferred Stocks (0.3%) | |||||||||||
Energy (0.3%): | |||||||||||
Amyris, Inc. PIPE (a) (c) (d) | 276 | $ | 353,092 | ||||||||
Total Preferred Stocks (Cost $276,350) | 353,092 | ||||||||||
Collateral for Securities Loaned^ (11.5%) | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 0.28% (e) | 198,389 | 198,389 | |||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 0.09% (e) | 6,004,363 | 6,004,363 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 0.30% (e) | 1,379,589 | 1,379,589 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 0.43% (e) | 789,441 | 789,441 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 0.41% (e) | 3,549,479 | 3,549,479 | |||||||||
Total Collateral for Securities Loaned (Cost $11,921,261) | 11,921,261 | ||||||||||
Total Investments (Cost $94,948,789) — 110.7% | 114,734,545 | ||||||||||
Liabilities in excess of other assets — (10.7)% | (11,106,263 | ) | |||||||||
NET ASSETS — 100.00% | $ | 103,628,282 |
^ 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) The Fund's Adviser has deemed this security to be illiquid based upon procedures approved by the Board of Trustees. As of June 30, 2020, illiquid securities were 0.8% of the Fund's net assets.
(d) Security was fair valued based upon procedures approved by the Board of Trustees and represents 0.8% of the Fund's net assets as of June 30, 2020. (See Note 2)
(e) Rate disclosed is the daily yield on June 30, 2020.
ADR — American Depositary Receipt
PIPE — Private Investment in Public Equity
PLC — Public Limited Company
See notes to financial statements.
7
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2020 |
(Unaudited)
Victory RS Small Cap Growth Equity VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $94,948,789) | $ | 114,734,545 | (a) | ||||
Cash and cash equivalents | 768,136 | ||||||
Receivables: | |||||||
Interest and dividends | 15,070 | ||||||
Capital shares issued | 15,506 | ||||||
Investments sold | 2,040,241 | ||||||
From Adviser | 20,848 | ||||||
Prepaid expenses | 3,285 | ||||||
Total Assets | 117,597,631 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 11,921,261 | ||||||
Investments purchased | 1,274,235 | ||||||
Capital shares redeemed | 682,242 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 63,115 | ||||||
Administration fees | 5,098 | ||||||
Custodian fees | 603 | ||||||
Transfer agent fees | 8,811 | ||||||
Compliance fees | 85 | ||||||
Other accrued expenses | 13,899 | ||||||
Total Liabilities | 13,969,349 | ||||||
NET ASSETS: | |||||||
Capital | 66,375,762 | ||||||
Total distributable earnings/(loss) | 37,252,520 | ||||||
Net Assets | $ | 103,628,282 | |||||
Shares Outstanding (unlimited shares authorized with a par value of $0.001 per share): | 6,013,096 | ||||||
Net asset value: | $ | 17.23 |
(a) Includes $11,815,817 of securities on loan.
See notes to financial statements.
8
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2020 |
(Unaudited)
Victory RS Small Cap Growth Equity VIP Series | |||||||
Investment Income: | |||||||
Dividends | $ | 39,209 | |||||
Interest | 8,873 | ||||||
Securities lending (net of fees) | 35,383 | ||||||
Total Income | 83,465 | ||||||
Expenses: | |||||||
Investment advisory fees | 357,179 | ||||||
Administration fees | 29,134 | ||||||
Sub-Administration fees | 7,462 | ||||||
Custodian fees | 3,974 | ||||||
Transfer agent fees | 62,163 | ||||||
Trustees' fees | 4,304 | ||||||
Compliance fees | 398 | ||||||
Legal and audit fees | 8,403 | ||||||
Other expenses | 12,550 | ||||||
Total Expenses | 485,567 | ||||||
Expenses waived/reimbursed by Adviser | (66,541 | ) | |||||
Net Expenses | 419,026 | ||||||
Net Investment Income (Loss) | (335,561 | ) | |||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities | (841,771 | ) | |||||
Net change in unrealized appreciation/depreciation on investment securities | 3,643,580 | ||||||
Net realized/unrealized gains on investments | 2,801,809 | ||||||
Change in net assets resulting from operations | $ | 2,466,248 |
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, 2020 (Unaudited) | Year Ended December 31, 2019 | ||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | (335,561 | ) | $ | (561,672 | ) | |||||
Net realized gains (losses) from investments | (841,771 | ) | 20,085,016 | ||||||||
Net change in unrealized appreciation/depreciation on investments | 3,643,580 | 13,360,263 | |||||||||
Change in net assets resulting from operations | 2,466,248 | 32,883,607 | |||||||||
Change in net assets resulting from distributions to shareholders | — | (21,884,620 | ) | ||||||||
Change in net assets resulting from capital transactions | (3,950,301 | ) | 5,057,374 | ||||||||
Change in net assets | (1,484,053 | ) | 16,056,361 | ||||||||
Net Assets: | |||||||||||
Beginning of period | 105,112,335 | 89,055,974 | |||||||||
End of period | $ | 103,628,282 | $ | 105,112,335 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 7,456,657 | $ | 5,861,988 | |||||||
Distributions reinvested | — | 21,884,620 | |||||||||
Cost of shares redeemed | (11,406,958 | ) | (22,689,234 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (3,950,301 | ) | $ | 5,057,374 | ||||||
Share Transactions: | |||||||||||
Issued | 489,739 | 305,660 | |||||||||
Reinvested | — | 1,330,372 | |||||||||
Redeemed | (748,676 | ) | (1,188,577 | ) | |||||||
Change in Shares | (258,937 | ) | 447,455 |
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)(a) | 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 June 30, 2020 (unaudited) | $ | 16.76 | (0.05 | ) | 0.52 | 0.47 | — | — | |||||||||||||||||||
Year Ended December 31, 2019 | $ | 15.29 | (0.10 | ) | 5.95 | 5.85 | (4.38 | ) | (4.38 | ) | |||||||||||||||||
Year Ended December 31, 2018 | $ | 20.48 | (0.10 | ) | (1.62 | ) | (1.72 | ) | (3.47 | ) | (3.47 | ) | |||||||||||||||
Year Ended December 31, 2017 | $ | 14.82 | (0.05 | ) | 5.71 | 5.66 | — | — | |||||||||||||||||||
Year Ended December 31, 2016 | $ | 14.61 | (0.05 | ) | 0.25 | 0.20 | — | — | |||||||||||||||||||
Year Ended December 31, 2015 | $ | 17.47 | (0.10 | ) | 0.24 | 0.14 | (3.00 | ) | (3.00 | ) |
(a) Per share net investment income (loss) has been calculated using the average daily shares method.
(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) Not annualized for periods less than one year.
(d) Annualized for periods less than one year.
(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)
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 Contribution from Prior Custodian, Net (See Note 8) | Net Asset Value, End of Period | Total Return(b)(c) | Net Expenses(d) | Net Investment Income (Loss)(d) | Gross Expenses(d) | Net Assets, End of Period (000's) | Portfolio Turnover(c) | ||||||||||||||||||||||||||||
Victory RS Small Cap Growth Equity VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2020 (unaudited) | — | $ | 17.23 | 2.80 | % | 0.88 | % | (0.70 | )% | 1.02 | % | $ | 103,628 | 41 | % | ||||||||||||||||||||
Year Ended December 31, 2019 | — | $ | 16.76 | 38.78 | % | 0.88 | % | (0.54 | )% | 1.01 | % | $ | 105,112 | 90 | % | ||||||||||||||||||||
Year Ended December 31, 2018 | — | $ | 15.29 | (8.25 | )% | 0.88 | % | (0.44 | )% | 0.89 | % | $ | 89,056 | 76 | % | ||||||||||||||||||||
Year Ended December 31, 2017 | — | $ | 20.48 | 38.19 | % | 0.87 | % | (0.30 | )% | 0.87 | % | $ | 111,470 | 71 | % | ||||||||||||||||||||
Year Ended December 31, 2016 | 0.01 | $ | 14.82 | 1.44 | %(e) | 0.88 | % | (0.39 | )% | 0.88 | % | $ | 97,242 | 91 | % | ||||||||||||||||||||
Year Ended December 31, 2015 | — | $ | 14.61 | 0.62 | % | 0.88 | % | (0.54 | )% | 0.88 | % | $ | 106,962 | 88 | % |
See notes to financial statements.
13
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2020 |
(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. Victory RS Small Cap Growth Equity VIP Series (the "Fund"), a series of the Trust, offers a single class of shares: Class I Shares. The Fund's shares are only available for purchase by certain separate accounts of insurance companies as investments for certain variable annuity plans and variable life insurance contracts issued by those insurance companies. The accompanying financial statements are those of the Fund.
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 generally accepted accounting principles 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, 2020 |
(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, 2020, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed on the Schedule of Portfolio Investments.
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks | $ | 102,015,272 | $ | 444,920 | $ | — | $ | 102,460,192 | |||||||||||
Preferred Stocks | — | 353,092 | — | 353,092 | |||||||||||||||
Collateral for Securities Loaned | 11,921,261 | — | — | 11,921,261 | |||||||||||||||
Total | $ | 113,936,533 | $ | 798,012 | $ | — | $ | 114,734,545 |
For the six months ended June 30, 2020, there were no transfers in or out of the Level 3 fair value hierarchy.
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 determined on the basis of coupon interest accrued using the effective interest method which adjusts, 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 recorded on the identified cost basis. 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 on 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 on 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, 2020. These transactions are accounted for as secured borrowings
15
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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 | ||||||||||||||||||
$ | 11,815,817 | $ | 11,815,817 | $ | — | $ | — | $ | — | $ | — |
* 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 on the Statement of Assets and Liabilities.
Distributions 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 (collectively, distributions to shareholders) 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 years, which includes the current fiscal tax year end). 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.
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, 2020 were as follows for the Fund:
Purchases | Sales | ||||||
$ | 38,428,883 | $ | 41,167,104 |
For the six months ended June 30, 2020, there were no purchases or sales of U.S. Government Securities.
16
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(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 0.75% 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, 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 Fund reimburses VCM and Citi for reasonable out-of-pocket expenses incurred in providing these services and certain other expenses specifically allocated to the Fund under the Fund Administration, Servicing, and Accounting Agreement. Amounts paid by the Fund to reimburse VCM for expenses incurred during the six months ended June 30, 2020, are reflected on the Statement of Operations as Sub-Administration fees.
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 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 on the Statement of Operations.
Sidley Austin LLP provides legal services to the Trust.
Victory Capital Services, 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. Effective June 30, 2020, the Distributor's name was changed from Victory Capital Advisers, Inc.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2021. 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. As of June 30, 2020, the expense limit (excluding voluntary waivers) is 0.88%.
17
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(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 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. 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. As of June 30, 2020, the following amounts are available to be repaid to the Adviser.
Expires December 31, 2021 | Expires December 31, 2022 | Expires December 31, 2023 | Total | ||||||||||||
$ | 5,628 | $ | 133,480 | $ | 66,541 | $ | 205,649 |
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, 2020.
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 is 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.
An outbreak of respiratory disease called COVID-19 was first detected in China in December 2019 and subsequently spread internationally. The transmission of COVID-19 and efforts to contain its spread have resulted in international, national and local border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and consumer activity, significant challenges in healthcare service preparation and delivery, quarantines and general concern and uncertainty. These negative impacts have caused significant volatility and declines in global financial markets, which have caused losses for Fund investors during and subsequent to period end. The impact of the COVID-19 pandemic may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession. Public health crises may exacerbate other pre-existing political, social, economic, market and financial risks. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted.
18
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2020, the Victory Funds Complex participated in a short-term demand note "Line of Credit" agreement with Citibank. The Line of Credit agreement with Citibank was renewed on June 29, 2020 with a termination date of June 28, 2021. Under the agreement with Citibank, the Victory Funds Complex and USAA Mutual 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 (herein, the "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. For the six months ended June 30, 2020, Citibank received an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. For the six months ended June 30, 2020, Citibank earned approximately $225 thousand in commitment fees from the combined Victory Funds Complex and USAA Mutual Funds Complex. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest (one month LIBOR plus one percent) on amounts borrowed. Effective June 29, 2020, under an amended Line of Credit agreement, Citibank will also receive an annual upfront fee of 0.10% on the $300 million committed line of credit. Each fund in the Victory Funds Complex will pay a pro-rata portion of the upfront fee. Interest charged to each Fund during the period, if applicable, 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, 2020.
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 Interest expense on interfund lending. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Interfund lending income.
The Fund did not utilize the Facility during the six months ended June 30, 2020.
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, 2020.
At December 31, 2019, the Fund had no capital loss carryforwards for federal income tax purposes.
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
19
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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, 2020, the shareholder listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund. Shareholders of record may hold Fund shares for the benefit of their customers.
Shareholder | Percent | ||||||
GIAC* | 93.6 | %* |
* The Guardian Insurance & Annuity Company, Inc. ("GIAC") is a wholly owned subsidiary of The Guardian Life Insurance Company of America. The amount represents indirect interests of variable annuity contract holders or variable life policyholders.
20
Victory Variable Insurance Funds | Supplemental Information June 30, 2020 |
(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 quarter of each fiscal year on Form N-PORT. Forms N-PORT are available on the SEC's web site 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, 2020 through June 30, 2020.
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 1/1/20 | Actual Ending Account Value 6/30/20 | Hypothetical Ending Account Value 6/30/20 | Actual Expenses Paid During Period 1/1/20-6/30/20* | Hypothetical Expenses Paid During Period 1/1/20-6/30/20* | Annualized Expense Ratio During Period 1/1/20-6/30/20 | ||||||||||||||||||
$ | 1,000.00 | $ | 1,028.00 | $ | 1,020.49 | $ | 4.44 | $ | 4.42 | 0.88 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
21
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2020 |
(Unaudited)
Liquidity Risk Management Program:
The Victory Funds have adopted and implemented a written liquidity risk management program (the "LRMP") as required by Rule 22e-4 under the Act. The LRMP is reasonably designed to assess and manage each Fund's liquidity risk, taking into consideration each Fund's investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed market conditions; its short and long-term cash flow projections; and its cash holdings and access to other liquidity management tools such as available funding sources including the Victory Funds Complex Interfund Lending Facility and Line of Credit (discussed in the Notes to Financial Statements). The Board approved the appointment of VCM as the administrator of the LRMP. At an in-person meeting held on February 20, 2020, VCM provided an oral and written report to the Trustees on the operation and effectiveness of the LRMP during the previous year. VCM manages liquidity risks associated with the Funds' investments by monitoring, among other things, cash and cash equivalents, any use of derivatives, the concentration of investments, the appropriateness of each Fund's investment strategy, and by classifying every fund investment as either highly liquid, moderately liquid, less liquid or illiquid on at least a monthly basis. To assist with the classification of Fund investments, VCM has retained a third-party provider of liquidity evaluation services. This provider determines preliminary liquidity classifications for all portfolio holdings based upon portfolio-level data and certain assumptions provided by VCM. VCM reviews the preliminary liquidity classifications and, when appropriate, considers other information including input from the Funds' portfolio managers (including the portfolio managers employed by any investment sub-advisers) in determining final liquidity classifications.
The report from VCM concluded that the Funds did not experience any significant liquidity challenges during the covered period, and the Funds' LRMP is reasonably designed to assess and manage its liquidity risk. The report also concluded that the LRMP continues to operate adequately and effectively to enable VCM to oversee and manage liquidity risk and ensure each Fund is able to meet redemption requests without significant dilution to the remaining investors' interest in each Fund. During the review period, each Fund's portfolio consisted primarily of highly liquid investments, which are defined as cash and any investments reasonably expected to be converted to cash in current market conditions in three business days or less without significantly changing the market value of the investment. Therefore, the Fund has not adopted a Highly Liquid Investment Minimum. The Funds' investments were below the limitation on illiquid investments during the review period. Additionally, VCM indicated that no events occurred that would require the filing of Form N-LIQUID and recommended no material changes to the LRMP.
22
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 (6/20)
June 30, 2020
Semi Annual Report
Victory Variable Insurance Funds
Victory 500 Index VIP Series
(formerly 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 Objectives & Portfolio Holdings | 3 | ||||||
Schedule of Portfolio Investments | 4 | ||||||
Statement of Assets and Liabilities | 16 | ||||||
Statement of Operations | 17 | ||||||
Statements of Changes in Net Assets | 18 | ||||||
Financial Highlights | 20 | ||||||
Notes to Financial Statements | 22 | ||||||
Supplemental Information | |||||||
Proxy Voting and Portfolio Holdings Information | 30 | ||||||
Expense Examples | 30 | ||||||
Liquidity Risk Management Program | 31 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Services, 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, 2020 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: Victory 500 Index VIP Series seeks to match, before fees and expenses, the performance of the stocks composing the Victory US Large Cap 500 Index.
Portfolio Holdings*:
* Percentages are of total investments of the Fund.
3
Victory Variable Insurance Funds Victory 500 Index VIP Series | Schedule of Portfolio Investments June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Common Stocks (99.4%) | |||||||||||
Communication Services (10.9%): | |||||||||||
Activision Blizzard, Inc. | 2,248 | $ | 170,623 | ||||||||
Alphabet, Inc., Class C (a) | 2,117 | 2,992,611 | |||||||||
Altice USA, Inc., Class A (a) | 263 | 5,928 | |||||||||
AT&T, Inc. | 25,001 | 755,780 | |||||||||
CenturyLink, Inc. | 3,405 | 34,152 | |||||||||
Charter Communications, Inc., Class A (a) | 648 | 330,506 | |||||||||
Comcast Corp., Class A | 15,340 | 597,954 | |||||||||
Discovery, Inc., Class A (a) (b) | 449 | 9,474 | |||||||||
DISH Network Corp., Class A (a) | 774 | 26,711 | |||||||||
Electronic Arts, Inc. (a) | 1,002 | 132,314 | |||||||||
Facebook, Inc., Class A (a) | 7,787 | 1,768,194 | |||||||||
Fox Corp., Class A | 1,092 | 29,287 | |||||||||
Liberty Broadband Corp., Class A (a) | 585 | 71,481 | |||||||||
Liberty Media Corp-Liberty SiriusXM, Class A (a) | 962 | 33,208 | |||||||||
Live Nation Entertainment, Inc. (a) | 549 | 24,337 | |||||||||
Match Group, Inc. (a) (b) | 225 | 72,765 | |||||||||
Match Group, Inc. (a) | 116 | 12,418 | |||||||||
Netflix, Inc. (a) | 1,398 | 636,146 | |||||||||
Omnicom Group, Inc. (b) | 744 | 40,622 | |||||||||
Pinterest, Inc., Class A (a) | 304 | 6,740 | |||||||||
Sirius XM Holdings, Inc. (b) | 4,529 | 26,585 | |||||||||
Snap, Inc., Class A (a) (b) | 3,293 | 77,353 | |||||||||
Take-Two Interactive Software, Inc. (a) | 400 | 55,828 | |||||||||
The Walt Disney Co. | 5,670 | 632,262 | |||||||||
T-Mobile U.S., Inc. (a) | 1,461 | 152,163 | |||||||||
Twitter, Inc. (a) | 2,696 | 80,314 | |||||||||
Verizon Communications, Inc. | 14,215 | 783,673 | |||||||||
ViacomCBS, Inc., Class B (b) | 1,796 | 41,883 | |||||||||
Zillow Group, Inc., Class C (a) | 315 | 18,147 | |||||||||
9,619,459 | |||||||||||
Communications Equipment (1.0%): | |||||||||||
Arista Networks, Inc. (a) | 218 | 45,787 | |||||||||
Cisco Systems, Inc. | 14,815 | 690,971 | |||||||||
Motorola Solutions, Inc. | 585 | 81,976 | |||||||||
Palo Alto Networks, Inc. (a) (c) | 328 | 75,332 | |||||||||
894,066 | |||||||||||
Consumer Discretionary (11.2%): | |||||||||||
Advance Auto Parts, Inc. (b) | 237 | 33,761 | |||||||||
Amazon.com, Inc. (a) | 1,565 | 4,317,553 | |||||||||
AutoZone, Inc. (a) | 82 | 92,506 | |||||||||
Best Buy Co., Inc. | 715 | 62,398 | |||||||||
Booking Holdings, Inc. (a) | 142 | 226,112 | |||||||||
Bright Horizons Family Solutions, Inc. (a) | 196 | 22,971 | |||||||||
Burlington Stores, Inc. (a) | 199 | 39,189 | |||||||||
CarMax, Inc. (a) | 498 | 44,596 | |||||||||
Carnival Corp. (b) | 1,749 | 28,719 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Carvana Co. (a) | 37 | $ | 4,447 | ||||||||
Chewy, Inc., Class A (a) (b) | 177 | 7,910 | |||||||||
Chipotle Mexican Grill, Inc. (a) | 96 | 101,027 | |||||||||
D.R. Horton, Inc. | 1,181 | 65,486 | |||||||||
Darden Restaurants, Inc. | 426 | 32,278 | |||||||||
Dollar General Corp. | 790 | 150,503 | |||||||||
Dollar Tree, Inc. (a) | 718 | 66,544 | |||||||||
Domino's Pizza, Inc. | 118 | 43,594 | |||||||||
eBay, Inc. | 2,439 | 127,926 | |||||||||
Expedia Group, Inc. | 463 | 38,059 | |||||||||
Ford Motor Co. | 13,514 | 82,165 | |||||||||
General Motors Co., Class C | 4,281 | 108,309 | |||||||||
Genuine Parts Co. | 500 | 43,480 | |||||||||
Hasbro, Inc. | 430 | 32,229 | |||||||||
Hilton Worldwide Holdings, Inc. | 819 | 60,156 | |||||||||
Las Vegas Sands Corp. (c) | 1,214 | 55,286 | |||||||||
Lennar Corp., Class A | 912 | 56,197 | |||||||||
Lowe's Cos., Inc. | 2,566 | 346,718 | |||||||||
Marriott International, Inc., Class A | 971 | 83,244 | |||||||||
McDonald's Corp. | 2,390 | 440,882 | |||||||||
MGM Resorts International (b) | 1,677 | 28,174 | |||||||||
Nike, Inc., Class B | 4,423 | 433,676 | |||||||||
NVR, Inc. (a) | 13 | 42,364 | |||||||||
O'Reilly Automotive, Inc. (a) | 261 | 110,056 | |||||||||
PulteGroup, Inc. | 932 | 31,716 | |||||||||
Roku, Inc. (a) | 67 | 7,808 | |||||||||
Ross Stores, Inc. | 1,129 | 96,236 | |||||||||
Royal Caribbean Cruises Ltd. | 588 | 29,576 | |||||||||
Starbucks Corp. | 4,013 | 295,316 | |||||||||
Target Corp. (c) | 1,755 | 210,477 | |||||||||
Tesla, Inc. (a) | 473 | 510,751 | |||||||||
The Home Depot, Inc. | 3,773 | 945,174 | |||||||||
The TJX Cos., Inc. | 4,204 | 212,554 | |||||||||
Tiffany & Co. | 404 | 49,264 | |||||||||
Tractor Supply Co. | 402 | 52,980 | |||||||||
Ulta Beauty, Inc. (a) | 198 | 40,277 | |||||||||
VF Corp. | 1,193 | 72,701 | |||||||||
Wynn Resorts Ltd. (b) | 295 | 21,975 | |||||||||
Yum! Brands, Inc. | 890 | 77,350 | |||||||||
10,082,670 | |||||||||||
Consumer Staples (6.9%): | |||||||||||
Altria Group, Inc. | 6,520 | 255,910 | |||||||||
Archer-Daniels-Midland Co. | 1,867 | 74,493 | |||||||||
Brown-Forman Corp., Class B | 918 | 58,440 | |||||||||
Campbell Soup Co. | 747 | 37,074 | |||||||||
Church & Dwight Co., Inc. | 799 | 61,763 | |||||||||
Colgate-Palmolive Co. | 2,910 | 213,187 | |||||||||
Conagra Brands, Inc. | 1,547 | 54,408 | |||||||||
Constellation Brands, Inc., Class A | 584 | 102,171 | |||||||||
Costco Wholesale Corp. | 1,500 | 454,815 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
General Mills, Inc. | 2,104 | $ | 129,712 | ||||||||
Hormel Foods Corp. (b) | 1,035 | 49,959 | |||||||||
Kellogg Co. | 950 | 62,757 | |||||||||
Keurig Dr Pepper, Inc. | 1,144 | 32,490 | |||||||||
Kimberly-Clark Corp. | 1,195 | 168,913 | |||||||||
Lamb Weston Holdings, Inc. | 454 | 29,024 | |||||||||
McCormick & Co., Inc. | 344 | 61,717 | |||||||||
Molson Coors Beverage Co., Class B | 472 | 16,218 | |||||||||
Mondelez International, Inc., Class A | 4,904 | 250,742 | |||||||||
Monster Beverage Corp. (a) | 1,770 | 122,696 | |||||||||
PepsiCo, Inc. | 4,869 | 643,974 | |||||||||
Philip Morris International, Inc. | 5,407 | 378,814 | |||||||||
Sysco Corp. | 1,744 | 95,327 | |||||||||
The Clorox Co. | 437 | 95,865 | |||||||||
The Coca-Cola Co. | 14,436 | 645,000 | |||||||||
The Estee Lauder Cos., Inc., Class A | 705 | 133,019 | |||||||||
The Hershey Co. | 491 | 63,643 | |||||||||
The J.M. Smucker Co. | 396 | 41,901 | |||||||||
The Kraft Heinz Co. | 2,392 | 76,281 | |||||||||
The Kroger Co. | 2,440 | 82,594 | |||||||||
The Procter & Gamble Co. | 8,505 | 1,016,942 | |||||||||
Tyson Foods, Inc., Class A | 862 | 51,470 | |||||||||
Walgreens Boots Alliance, Inc. | 2,528 | 107,162 | |||||||||
Walmart, Inc. | 5,234 | 626,928 | |||||||||
6,295,409 | |||||||||||
Electronic Equipment, Instruments & Components (0.4%): | |||||||||||
Amphenol Corp., Class A | 907 | 86,899 | |||||||||
CDW Corp. | 499 | 57,974 | |||||||||
Corning, Inc. | 2,670 | 69,153 | |||||||||
Keysight Technologies, Inc. (a) | 602 | 60,670 | |||||||||
Trimble, Inc. (a) | 757 | 32,695 | |||||||||
Zebra Technologies Corp. (a) | 175 | 44,791 | |||||||||
352,182 | |||||||||||
Energy (2.7%): | |||||||||||
Apache Corp. | 1,324 | 17,874 | |||||||||
Baker Hughes Co. | 2,364 | 36,382 | |||||||||
Cheniere Energy, Inc. (a) | 884 | 42,715 | |||||||||
Chevron Corp. | 6,551 | 584,546 | |||||||||
Concho Resources, Inc. | 479 | 24,669 | |||||||||
ConocoPhillips | 3,723 | 156,440 | |||||||||
Diamondback Energy, Inc. | 431 | 18,024 | |||||||||
EOG Resources, Inc. | 1,762 | 89,263 | |||||||||
Exxon Mobil Corp. | 14,368 | 642,537 | |||||||||
Halliburton Co. | 3,078 | 39,952 | |||||||||
Hess Corp. | 896 | 46,422 | |||||||||
Kinder Morgan, Inc. | 7,435 | 112,789 | |||||||||
Marathon Petroleum Corp. | 2,282 | 85,301 | |||||||||
Occidental Petroleum Corp. | 3,159 | 57,810 | |||||||||
ONEOK, Inc. | 1,422 | 47,239 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Phillips 66 | 1,533 | $ | 110,223 | ||||||||
Pioneer Natural Resources Co. | 542 | 52,953 | |||||||||
Schlumberger Ltd. | 4,768 | 87,684 | |||||||||
The Williams Cos., Inc. | 4,213 | 80,131 | |||||||||
Valero Energy Corp. | 1,416 | 83,289 | |||||||||
2,416,243 | |||||||||||
Financials (10.1%): | |||||||||||
Aflac, Inc. | 2,305 | 83,049 | |||||||||
AGNC Investment Corp. | 1,879 | 24,239 | |||||||||
Alleghany Corp. | 49 | 23,968 | |||||||||
Ally Financial, Inc. | 1,254 | 24,867 | |||||||||
American Express Co. | 2,408 | 229,241 | |||||||||
American International Group, Inc. | 2,926 | 91,233 | |||||||||
Ameriprise Financial, Inc. | 424 | 63,617 | |||||||||
Annaly Capital Management, Inc. | 4,807 | 31,534 | |||||||||
Arch Capital Group Ltd. (a) (b) | 1,168 | 33,463 | |||||||||
Arthur J. Gallagher & Co. | 658 | 64,148 | |||||||||
Bank of America Corp. | 28,519 | 677,326 | |||||||||
Berkshire Hathaway, Inc., Class B (a) | 7,629 | 1,361,853 | |||||||||
BlackRock, Inc., Class A | 444 | 241,576 | |||||||||
Brown & Brown, Inc. | 806 | 32,853 | |||||||||
Capital One Financial Corp. | 1,580 | 98,892 | |||||||||
Cboe Global Markets, Inc. | 352 | 32,835 | |||||||||
Cincinnati Financial Corp. | 527 | 33,744 | |||||||||
Citigroup, Inc. | 7,151 | 365,416 | |||||||||
Citizens Financial Group, Inc. | 1,481 | 37,380 | |||||||||
CME Group, Inc. | 993 | 161,402 | |||||||||
CNA Financial Corp. | 111 | 3,569 | |||||||||
Discover Financial Services | 1,006 | 50,391 | |||||||||
E*TRADE Financial Corp. | 726 | 36,104 | |||||||||
Equitable Holdings, Inc. | 1,148 | 22,145 | |||||||||
Everest Re Group Ltd. (b) | 113 | 23,301 | |||||||||
FactSet Research Systems, Inc. | 125 | 41,059 | |||||||||
Fidelity National Financial, Inc. | 982 | 30,108 | |||||||||
Fifth Third Bancorp | 2,314 | 44,614 | |||||||||
First Republic Bank | 594 | 62,958 | |||||||||
Franklin Resources, Inc. (b) | 1,061 | 22,249 | |||||||||
Globe Life, Inc. | 349 | 25,906 | |||||||||
Huntington Bancshares, Inc. | 3,483 | 31,469 | |||||||||
Intercontinental Exchange, Inc. | 1,920 | 175,872 | |||||||||
JPMorgan Chase & Co. | 10,467 | 984,526 | |||||||||
KeyCorp | 3,387 | 41,254 | |||||||||
Loews Corp. | 853 | 29,249 | |||||||||
M&T Bank Corp. | 427 | 44,395 | |||||||||
Markel Corp. (a) (b) | 49 | 45,235 | |||||||||
MarketAxess Holdings, Inc. | 124 | 62,114 | |||||||||
Marsh & McLennan Cos., Inc. | 1,640 | 176,088 | |||||||||
MetLife, Inc. | 2,850 | 104,082 | |||||||||
Moody's Corp. | 603 | 165,662 | |||||||||
Morgan Stanley | 4,424 | 213,679 |
See notes to financial statements.
7
Victory Variable Insurance Funds Victory 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
MSCI, Inc. | 283 | $ | 94,471 | ||||||||
Nasdaq, Inc. | 394 | 47,071 | |||||||||
Northern Trust Corp. | 731 | 57,998 | |||||||||
Principal Financial Group, Inc. | 830 | 34,478 | |||||||||
Prudential Financial, Inc. | 1,387 | 84,468 | |||||||||
Raymond James Financial, Inc. | 456 | 31,386 | |||||||||
Regions Financial Corp. | 3,368 | 37,452 | |||||||||
S&P Global, Inc. | 819 | 269,845 | |||||||||
State Street Corp. | 1,158 | 73,591 | |||||||||
SVB Financial Group (a) | 162 | 34,916 | |||||||||
Synchrony Financial | 1,768 | 39,179 | |||||||||
T. Rowe Price Group, Inc. | 791 | 97,689 | |||||||||
TD Ameritrade Holding Corp. | 1,019 | 37,071 | |||||||||
The Allstate Corp. | 1,102 | 106,883 | |||||||||
The Bank of New York Mellon Corp. | 2,976 | 115,022 | |||||||||
The Blackstone Group, Inc., Class A | 2,350 | 133,151 | |||||||||
The Charles Schwab Corp. | 4,280 | 144,407 | |||||||||
The Goldman Sachs Group, Inc. | 1,206 | 238,330 | |||||||||
The Hartford Financial Services Group, Inc. | 1,243 | 47,918 | |||||||||
The PNC Financial Services Group, Inc. | 1,489 | 156,658 | |||||||||
The Progressive Corp. | 2,054 | 164,546 | |||||||||
The Travelers Cos., Inc. | 888 | 101,276 | |||||||||
Tradeweb Markets, Inc., Class A | 151 | 8,779 | |||||||||
Truist Financial Corp. | 4,729 | 177,574 | |||||||||
U.S. Bancorp | 5,008 | 184,395 | |||||||||
W.R. Berkley Corp. (b) | 442 | 25,322 | |||||||||
Wells Fargo & Co. | 13,933 | 356,685 | |||||||||
9,049,226 | |||||||||||
Health Care (13.9%): | |||||||||||
Abbott Laboratories | 6,206 | 567,414 | |||||||||
AbbVie, Inc. | 6,118 | 600,665 | |||||||||
Agilent Technologies, Inc. | 1,049 | 92,700 | |||||||||
Alexion Pharmaceuticals, Inc. (a) | 734 | 82,384 | |||||||||
Align Technology, Inc. (a) (b) | 256 | 70,257 | |||||||||
Alnylam Pharmaceuticals, Inc. (a) (b) | 288 | 42,656 | |||||||||
AmerisourceBergen Corp. | 540 | 54,416 | |||||||||
Amgen, Inc. | 1,933 | 455,917 | |||||||||
Anthem, Inc. | 884 | 232,474 | |||||||||
Baxter International, Inc. | 1,785 | 153,689 | |||||||||
Becton, Dickinson & Co. | 984 | 235,442 | |||||||||
Biogen, Inc. (a) | 506 | 135,380 | |||||||||
BioMarin Pharmaceutical, Inc. (a) | 487 | 60,067 | |||||||||
Bio-Rad Laboratories, Inc., Class A (a) | 67 | 30,250 | |||||||||
Boston Scientific Corp. (a) | 4,496 | 157,855 | |||||||||
Bristol-Myers Squibb Co. | 7,939 | 466,813 | |||||||||
Cardinal Health, Inc. | 1,024 | 53,443 | |||||||||
Centene Corp. (a) | 1,689 | 107,336 | |||||||||
Cerner Corp. | 1,067 | 73,143 | |||||||||
Cigna Corp. | 1,185 | 222,365 | |||||||||
CVS Health Corp. | 4,345 | 282,295 |
See notes to financial statements.
8
Victory Variable Insurance Funds Victory 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Danaher Corp. | 2,298 | $ | 406,355 | ||||||||
DaVita, Inc. (a) | 310 | 24,533 | |||||||||
DENTSPLY SIRONA, Inc. | 720 | 31,723 | |||||||||
DexCom, Inc. (a) | 293 | 118,782 | |||||||||
Edwards Lifesciences Corp. (a) | 2,174 | 150,245 | |||||||||
Elanco Animal Health, Inc. (a) | 1,178 | 25,268 | |||||||||
Eli Lilly & Co. | 3,111 | 510,764 | |||||||||
Exact Sciences Corp. (a) | 470 | 40,862 | |||||||||
Gilead Sciences, Inc. (c) | 4,030 | 310,068 | |||||||||
HCA Healthcare, Inc. | 910 | 88,325 | |||||||||
Hologic, Inc. (a) | 734 | 41,838 | |||||||||
Humana, Inc. | 419 | 162,467 | |||||||||
IDEXX Laboratories, Inc. (a) | 279 | 92,115 | |||||||||
Illumina, Inc. (a) | 450 | 166,658 | |||||||||
Incyte Corp. (a) | 674 | 70,076 | |||||||||
Insulet Corp. (a) | 162 | 31,470 | |||||||||
Intuitive Surgical, Inc. (a) | 367 | 209,128 | |||||||||
IQVIA Holdings, Inc. (a) | 664 | 94,208 | |||||||||
Johnson & Johnson (c) | 8,953 | 1,259,061 | |||||||||
Laboratory Corp. of America Holdings (a) | 342 | 56,810 | |||||||||
McKesson Corp. | 568 | 87,143 | |||||||||
Merck & Co., Inc. | 8,857 | 684,912 | |||||||||
Mettler-Toledo International, Inc. (a) | 73 | 58,805 | |||||||||
PerkinElmer, Inc. | 317 | 31,095 | |||||||||
Pfizer, Inc. | 19,492 | 637,388 | |||||||||
Quest Diagnostics, Inc. | 465 | 52,991 | |||||||||
Regeneron Pharmaceuticals, Inc. (a) | 237 | 147,805 | |||||||||
ResMed, Inc. | 476 | 91,392 | |||||||||
Seattle Genetics, Inc. (a) | 538 | 91,417 | |||||||||
Stryker Corp. | 1,207 | 217,489 | |||||||||
Teleflex, Inc. | 143 | 52,049 | |||||||||
The Cooper Cos., Inc. | 169 | 47,935 | |||||||||
Thermo Fisher Scientific, Inc. | 1,357 | 491,695 | |||||||||
UnitedHealth Group, Inc. | 3,118 | 919,653 | |||||||||
Universal Health Services, Inc., Class B | 277 | 25,731 | |||||||||
Varian Medical Systems, Inc. (a) | 316 | 38,716 | |||||||||
Veeva Systems, Inc., Class A (a) | 361 | 84,625 | |||||||||
Vertex Pharmaceuticals, Inc. (a) | 747 | 216,862 | |||||||||
Waters Corp. (a) | 197 | 35,539 | |||||||||
West Pharmaceutical Services, Inc. | 229 | 52,022 | |||||||||
Zimmer Biomet Holdings, Inc. | 726 | 86,655 | |||||||||
Zoetis, Inc. | 1,667 | 228,446 | |||||||||
12,448,082 | |||||||||||
Industrials (7.6%): | |||||||||||
3M Co. | 2,018 | 314,788 | |||||||||
AMETEK, Inc. | 754 | 67,385 | |||||||||
C.H. Robinson Worldwide, Inc. | 462 | 36,526 | |||||||||
Caterpillar, Inc. | 1,839 | 232,633 | |||||||||
Cintas Corp. | 334 | 88,964 | |||||||||
Copart, Inc. (a) | 797 | 66,366 |
See notes to financial statements.
9
Victory Variable Insurance Funds Victory 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
CoStar Group, Inc. (a) (c) | 129 | $ | 91,676 | ||||||||
CSX Corp. | 2,431 | 169,538 | |||||||||
Cummins, Inc. | 512 | 88,709 | |||||||||
Deere & Co. | 1,040 | 163,436 | |||||||||
Delta Air Lines, Inc. | 2,096 | 58,793 | |||||||||
Dover Corp. | 473 | 45,673 | |||||||||
Eaton Corp. PLC | 1,403 | 122,734 | |||||||||
Emerson Electric Co. | 2,030 | 125,921 | |||||||||
Equifax, Inc. | 363 | 62,392 | |||||||||
Expeditors International of Washington, Inc. | 577 | 43,875 | |||||||||
Fastenal Co. | 1,988 | 85,166 | |||||||||
FedEx Corp. | 839 | 117,645 | |||||||||
Fortive Corp. | 995 | 67,322 | |||||||||
General Dynamics Corp. | 826 | 123,454 | |||||||||
General Electric Co. | 27,462 | 187,565 | |||||||||
HEICO Corp., Class A | 238 | 19,335 | |||||||||
Honeywell International, Inc. | 2,410 | 348,463 | |||||||||
Howmet Aerospace, Inc. (a) | 1,530 | 24,251 | |||||||||
IDEX Corp. | 245 | 38,720 | |||||||||
Illinois Tool Works, Inc. (b) | 991 | 173,276 | |||||||||
J.B. Hunt Transport Services, Inc. | 264 | 31,770 | |||||||||
Jacobs Engineering Group, Inc. | 452 | 38,330 | |||||||||
Johnson Controls International PLC | 3,175 | 108,395 | |||||||||
Kansas City Southern | 330 | 49,266 | |||||||||
L3Harris Technologies, Inc. | 750 | 127,253 | |||||||||
Lockheed Martin Corp. | 974 | 355,432 | |||||||||
Lyft, Inc., Class A (a) | 125 | 4,126 | |||||||||
Masco Corp. | 926 | 46,494 | |||||||||
Norfolk Southern Corp. | 880 | 154,502 | |||||||||
Northrop Grumman Corp. | 555 | 170,629 | |||||||||
Old Dominion Freight Line, Inc. | 371 | 62,918 | |||||||||
PACCAR, Inc. | 1,214 | 90,868 | |||||||||
Parker-Hannifin Corp. | 446 | 81,738 | |||||||||
Raytheon Technologies Corp. | 5,265 | 324,429 | |||||||||
Republic Services, Inc. (c) | 706 | 57,927 | |||||||||
Rockwell Automation, Inc. | 403 | 85,839 | |||||||||
Rollins, Inc. | 582 | 24,671 | |||||||||
Roper Technologies, Inc. | 332 | 128,902 | |||||||||
Southwest Airlines Co. | 1,916 | 65,489 | |||||||||
Stanley Black & Decker, Inc. | 560 | 78,053 | |||||||||
Teledyne Technologies, Inc. (a) | 113 | 35,137 | |||||||||
Textron, Inc. | 664 | 21,852 | |||||||||
The Boeing Co. | 1,980 | 362,934 | |||||||||
TransDigm Group, Inc. | 160 | 70,728 | |||||||||
TransUnion | 582 | 50,657 | |||||||||
Uber Technologies, Inc. (a) | 5,573 | 173,209 | |||||||||
Union Pacific Corp. | 2,306 | 389,874 | |||||||||
United Airlines Holdings, Inc. (a) | 945 | 32,706 | |||||||||
United Parcel Service, Inc., Class B | 2,357 | 262,051 | |||||||||
United Rentals, Inc. (a) | 251 | 37,409 |
See notes to financial statements.
10
Victory Variable Insurance Funds Victory 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Verisk Analytics, Inc. | 570 | $ | 97,015 | ||||||||
W.W. Grainger, Inc. | 179 | 56,235 | |||||||||
Waste Management, Inc. | 1,481 | 156,853 | |||||||||
Westinghouse Air Brake Technologies Corp. | 626 | 36,039 | |||||||||
Xylem, Inc. | 632 | 41,055 | |||||||||
6,875,391 | |||||||||||
IT Services (5.6%): | |||||||||||
Akamai Technologies, Inc. (a) | 569 | 60,934 | |||||||||
Automatic Data Processing, Inc. | 1,508 | 224,526 | |||||||||
Black Knight, Inc. (a) | 354 | 25,686 | |||||||||
Booz Allen Hamilton Holdings Corp. | 422 | 32,827 | |||||||||
Broadridge Financial Solutions, Inc. | 398 | 50,224 | |||||||||
Cognizant Technology Solutions Corp., Class A | 1,856 | 105,458 | |||||||||
EPAM Systems, Inc. (a) | 193 | 48,638 | |||||||||
Fidelity National Information Services, Inc. | 2,122 | 284,539 | |||||||||
Fiserv, Inc. (a) | 1,829 | 178,547 | |||||||||
FleetCor Technologies, Inc. (a) | 247 | 62,128 | |||||||||
Gartner, Inc. (a) | 309 | 37,491 | |||||||||
Global Payments, Inc. | 894 | 151,640 | |||||||||
GoDaddy, Inc., Class A (a) | 227 | 16,646 | |||||||||
International Business Machines Corp. | 3,049 | 368,228 | |||||||||
Jack Henry & Associates, Inc. | 240 | 44,167 | |||||||||
Leidos Holdings, Inc. | 483 | 45,243 | |||||||||
Mastercard, Inc., Class A | 3,152 | 932,046 | |||||||||
Okta, Inc. (a) | 129 | 25,830 | |||||||||
Paychex, Inc. | 1,100 | 83,325 | |||||||||
PayPal Holdings, Inc. (a) | 4,077 | 710,336 | |||||||||
Square, Inc., Class A (a) | 828 | 86,890 | |||||||||
The Western Union Co. | 1,260 | 27,241 | |||||||||
Twilio, Inc., Class A (a) | 264 | 57,927 | |||||||||
VeriSign, Inc. (a) | 359 | 74,252 | |||||||||
Visa, Inc., Class A | 6,174 | 1,192,632 | |||||||||
4,927,401 | |||||||||||
Materials (1.8%): | |||||||||||
Air Products & Chemicals, Inc. | 766 | 184,958 | |||||||||
Avery Dennison Corp. | 267 | 30,462 | |||||||||
Ball Corp. | 1,047 | 72,757 | |||||||||
Celanese Corp. | 384 | 33,155 | |||||||||
Corteva, Inc. | 2,626 | 70,351 | |||||||||
Crown Holdings, Inc. (a) | 442 | 28,787 | |||||||||
Dow, Inc. | 2,599 | 105,935 | |||||||||
DuPont de Nemours, Inc. | 2,547 | 135,322 | |||||||||
Ecolab, Inc. | 931 | 185,222 | |||||||||
FMC Corp. | 401 | 39,948 | |||||||||
Freeport-McMoRan, Inc. | 5,041 | 58,324 | |||||||||
International Flavors & Fragrances, Inc. (b) | 304 | 37,228 | |||||||||
International Paper Co. | 1,278 | 44,998 | |||||||||
Martin Marietta Materials, Inc. | 219 | 45,239 | |||||||||
Newmont Corp. | 2,757 | 170,217 |
See notes to financial statements.
11
Victory Variable Insurance Funds Victory 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Nucor Corp. | 946 | $ | 39,174 | ||||||||
PPG Industries, Inc. | 802 | 85,060 | |||||||||
Southern Copper Corp. (b) | 315 | 12,528 | |||||||||
The Sherwin-Williams Co. | 306 | 176,822 | |||||||||
Vulcan Materials Co. | 451 | 52,248 | |||||||||
1,608,735 | |||||||||||
Real Estate (3.2%): | |||||||||||
Alexandria Real Estate Equities, Inc. | 438 | 71,066 | |||||||||
American Tower Corp. | 1,555 | 402,030 | |||||||||
AvalonBay Communities, Inc. | 519 | 80,258 | |||||||||
Boston Properties, Inc. | 527 | 47,630 | |||||||||
Camden Property Trust | 359 | 32,748 | |||||||||
CBRE Group, Inc., Class A (a) | 1,163 | 52,591 | |||||||||
Crown Castle International Corp. | 1,462 | 244,666 | |||||||||
Digital Realty Trust, Inc. | 991 | 140,831 | |||||||||
Duke Realty Corp. | 1,360 | 48,130 | |||||||||
Equinix, Inc. | 326 | 228,950 | |||||||||
Equity LifeStyle Properties, Inc. | 672 | 41,987 | |||||||||
Equity Residential | 1,292 | 75,995 | |||||||||
Essex Property Trust, Inc. | 241 | 55,230 | |||||||||
Extra Space Storage, Inc. | 476 | 43,968 | |||||||||
Gaming and Leisure Properties, Inc. | 707 | 24,462 | |||||||||
Healthpeak Properties, Inc. | 1,988 | 54,789 | |||||||||
Host Hotels & Resorts, Inc. | 2,603 | 28,086 | |||||||||
Invitation Homes, Inc. | 1,888 | 51,977 | |||||||||
Medical Properties Trust, Inc. | 1,757 | 33,032 | |||||||||
Mid-America Apartment Communities, Inc. | 423 | 48,505 | |||||||||
Prologis, Inc. | 2,729 | 254,698 | |||||||||
Public Storage | 582 | 111,680 | |||||||||
Realty Income Corp. | 1,180 | 70,210 | |||||||||
Regency Centers Corp. | 589 | 27,029 | |||||||||
SBA Communications Corp. | 388 | 115,593 | |||||||||
Simon Property Group, Inc. | 1,130 | 77,269 | |||||||||
Sun Communities, Inc. | 363 | 49,252 | |||||||||
UDR, Inc. | 1,090 | 40,744 | |||||||||
Ventas, Inc. | 1,379 | 50,499 | |||||||||
VEREIT, Inc. | 3,783 | 24,325 | |||||||||
VICI Properties, Inc. | 1,873 | 37,816 | |||||||||
Vornado Realty Trust | 643 | 24,569 | |||||||||
W.P. Carey, Inc. | 637 | 43,093 | |||||||||
Welltower, Inc. | 1,543 | 79,850 | |||||||||
Weyerhaeuser Co. | 2,454 | 55,117 | |||||||||
2,868,675 | |||||||||||
Semiconductors & Semiconductor Equipment (4.7%): | |||||||||||
Advanced Micro Devices, Inc. (a) | 4,108 | 216,122 | |||||||||
Analog Devices, Inc. | 1,183 | 145,083 | |||||||||
Applied Materials, Inc. | 3,012 | 182,075 | |||||||||
Broadcom, Inc. | 1,092 | 344,646 | |||||||||
Intel Corp. | 14,856 | 888,835 |
See notes to financial statements.
12
Victory Variable Insurance Funds Victory 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
KLA Corp. | 470 | $ | 91,406 | ||||||||
Lam Research Corp. | 472 | 152,673 | |||||||||
Marvell Technology Group Ltd. | 1,794 | 62,897 | |||||||||
Maxim Integrated Products, Inc. | 808 | 48,973 | |||||||||
Microchip Technology, Inc. | 807 | 84,985 | |||||||||
Micron Technology, Inc. (a) | 3,903 | 201,083 | |||||||||
NVIDIA Corp. | 2,090 | 794,012 | |||||||||
Qorvo, Inc. (a) | 365 | 40,343 | |||||||||
QUALCOMM, Inc. | 3,948 | 360,097 | |||||||||
Skyworks Solutions, Inc. | 549 | 70,195 | |||||||||
Teradyne, Inc. | 558 | 47,157 | |||||||||
Texas Instruments, Inc. | 3,221 | 408,970 | |||||||||
Xilinx, Inc. | 800 | 78,712 | |||||||||
4,218,264 | |||||||||||
Software (9.9%): | |||||||||||
Adobe, Inc. (a) | 1,655 | 720,437 | |||||||||
ANSYS, Inc. (a) | 300 | 87,519 | |||||||||
Autodesk, Inc. (a) | 712 | 170,303 | |||||||||
Cadence Design Systems, Inc. (a) | 969 | 92,985 | |||||||||
Ceridian HCM Holding, Inc. (a) | 214 | 16,964 | |||||||||
Citrix Systems, Inc. | 414 | 61,235 | |||||||||
Coupa Software, Inc. (a) | 214 | 59,287 | |||||||||
Crowdstrike Holdings, Inc., Class A (a) | 71 | 7,121 | |||||||||
Datadog, Inc., Class A (a) | 89 | 7,739 | |||||||||
DocuSign, Inc. (a) | 595 | 102,465 | |||||||||
Fair Isaac Corp. (a) | 98 | 40,968 | |||||||||
Fortinet, Inc. (a) | 501 | 68,772 | |||||||||
Intuit, Inc. | 829 | 245,542 | |||||||||
Microsoft Corp. (c) | 25,770 | 5,244,452 | |||||||||
NortonLifeLock, Inc. | 1,806 | 35,813 | |||||||||
Oracle Corp. | 7,455 | 412,038 | |||||||||
Paycom Software, Inc. (a) | 168 | 52,035 | |||||||||
RingCentral, Inc., Class A (a) | 231 | 65,837 | |||||||||
Salesforce.com, Inc. (a) | 2,996 | 561,241 | |||||||||
ServiceNow, Inc. (a) (c) | 641 | 259,643 | |||||||||
Slack Technologies, Inc., Class A (a) (b) | 1,000 | 31,090 | |||||||||
Splunk, Inc. (a) | 499 | 99,151 | |||||||||
SS&C Technologies Holdings, Inc. | 835 | 47,161 | |||||||||
Synopsys, Inc. (a) | 479 | 93,405 | |||||||||
The Trade Desk, Inc., Class A (a) | 106 | 43,089 | |||||||||
Tyler Technologies, Inc. (a) | 133 | 46,135 | |||||||||
VMware, Inc., Class A (a) (b) | 278 | 43,051 | |||||||||
Workday, Inc., Class A (a) | 339 | 63,515 | |||||||||
Zoom Video Communications, Inc., Class A (a) | 84 | 21,297 | |||||||||
8,800,290 |
See notes to financial statements.
13
Victory Variable Insurance Funds Victory 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Technology Hardware, Storage & Peripherals (6.5%): | |||||||||||
Apple, Inc. | 15,048 | $ | 5,489,509 | ||||||||
Dell Technologies, Inc., Class C (a) | 766 | 42,084 | |||||||||
Hewlett Packard Enterprise Co. | 4,223 | 41,090 | |||||||||
HP, Inc. | 4,858 | 84,674 | |||||||||
NetApp, Inc. | 564 | 25,025 | |||||||||
Western Digital Corp. | 1,030 | 45,475 | |||||||||
5,727,857 | |||||||||||
Utilities (3.0%): | |||||||||||
Alliant Energy Corp. | 857 | 40,999 | |||||||||
Ameren Corp. | 820 | 57,695 | |||||||||
American Electric Power Co., Inc. (c) | 1,720 | 136,981 | |||||||||
American Water Works Co., Inc. | 635 | 81,700 | |||||||||
Atmos Energy Corp. | 420 | 41,824 | |||||||||
Avangrid, Inc. | 205 | 8,606 | |||||||||
CenterPoint Energy, Inc. | 1,730 | 32,299 | |||||||||
CMS Energy Corp. | 930 | 54,331 | |||||||||
Consolidated Edison, Inc. (c) | 1,147 | 82,504 | |||||||||
Dominion Energy, Inc. | 2,944 | 238,994 | |||||||||
DTE Energy Co. | 590 | 63,425 | |||||||||
Duke Energy Corp. (c) | 2,578 | 205,956 | |||||||||
Edison International | 1,172 | 63,651 | |||||||||
Entergy Corp. | 694 | 65,104 | |||||||||
Essential Utilities, Inc. | 760 | 32,102 | |||||||||
Evergy, Inc. (c) | 787 | 46,661 | |||||||||
Eversource Energy (c) | 1,168 | 97,259 | |||||||||
Exelon Corp. | 3,419 | 124,076 | |||||||||
FirstEnergy Corp. | 1,880 | 72,906 | |||||||||
NextEra Energy, Inc. (c) | 1,700 | 408,289 | |||||||||
NiSource, Inc. | 1,118 | 25,423 | |||||||||
Pinnacle West Capital Corp. | 379 | 27,777 | |||||||||
PPL Corp. | 2,670 | 68,993 | |||||||||
Public Service Enterprise Group, Inc. | 1,756 | 86,325 | |||||||||
Sempra Energy | 854 | 100,114 | |||||||||
The AES Corp. | 2,038 | 29,531 | |||||||||
The Southern Co. (c) | 3,706 | 192,156 | |||||||||
Vistra Corp. | 1,679 | 31,263 | |||||||||
WEC Energy Group, Inc. (c) | 1,084 | 95,013 | |||||||||
Xcel Energy, Inc. (c) | 1,591 | 99,438 | |||||||||
2,711,395 | |||||||||||
Total Common Stocks (Cost $30,245,581) | 88,895,345 | ||||||||||
Rights (0.0%) (d) | |||||||||||
Communication Services (0.0%): (d) | |||||||||||
T-Mobile U.S., Inc., Expires 7/28/20 (a) | 1,461 | 245 | |||||||||
Total Rights (Cost $—) | 245 |
See notes to financial statements.
14
Victory Variable Insurance Funds Victory 500 Index VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Collateral for Securities Loaned^ (1.1%) | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 0.28% (e) | 16,163 | $ | 16,163 | ||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 0.09% (e) | 489,169 | 489,169 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 0.30% (e) | 112,394 | 112,394 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 0.43% (e) | 64,315 | 64,315 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 0.41% (e) | 289,172 | 289,172 | |||||||||
Total Collateral for Securities Loaned (Cost $971,213) | 971,213 | ||||||||||
Total Investments (Cost $31,216,794) — 100.5% | 89,866,803 | ||||||||||
Liabilities in excess of other assets — (0.5)% | (425,954 | ) | |||||||||
NET ASSETS — 100.00% | $ | 89,440,849 |
^ 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) All or a portion of this security has been segregated as collateral for derivative instruments.
(d) Amount represents less than 0.05% of net assets.
(e) Rate disclosed is the daily yield on June 30, 2020.
PLC — Public Limited Company
Futures Contracts Purchased
Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||
E-Mini S&P 500 Futures | 3 | 9/18/20 | $ | 464,892 | $ | 463,530 | $ | (1,362 | ) | ||||||||||||||
Total unrealized appreciation | $ | — | |||||||||||||||||||||
Total unrealized depreciation | (1,362 | ) | |||||||||||||||||||||
Total net unrealized appreciation (depreciation) | $ | (1,362 | ) |
See notes to financial statements.
15
Victory Variable Insurance Funds | Statement of Assets and Liabilities June 30, 2020 |
(Unaudited)
Victory 500 Index VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $31,216,794) | $ | 89,866,803 | (a) | ||||
Cash and cash equivalents | 208,485 | ||||||
Deposits with brokers for futures contracts | 287,409 | ||||||
Receivables: | |||||||
Interest and dividends | 67,368 | ||||||
Capital shares issued | 23,465 | ||||||
Variation margin on open futures contracts | 6,375 | ||||||
From Adviser | 37,149 | ||||||
Prepaid expenses | 34,611 | ||||||
Total Assets | 90,531,665 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 971,213 | ||||||
Capital shares redeemed | 72,333 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 18,385 | ||||||
Administration fees | 4,390 | ||||||
Custodian fees | 946 | ||||||
Transfer agent fees | 10,000 | ||||||
Compliance fees | 82 | ||||||
Trustees' fees | 13 | ||||||
Other accrued expenses | 13,454 | ||||||
Total Liabilities | 1,090,816 | ||||||
NET ASSETS: | |||||||
Capital | 403,040 | ||||||
Total distributable earnings/(loss) | 89,037,809 | ||||||
Net Assets | $ | 89,440,849 | |||||
Shares Outstanding (unlimited shares authorized with a par value of $0.001 per shares): | 4,745,013 | ||||||
Net asset value: | $ | 18.85 |
(a) Includes $959,425 of securities on loan.
See notes to financial statements.
16
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2020 |
(Unaudited)
Victory 500 Index VIP Series | |||||||
Investment Income: | |||||||
Dividends | $ | 890,169 | |||||
Interest | 2,226 | ||||||
Securities lending (net of fees) | 639 | ||||||
Total Income | 893,034 | ||||||
Expenses: | |||||||
Investment advisory fees | 111,446 | ||||||
Administration fees | 27,270 | ||||||
Sub-Administration fees | 7,922 | ||||||
Custodian fees | 2,743 | ||||||
Transfer agent fees | 61,571 | ||||||
Trustees' fees | 4,184 | ||||||
Compliance fees | 387 | ||||||
Legal and audit fees | 8,425 | ||||||
Other expenses | 17,654 | ||||||
Total Expenses | 241,602 | ||||||
Expenses waived/reimbursed by Adviser | (116,876 | ) | |||||
Net Expenses | 124,726 | ||||||
Net Investment Income (Loss) | 768,308 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities | 7,856,094 | ||||||
Net realized gains (losses) from futures contracts | (69,798 | ) | |||||
Net change in unrealized appreciation/depreciation on investment securities | (11,736,652 | ) | |||||
Net change in unrealized appreciation/depreciation on futures contracts | (14,122 | ) | |||||
Net realized/unrealized losses on investments | (3,964,478 | ) | |||||
Change in net assets resulting from operations | $ | (3,196,170 | ) |
See notes to financial statements.
17
Victory Variable Insurance Funds | Statements of Changes in Net Assets |
Victory 500 Index VIP Series | |||||||||||
Six Months Ended June 30, 2020 (Unaudited) | Year Ended December 31, 2019 | ||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 768,308 | $ | 1,856,067 | |||||||
Net realized gains (losses) from investments | 7,786,296 | 24,376,343 | |||||||||
Net change in unrealized appreciation/depreciation on investments | (11,750,774 | ) | 3,568,158 | ||||||||
Change in net assets resulting from operations | (3,196,170 | ) | 29,800,568 | ||||||||
Change in net assets resulting from distributions to shareholders | — | (12,905,780 | ) | ||||||||
Change in net assets resulting from capital transactions | (7,502,130 | ) | (23,187,353 | ) | |||||||
Change in net assets | (10,698,300 | ) | (6,292,565 | ) | |||||||
Net Assets: | |||||||||||
Beginning of period | 100,139,149 | 106,431,714 | |||||||||
End of period | $ | 89,440,849 | $ | 100,139,149 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | 3,908,465 | 4,642,884 | |||||||||
Distributions reinvested | — | 12,905,780 | |||||||||
Cost of shares redeemed | (11,410,595 | ) | (40,736,017 | ) | |||||||
Change in net assets resulting from capital transactions | (7,502,130 | ) | (23,187,353 | ) | |||||||
Share Transactions: | |||||||||||
Issued | 221,585 | 240,425 | |||||||||
Reinvested | — | 663,420 | |||||||||
Redeemed | (651,930 | ) | (2,019,404 | ) | |||||||
Change in Shares | (430,345 | ) | (1,115,559 | ) |
See notes to financial statements.
18
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19
Victory Variable Insurance Funds | Financial Highlights |
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholders 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 | Total Distributions | |||||||||||||||||||||||||
Victory 500 Index VIP Series | |||||||||||||||||||||||||||||||
Six Months Ended June 30, 2020 (unaudited) | $ | 19.35 | 0.15 | (0.65 | ) | (0.50 | ) | — | — | — | |||||||||||||||||||||
Year Ended 12/31/19 | $ | 16.92 | 0.34 | 4.88 | 5.22 | (0.37 | ) | (2.42 | ) | (2.79 | ) | ||||||||||||||||||||
Year Ended 12/31/18 | $ | 19.06 | 0.32 | (1.21 | ) | (0.89 | ) | (0.02 | ) | (1.23 | ) | (1.25 | ) | ||||||||||||||||||
Year Ended 12/31/17 | $ | 15.98 | 0.30 | 3.15 | 3.45 | (0.33 | ) | (0.04 | ) | (0.37 | ) | ||||||||||||||||||||
Year Ended 12/31/16 | $ | 14.84 | 0.28 | 1.46 | 1.74 | (0.32 | ) | (0.28 | ) | (0.60 | ) | ||||||||||||||||||||
Year Ended 12/31/15 | $ | 14.97 | 0.27 | (0.12 | ) | 0.15 | (0.28 | ) | — | (0.28 | ) |
(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) 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.
20
Victory Variable Insurance Funds | Financial Highlights — continued |
For a Share Outstanding Throughout Each Period
Ratios to Average Net Assets | Supplemental Data | ||||||||||||||||||||||||||||||||||
Capital Contribution from Prior Custodian, Net (See Note 8) | Net Asset Value, End of Period | Total Return(b)(c) | Net Expenses(d) | Net Investment Income (Loss)(d) | Gross Expenses(d) | Net Assets, End of Period (000's) | Portfolio Turnover(b) | ||||||||||||||||||||||||||||
Victory 500 Index VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2020 (unaudited) | — | $ | 18.85 | (2.58 | )% | 0.28 | % | 1.72 | % | 0.54 | % | $ | 89,441 | 10 | % | ||||||||||||||||||||
Year Ended 12/31/19 | — | $ | 19.35 | 31.04 | % | 0.28 | % | 1.71 | % | 0.52 | % | $ | 100,139 | 3 | % | ||||||||||||||||||||
Year Ended 12/31/18 | — | $ | 16.92 | (4.65 | )% | 0.28 | % | 1.65 | % | 0.38 | % | $ | 106,432 | 3 | % | ||||||||||||||||||||
Year Ended 12/31/17 | — | $ | 19.06 | 21.60 | % | 0.28 | % | 1.70 | % | 0.41 | % | $ | 129,081 | 3 | % | ||||||||||||||||||||
Year Ended 12/31/16 | — | (e) | $ | 15.98 | 11.75 | %(f) | 0.28 | % | 1.84 | % | 0.37 | % | $ | 120,157 | 4 | % | |||||||||||||||||||
Year Ended 12/31/15 | — | $ | 14.84 | 1.03 | % | 0.28 | % | 1.75 | % | 0.39 | % | $ | 118,752 | 3 | % |
See notes to financial statements.
21
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2020 |
(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. Victory 500 Index VIP Series (the "Fund"), a series of the Trust, offers a single class of shares: Class I Shares. The Fund's shares are only available for purchase by certain separate accounts of insurance companies as investments for certain variable annuity plans and variable life insurance contracts issued by those insurance companies. The accompanying financial statements are those of the Fund.
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 generally accepted accounting principles 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.
22
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(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, 2020, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed on the Schedule of Portfolio Investments.
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks | $ | 88,882,927 | $ | — | $ | 12,418 | $ | 88,895,345 | |||||||||||
Rights | 245 | — | — | 245 | |||||||||||||||
Collateral for Securities Loaned | 971,213 | — | — | 971,213 | |||||||||||||||
Total | $ | 89,854,385 | $ | — | $ | 12,418 | $ | 89,866,803 |
Other Financial Investments^: | |||
Liabilities: |
Futures Contracts | $ | (1,362 | ) | $ | — | $ | — | $ | (1,362 | ) | |||||||||
Total | $ | (1,362 | ) | $ | — | $ | — | $ | (1,362 | ) |
^ Futures Contracts are valued at the unrealized appreciation (depreciation) on the investment.
For the six months ended June 30, 2020, there were no transfers in or out of the Level 3 fair value hierarchy.
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.
23
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
As of June 30, 2020, 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.
Offsetting of Financial Assets and Derivatives Assets:
The Fund is subject to various Master Netting Arrangements, which govern the terms of certain transactions with select counterparties. The Master Netting Arrangements allow the Fund to close out and net total exposure to a counterparty in the event of a default with respect to all the transactions governed under a single agreement with a counterparty. The Master Netting Arrangements also specify collateral posting arrangements at pre-arranged exposure levels. Under the Master Netting Arrangements, collateral is routinely transferred if the total net exposure to certain transactions (net of existing collateral already in place) governed under the relevant Master Netting Arrangement with a counterparty in a given account exceeds a specified threshold depending on the counterparty and the type of Master Netting Arrangement.
The table below, as of June 30, 2020, discloses both gross information and net information about instruments and transactions eligible for offset on the Statement of Assets and Liabilities and instruments and transactions that are subject to an agreement similar to a master netting agreement as well as amounts related to collateral held at clearing brokers and counterparties.
Gross Amounts of Recognized Assets | Gross Amounts Available for Offset | Net Amounts Presented in the Statement of Assets and Liabilities | Cash Collateral Received | Net Amount | |||||||||||||||||||
Futures Contracts-Goldman Sachs & Co. | $ | 6,375 | $ | — | $ | 6,375 | $ | — | $ | 6,375 |
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, 2020.
Liabilities | |||||||
Variation Margin Payable on Open Futures Contracts* | |||||||
Equity Risk Exposure | $ | 1,362 |
* Includes cumulative appreciation (depreciation) of futures contracts on the Schedule of Portfolio 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, 2020.
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 | $ | (69,798 | ) | $ | (14,122 | ) |
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.
24
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(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 determined on the basis of coupon interest accrued using the effective interest method which adjusts, 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 recorded on the identified cost basis.
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 on 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 on 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, 2020. 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 | ||||||||||||||||||
$ | 959,425 | $ | 959,425 | $ | — | $ | — | $ | — | $ | — |
* 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 on the Statement of Assets and Liabilities.
Distributions 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 (collectively, distributions to
25
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
shareholders) 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 years, which includes the current fiscal tax year end). 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.
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, 2020 were as follows for the Fund:
Purchases | Sales | ||||||
$ | 8,919,542 | $ | 15,736,500 |
For the six months ended June 30, 2020, 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.
26
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
Citi Fund Services Ohio, Inc. ("Citi"), an affiliate of Citibank, 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 Fund reimburses VCM and Citi for reasonable out-of-pocket expenses incurred in providing these services and certain other expenses specifically allocated to the Fund under the Fund Administration, Servicing, and Accounting Agreement. Amounts paid by the Fund to reimburse VCM for expenses incurred during the six months ended June 30, 2020, are reflected on the Statement of Operations as Sub-Administration fees.
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 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 on the Statement of Operations.
Sidley Austin LLP provides legal services to the Trust.
Victory Capital Services, 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. Effective June 30, 2020, the Distributor's name was changed from Victory Capital Advisers, Inc.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2021. 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. As of June 30, 2020, 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 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. 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. As of June 30, 2020, the following amounts are available to be repaid to the Adviser.
Expires December 31, 2020 | Expires December 31, 2021 | Expires December 31, 2022 | Expires December 31, 2023 | Total | |||||||||||||||
$ | 167,384 | $ | 126,360 | $ | 260,434 | $ | 116,876 | $ | 671,054 |
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, 2020.
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.
27
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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 is 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.
An outbreak of respiratory disease called COVID-19 was first detected in China in December 2019 and subsequently spread internationally. The transmission of COVID-19 and efforts to contain its spread have resulted in international, national and local border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and consumer activity, significant challenges in healthcare service preparation and delivery, quarantines and general concern and uncertainty. These negative impacts have caused significant volatility and declines in global financial markets, which have caused losses for Fund investors during and subsequent to period end. The impact of the COVID-19 pandemic may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession. Public health crises may exacerbate other pre-existing political, social, economic, market and financial risks. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2020, the Victory Funds Complex participated in a short-term demand note "Line of Credit" agreement with Citibank. The Line of Credit agreement with Citibank was renewed on June 29, 2020 with a termination date of June 28, 2021. Under the agreement with Citibank, the Victory Funds Complex and USAA Mutual 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 (herein, the "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. For the six months ended June 30, 2020, Citibank received an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. For the six months ended June 30, 2020, Citibank earned approximately $225 thousand in commitment fees from the combined Victory Funds Complex and USAA Mutual Funds Complex. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest (one month LIBOR plus one percent) on amounts borrowed. Effective June 29, 2020, under an amended Line of Credit agreement, Citibank will also receive an annual upfront fee of 0.10% on the $300 million committed line of credit. Each fund in the Victory Funds Complex will pay a pro-rata portion of the upfront fee. Interest charged to each Fund during the period, if applicable, is presented on the Statement of Operations under Line of credit fees.
28
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
The Fund did not utilize the Line of Credit during the six months ended June 30, 2020.
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 Interest expense on interfund lending. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Interfund lending income.
The Fund did not utilize the Facility during the six months ended June 30, 2020.
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, 2020.
At December 31, 2019, Fund had no capital loss carryforwards for federal income tax purposes.
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, 2020, the shareholder listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund. Shareholders of record may hold Fund shares for the benefit of their customers.
Shareholder | Percent | ||||||
GIAC* | 100.0 | %* |
* The Guardian Insurance & Annuity Company, Inc. ("GIAC") is a wholly owned subsidiary of The Guardian Life Insurance Company of America. The amount represents indirect interests of variable annuity contract holders or variable life policyholders.
29
Victory Variable Insurance Funds | Supplemental Information June 30, 2020 |
(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 quarter of each fiscal year on Form N-PORT. Forms N-PORT are available on the SEC's web site 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, 2020 through June 30, 2020.
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 1/1/20 | Actual Ending Account Value 6/30/20 | Hypothetical Ending Account Value 6/30/20 | Actual Expenses Paid During Period 1/1/20-6/30/20* | Hypothetical Expenses Paid During Period 1/1/20-6/30/20* | Annualized Expense Ratio During Period 1/1/20-6/30/20 | ||||||||||||||||||
$ | 1,000.00 | $ | 974.20 | $ | 1,023.47 | $ | 1.37 | $ | 1.41 | 0.28 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
30
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2020 |
(Unaudited)
Liquidity Risk Management Program:
The Victory Funds have adopted and implemented a written liquidity risk management program (the "LRMP") as required by Rule 22e-4 under the Act. The LRMP is reasonably designed to assess and manage each Fund's liquidity risk, taking into consideration each Fund's investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed market conditions; its short and long-term cash flow projections; and its cash holdings and access to other liquidity management tools such as available funding sources including the Victory Funds Complex Interfund Lending Facility and Line of Credit (discussed in the Notes to Financial Statements). The Board approved the appointment of VCM as the administrator of the LRMP. At an in-person meeting held on February 20, 2020, VCM provided an oral and written report to the Trustees on the operation and effectiveness of the LRMP during the previous year.
VCM manages liquidity risks associated with the Funds' investments by monitoring, among other things, cash and cash equivalents, any use of derivatives, the concentration of investments, the appropriateness of each Fund's investment strategy, and by classifying every fund investment as either highly liquid, moderately liquid, less liquid or illiquid on at least a monthly basis. To assist with the classification of Fund investments, VCM has retained a third-party provider of liquidity evaluation services. This provider determines preliminary liquidity classifications for all portfolio holdings based upon portfolio-level data and certain assumptions provided by VCM. VCM reviews the preliminary liquidity classifications and, when appropriate, considers other information including input from the Funds' portfolio managers (including the portfolio managers employed by any investment sub-advisers) in determining final liquidity classifications.
The report from VCM concluded that the Funds did not experience any significant liquidity challenges during the covered period, and the Funds' LRMP is reasonably designed to assess and manage its liquidity risk. The report also concluded that the LRMP continues to operate adequately and effectively to enable VCM to oversee and manage liquidity risk and ensure each Fund is able to meet redemption requests without significant dilution to the remaining investors' interest in each Fund. During the review period, each Fund's portfolio consisted primarily of highly liquid investments, which are defined as cash and any investments reasonably expected to be converted to ash in current market conditions in three business days or less without significantly changing the market value of the investment. Therefore, the Fund has not adopted a Highly Liquid Investment Minimum. The Funds' investments were below the limitation on illiquid investments during the review period. Additionally, VCM indicated that no events occurred that would require the filing of Form N-LIQUID and recommended no material changes to the LRMP.
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 (6/20)
June 30, 2020
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 Objectives & 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 | |||||||
Proxy Voting and Portfolio Holdings Information | 26 | ||||||
Expense Examples | 26 | ||||||
Liquidity Risk Management Program | 27 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Services, 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
This page is intentionally left blank.
2
Victory Variable Insurance Funds | June 30, 2020 |
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: 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, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Common Stocks (96.5%) | |||||||||||
Brazil (5.9%): | |||||||||||
Communication Services (0.5%): | |||||||||||
TIM Participacoes SA | 73,300 | $ | 191,433 | ||||||||
Consumer Discretionary (0.6%): | |||||||||||
Afya Ltd., Class A (a) (b) | 10,245 | 240,143 | |||||||||
Energy (0.9%): | |||||||||||
Petroleo Brasileiro SA, ADR | 38,905 | 321,744 | |||||||||
Financials (1.7%): | |||||||||||
Banco Bradesco SA, ADR | 61,965 | 236,087 | |||||||||
Banco do Brasil SA | 66,300 | 392,030 | |||||||||
628,117 | |||||||||||
Industrials (0.7%): | |||||||||||
Cia de Locacao das Americas | 52,900 | 164,716 | |||||||||
JSL SA | 25,700 | 109,565 | |||||||||
274,281 | |||||||||||
Materials (0.8%): | |||||||||||
Vale SA | 30,200 | 310,598 | |||||||||
Utilities (0.7%): | |||||||||||
Neoenergia SA | 72,700 | 255,651 | |||||||||
2,221,967 | |||||||||||
Chile (0.0%): (c) | |||||||||||
Financials (0.0%): (c) | |||||||||||
Banco de Credito e Inversiones SA | 1 | 34 | |||||||||
China (37.8%): | |||||||||||
Communication Services (8.8%): | |||||||||||
JOYY, Inc., ADR (a) (b) | 1,949 | 172,584 | |||||||||
NetEase, Inc., ADR | 621 | 266,645 | |||||||||
Tencent Holdings Ltd. | 44,630 | 2,859,871 | |||||||||
3,299,100 | |||||||||||
Consumer Discretionary (12.4%): | |||||||||||
Alibaba Group Holding Ltd., ADR (a) | 13,032 | 2,811,002 | |||||||||
China East Education Holdings Ltd. (d) | 119,500 | 217,233 | |||||||||
China Yongda Automobiles Services Holdings Ltd. (a) | 185,500 | 224,604 | |||||||||
JD.com, Inc., ADR (a) | 7,637 | 459,595 | |||||||||
Meituan Dianping, Class B (a) | 19,200 | 429,061 | |||||||||
Q Technology Group Co. Ltd. | 140,000 | 184,408 | |||||||||
Tongcheng-Elong Holdings Ltd. (a) | 166,400 | 302,176 | |||||||||
4,628,079 |
See notes to financial statements.
4
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Consumer Staples (2.2%): | |||||||||||
Ausnutria Dairy Corp. Ltd. | 115,000 | $ | 258,663 | ||||||||
Jonjee Hi-Tech Industrial and Commercial Holding Co. Ltd., Class A | 29,500 | 244,616 | |||||||||
Wuliangye Yibin Co. Ltd., Class A | 13,300 | 323,149 | |||||||||
826,428 | |||||||||||
Energy (1.6%): | |||||||||||
China Oilfield Services Ltd., Class H | 254,000 | 231,476 | |||||||||
CNOOC Ltd., ADR | 3,099 | 349,691 | |||||||||
581,167 | |||||||||||
Financials (5.4%): | |||||||||||
China Construction Bank Corp., Class H | 846,638 | 688,658 | |||||||||
China Galaxy Securities Co. Ltd., Class H (a) | 538,000 | 292,892 | |||||||||
China Merchants Bank Co. Ltd., Class H | 86,000 | 398,546 | |||||||||
Ping An Insurance Group Co. of China Ltd. | 64,000 | 638,032 | |||||||||
2,018,128 | |||||||||||
Health Care (1.1%): | |||||||||||
Lepu Medical Technology Beijing Co. Ltd., Class A | 29,700 | 153,450 | |||||||||
Wuxi Biologics Cayman, Inc. (a) (d) | 13,500 | 247,807 | |||||||||
401,257 | |||||||||||
Industrials (1.5%): | |||||||||||
China Conch Venture Holdings Ltd. | 37,000 | 157,047 | |||||||||
Sany Heavy Industry Co. Ltd., Class A | 61,800 | 164,840 | |||||||||
Zoomlion Heavy Industry Science and Technology Co. Ltd., Class H (a) | 310,400 | 240,332 | |||||||||
562,219 | |||||||||||
Information Technology (1.9%): | |||||||||||
Beijing Sinnet Technology Co. Ltd., Class A | 32,700 | 121,638 | |||||||||
Beijing Thunisoft Corp. Ltd., Class A | 43,200 | 173,071 | |||||||||
Kingdee International Software Group Co. Ltd. | 68,000 | 159,116 | |||||||||
Xinyi Solar Holdings Ltd. | 250,000 | 240,414 | |||||||||
694,239 | |||||||||||
Materials (1.6%): | |||||||||||
Anhui Conch Cement Co. Ltd., Class H | 54,000 | 365,921 | |||||||||
Hengli Petrochemical Co. Ltd., Class A | 122,100 | 242,562 | |||||||||
608,483 | |||||||||||
Real Estate (1.3%): | |||||||||||
China SCE Group Holdings Ltd. | 614,004 | 268,235 | |||||||||
Sunac China Holdings Ltd. | 51,000 | 215,837 | |||||||||
484,072 | |||||||||||
14,103,172 |
See notes to financial statements.
5
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Colombia (0.6%): | |||||||||||
Financials (0.6%): | |||||||||||
Bancolombia SA, ADR | 9,210 | $ | 242,315 | ||||||||
Greece (0.8%): | |||||||||||
Communication Services (0.4%): | |||||||||||
Hellenic Telecommunications Organization SA | 11,444 | 154,572 | |||||||||
Financials (0.4%): | |||||||||||
National Bank of Greece SA (a) | 114,021 | 161,336 | |||||||||
315,908 | |||||||||||
Hong Kong (4.1%): | |||||||||||
Consumer Discretionary (0.5%): | |||||||||||
Geely Automobile Holdings Ltd. | 128,000 | 203,365 | |||||||||
Consumer Staples (0.6%): | |||||||||||
Hengan International Group Co. Ltd. | 29,500 | 232,207 | |||||||||
Energy (0.8%): | |||||||||||
Kunlun Energy Co. Ltd. | 468,000 | 306,514 | |||||||||
Health Care (0.6%): | |||||||||||
Sino Biopharmaceutical Ltd. | 109,000 | 205,448 | |||||||||
Information Technology (0.5%): | |||||||||||
Kingboard Laminates Holdings Ltd. | 173,000 | 174,837 | |||||||||
Real Estate (1.1%): | |||||||||||
Shimao Group Holdings Ltd. | 91,500 | 391,197 | |||||||||
1,513,568 | |||||||||||
India (9.2%): | |||||||||||
Consumer Discretionary (0.2%): | |||||||||||
Aditya Birla Fashion and Retail Ltd. (a) | 39,886 | 66,258 | |||||||||
Consumer Staples (1.0%): | |||||||||||
Hindustan Unilever Ltd. | 9,761 | 282,217 | |||||||||
Varun Beverages Ltd. | 11,522 | 104,113 | |||||||||
386,330 | |||||||||||
Energy (2.6%): | |||||||||||
Petronet LNG Ltd. | 80,498 | 275,504 | |||||||||
Reliance Industries Ltd. | 30,556 | 695,086 | |||||||||
970,590 | |||||||||||
Financials (2.1%): | |||||||||||
Axis Bank Ltd. | 26,741 | 144,672 | |||||||||
Cholamandalam Investment and Finance Co. Ltd. | 65,514 | 164,334 | |||||||||
Housing Development Finance Corp. Ltd. | 13,729 | 319,250 | |||||||||
Multi Commodity Exchange of India Ltd. | 8,586 | 146,188 | |||||||||
774,444 |
See notes to financial statements.
6
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Health Care (0.9%): | |||||||||||
Dr. Reddy's Laboratories Ltd. | 3,431 | $ | 179,727 | ||||||||
Sanofi India Ltd. | 1,681 | 175,373 | |||||||||
355,100 | |||||||||||
Information Technology (1.3%): | |||||||||||
HCL Technologies Ltd. | 34,050 | 251,303 | |||||||||
Infosys Technologies Ltd., ADR | 23,445 | 226,479 | |||||||||
477,782 | |||||||||||
Materials (1.1%): | |||||||||||
Asian Paints Ltd. | 7,264 | 162,413 | |||||||||
Vedanta Ltd. | 174,574 | 249,418 | |||||||||
411,831 | |||||||||||
3,442,335 | |||||||||||
Indonesia (0.7%): | |||||||||||
Financials (0.7%): | |||||||||||
PT Bank Negara Indonesia (Persero) Tbk | 750,800 | 243,867 | |||||||||
Korea, Republic Of (13.0%): | |||||||||||
Communication Services (0.6%): | |||||||||||
NAVER Corp. | 1,056 | 237,592 | |||||||||
Consumer Discretionary (1.6%): | |||||||||||
F&F Co. Ltd. | 1,996 | 154,018 | |||||||||
Hyundai Mobis Co. Ltd. | 1,421 | 228,108 | |||||||||
Kia Motors Corp. | 7,776 | 210,136 | |||||||||
592,262 | |||||||||||
Consumer Staples (0.9%): | |||||||||||
GS Retail Co. Ltd. | 4,348 | 132,868 | |||||||||
Orion Corp. | 1,639 | 183,494 | |||||||||
316,362 | |||||||||||
Financials (1.8%): | |||||||||||
DB Insurance Co. Ltd. | 5,661 | 203,044 | |||||||||
Hana Financial Group, Inc. | 12,139 | 276,081 | |||||||||
Samsung Securities Co. Ltd. | 8,239 | 182,150 | |||||||||
661,275 | |||||||||||
Health Care (0.7%): | |||||||||||
Celltrion, Inc. (a) | 1,066 | 272,841 | |||||||||
Industrials (0.9%): | |||||||||||
Samsung Engineering Co. Ltd. (a) | 11,550 | 119,042 | |||||||||
SK Holdings Co. Ltd. | 927 | 225,458 | |||||||||
344,500 |
See notes to financial statements.
7
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Information Technology (6.2%): | |||||||||||
Samsung Electro-Mechanics Co. Ltd. | 2,448 | $ | 265,595 | ||||||||
Samsung Electronics Co. Ltd. | 34,125 | 1,510,695 | |||||||||
SK Hynix, Inc. | 7,360 | 525,515 | |||||||||
2,301,805 | |||||||||||
Materials (0.3%): | |||||||||||
SK Materials Co. Ltd. | 748 | 124,969 | |||||||||
4,851,606 | |||||||||||
Isle of Man (0.5%): | |||||||||||
Real Estate (0.5%): | |||||||||||
NEPI Rockcastle PLC | 35,666 | 183,061 | |||||||||
Malaysia (0.5%): | |||||||||||
Health Care (0.5%): | |||||||||||
Top Glove Corp. Bhd | 53,000 | 200,135 | |||||||||
Mexico (2.1%): | |||||||||||
Consumer Staples (0.5%): | |||||||||||
Arca Continental SAB de CV | 41,032 | 179,901 | |||||||||
Financials (0.3%): | |||||||||||
Gentera SAB de CV | 244,705 | 117,246 | |||||||||
Industrials (0.9%): | |||||||||||
Controladora Vuela Cia de Aviacion SAB de CV, ADR (a) | 24,017 | 126,810 | |||||||||
Grupo Aeroportuario del Centro Norte SAB de CV, ADR (a) | 5,580 | 207,297 | |||||||||
334,107 | |||||||||||
Real Estate (0.4%): | |||||||||||
Corp Inmobiliaria Vesta SAB de CV | 105,134 | 156,014 | |||||||||
787,268 | |||||||||||
Peru (0.6%): | |||||||||||
Financials (0.6%): | |||||||||||
Credicorp Ltd. | 1,696 | 226,704 | |||||||||
Philippines (1.1%): | |||||||||||
Financials (1.1%): | |||||||||||
BDO Unibank, Inc. | 144,210 | 284,623 | |||||||||
Metropolitan Bank & Trust Co. | 165,000 | 123,288 | |||||||||
407,911 | |||||||||||
Russian Federation (1.1%): | |||||||||||
Energy (0.8%): | |||||||||||
Rosneft Oil Co. PJSC, GDR | 58,663 | 294,823 |
See notes to financial statements.
8
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Materials (0.3%): | |||||||||||
MMC Norilsk Nickel PJSC, ADR | 4,547 | $ | 119,723 | ||||||||
414,546 | |||||||||||
Saudi Arabia (0.7%): | |||||||||||
Consumer Discretionary (0.3%): | |||||||||||
Leejam Sports Co. JSC | 6,521 | 101,741 | |||||||||
Industrials (0.4%): | |||||||||||
Saudi Industrial Services Co. | 27,020 | 150,323 | |||||||||
252,064 | |||||||||||
South Africa (2.3%): | |||||||||||
Communication Services (1.2%): | |||||||||||
Naspers Ltd., Class N | 2,441 | 448,823 | |||||||||
Financials (0.6%): | |||||||||||
Nedbank Group Ltd. | 39,812 | 233,545 | |||||||||
Materials (0.5%): | |||||||||||
Gold Fields Ltd., ADR | 18,790 | 176,626 | |||||||||
858,994 | |||||||||||
Taiwan (11.6%): | |||||||||||
Consumer Discretionary (0.6%): | |||||||||||
Hotai Motor Co. Ltd. | 10,000 | 239,845 | |||||||||
Financials (1.8%): | |||||||||||
Chailease Holding Co. Ltd. | 67,486 | 287,791 | |||||||||
Yuanta Financial Holding Co. Ltd. | 649,000 | 386,363 | |||||||||
674,154 | |||||||||||
Health Care (0.7%): | |||||||||||
TaiDoc Technology Corp. | 13,000 | 121,100 | |||||||||
Universal Vision Biotechnology Co. Ltd. | 23,000 | 136,068 | |||||||||
257,168 | |||||||||||
Industrials (0.4%): | |||||||||||
Sunonwealth Electric Machine Industry Co. Ltd. | 75,000 | 131,475 | |||||||||
Information Technology (8.1%): | |||||||||||
Compeq Manufacturing Co. Ltd. | 206,000 | 336,341 | |||||||||
Formosa Sumco Technology Corp. | 37,000 | 172,720 | |||||||||
Hon Hai Precision Industry Co. Ltd. | 192,000 | 563,923 | |||||||||
Macronix International | 337,000 | 357,484 | |||||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 148,259 | 1,583,845 | |||||||||
3,014,313 | |||||||||||
4,316,955 |
See notes to financial statements.
9
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Thailand (0.5%): | |||||||||||
Industrials (0.5%): | |||||||||||
Gunkul Engineering PCL (b) | 2,209,800 | $ | 186,779 | ||||||||
Turkey (1.5%): | |||||||||||
Communication Services (0.6%): | |||||||||||
Turk Telekomunikasyon A/S | 182,373 | 216,174 | |||||||||
Consumer Discretionary (0.5%): | |||||||||||
Tofas Turk Otomobil Fabrikasi A/S | 49,435 | 192,652 | |||||||||
Utilities (0.4%): | |||||||||||
Enerjisa Enerji A/S (d) | 128,332 | 161,254 | |||||||||
570,080 | |||||||||||
United Arab Emirates (0.6%): | |||||||||||
Financials (0.6%): | |||||||||||
Emirates NBD Bank PJSC | 91,867 | 223,826 | |||||||||
United Kingdom (1.3%): | |||||||||||
Materials (1.3%): | |||||||||||
Anglo American PLC | 12,930 | 298,029 | |||||||||
Antofagasta PLC | 17,041 | 197,206 | |||||||||
495,235 | |||||||||||
Total Common Stocks (Cost $31,099,001) | 36,058,330 | ||||||||||
Preferred Stocks (1.0%) | |||||||||||
Brazil (1.0%): | |||||||||||
Consumer Discretionary (0.6%): | |||||||||||
Lojas Americanas SA | 37,100 | 219,576 | |||||||||
Industrials (0.4%): | |||||||||||
Randon SA Implementos e Participacoes | 77,800 | 137,508 | |||||||||
357,084 | |||||||||||
Total Preferred Stocks (Cost $312,736) | 357,084 | ||||||||||
Rights (0.0%) | |||||||||||
India (0.0%): | |||||||||||
Consumer Discretionary (0.0%): | |||||||||||
Aditya Birla Fashion and Retail Ltd., Expires 7/23/20 (a) (e) (f) | 4,952 | — | |||||||||
Total Rights (Cost $—) | — |
See notes to financial statements.
10
Victory Variable Insurance Funds Victory Sophus Emerging Markets VIP Series | Schedule of Portfolio Investments — continued June 30, 2020 |
(Unaudited)
Security Description | Shares | Value | |||||||||
Collateral for Securities Loaned^ (1.3%) | |||||||||||
United States (1.3%): | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 0.28% (g) | 8,414 | $ | 8,414 | ||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 0.09% (g) | 254,660 | 254,660 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 0.30% (g) | 58,512 | 58,512 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 0.43% (g) | 33,482 | 33,482 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 0.41% (g) | 150,542 | 150,542 | |||||||||
Total Collateral for Securities Loaned (Cost $505,610) | 505,610 | ||||||||||
Total Investments (Cost $31,917,347) — 98.8% | 36,921,024 | ||||||||||
Other assets in excess of liabilities — 1.2% | 437,668 | ||||||||||
NET ASSETS — 100.00% | $ | 37,358,692 |
^ 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) Amount represents less than 0.05% of net assets.
(d) 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, 2020, the fair value of these securities was $626,294 and amounted to 1.7% of net assets.
(e) The Fund's Adviser has deemed this security to be illiquid based upon procedures approved by the Board of Trustees. As of June 30, 2020, illiquid securities were less than 0.05% of the Fund's net assets.
(f) Security was fair valued based upon procedures approved by the Board of Trustees and represents 0.05% of the Fund's net assets as of June 30, 2020. This security is classified as Level 3 within the fair value hierarchy. (See Note 2)
(g) Rate disclosed is the daily yield on June 30, 2020.
ADR — American Depositary Receipt
GDR — Global Depositary 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, 2020 |
(Unaudited)
Victory Sophus Emerging Markets VIP Series | |||||||
ASSETS: | |||||||
Investments, at value (Cost $31,917,347) | $ | 36,921,024 | (a) | ||||
Foreign currency, at value (Cost $20,544) | 20,581 | ||||||
Cash and cash equivalents | 693,320 | ||||||
Receivables: | |||||||
Interest and dividends | 184,972 | ||||||
Capital shares issued | 178,615 | ||||||
Investments sold | 22,784 | ||||||
Reclaims | 521 | ||||||
From Adviser | 10,352 | ||||||
Prepaid expenses | 1,375 | ||||||
Total Assets | 38,033,544 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 505,610 | ||||||
Investments purchased | 99,512 | ||||||
Capital shares redeemed | 6,812 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 30,269 | ||||||
Administration fees | 1,822 | ||||||
Custodian fees | 10,417 | ||||||
Transfer agent fees | 41 | ||||||
Compliance fees | 32 | ||||||
Other accrued expenses | 20,337 | ||||||
Total Liabilities | 674,852 | ||||||
NET ASSETS: | |||||||
Capital | 31,624,062 | ||||||
Total distributable earnings/(loss) | 5,734,630 | ||||||
Net Assets | $ | 37,358,692 | |||||
Shares (unlimited shares authorized with a par value of $0.001 per share): | 2,682,042 | ||||||
Net asset value: | $ | 13.93 |
(a) Includes $486,028 of securities on loan.
See notes to financial statements.
12
Victory Variable Insurance Funds | Statement of Operations For the Six Months Ended June 30, 2020 |
(Unaudited)
Victory Sophus Emerging Markets VIP Series | |||||||
Investment Income: | |||||||
Dividends | $ | 374,587 | |||||
Interest | 929 | ||||||
Securities lending (net of fees) | 905 | ||||||
Foreign tax withholding | (31,476 | ) | |||||
Total Income | 344,945 | ||||||
Expenses: | |||||||
Investment advisory fees | 186,506 | ||||||
Administration fees | 11,396 | ||||||
Sub-Administration fees | 7,462 | ||||||
Custodian fees | 32,686 | ||||||
Transfer agent fees | 149 | ||||||
Trustees' fees | 1,866 | ||||||
Compliance fees | 162 | ||||||
Legal and audit fees | 15,230 | ||||||
Other expenses | 20,189 | ||||||
Total Expenses | 275,646 | ||||||
Expenses waived/reimbursed by Adviser | (24,140 | ) | |||||
Net Expenses | 251,506 | ||||||
Net Investment Income (Loss) | 93,439 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities and foreign currency translations | (291,386 | ) | |||||
Foreign refunds (taxes) on realized gains | (9,017 | ) | |||||
Net change in unrealized appreciation/depreciation on investment securities and foreign currency translations | (4,941,918 | ) | |||||
Net change in accrued foreign taxes on unrealized gains | (13,213 | ) | |||||
Net realized/unrealized losses on investments | (5,255,534 | ) | |||||
Change in net assets resulting from operations | $ | (5,162,095 | ) |
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, 2020 (Unaudited) | Year Ended December 31, 2019 | ||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 93,439 | $ | 832,981 | |||||||
Net realized gains (losses) from investments | (300,403 | ) | 354,949 | ||||||||
Net change in unrealized appreciation/depreciation on investments | (4,955,131 | ) | 7,846,336 | ||||||||
Change in net assets resulting from operations | (5,162,095 | ) | 9,034,266 | ||||||||
Change in net assets resulting from distributions to shareholders | — | (2,706,474 | ) | ||||||||
Change in net assets resulting from capital transactions | (2,050,165 | ) | (4,141,635 | ) | |||||||
Change in net assets | (7,212,260 | ) | 2,186,157 | ||||||||
Net Assets: | |||||||||||
Beginning of period | 44,570,952 | 42,384,795 | |||||||||
End of period | $ | 37,358,692 | $ | 44,570,952 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 932,729 | $ | 1,667,106 | |||||||
Distributions reinvested | — | 2,706,474 | |||||||||
Cost of shares redeemed | (2,982,894 | ) | (8,515,215 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (2,050,165 | ) | $ | (4,141,635 | ) | |||||
Share Transactions: | |||||||||||
Issued | 71,355 | 111,672 | |||||||||
Reinvested | — | 174,181 | |||||||||
Redeemed | (222,717 | ) | (571,160 | ) | |||||||
Change in Shares | (151,362 | ) | (285,307 | ) |
See notes to financial statements.
14
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15
Victory Variable Insurance Funds | Financial Highlights |
For a Share Outstanding Throughout Each Period
Investment Activities | Distributions to Shareholders 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 | Total Distributions | Capital Contribution from Prior Custodian, Net (See Note 8) | ||||||||||||||||||||||||||||
Victory Sophus Emerging Markets VIP Series | |||||||||||||||||||||||||||||||||||
Six Months Ended 6/30/20 (unaudited) | $ | 15.73 | 0.03 | (1.83 | ) | (1.80 | ) | — | — | — | — | ||||||||||||||||||||||||
Year Ended 12/31/19 | $ | 13.59 | 0.29 | 2.85 | 3.14 | (0.16 | ) | (0.84 | ) | (1.00 | ) | — | |||||||||||||||||||||||
Year Ended 12/31/18 | $ | 18.79 | 0.20 | (3.79 | ) | (3.59 | ) | (0.14 | ) | (1.47 | ) | (1.61 | ) | — | |||||||||||||||||||||
Year Ended 12/31/17 | $ | 13.26 | 0.17 | 5.51 | 5.68 | (0.15 | ) | — | (0.15 | ) | — | ||||||||||||||||||||||||
Year Ended 12/31/16 | $ | 11.99 | 0.12 | 1.14 | 1.26 | (0.12 | ) | — | (0.12 | ) | 0.13 | ||||||||||||||||||||||||
Year Ended 12/31/15 | $ | 13.81 | 0.13 | (1.89 | ) | (1.76 | ) | (0.06 | ) | — | (0.06 | ) | — |
* Includes adjustments in accordance with U.S. Generally Accepted Accounting Principles.
(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) The Fund received monies related to a nonrecurring refund from the prior Custodian. The corresponding impact to the total return was less than 0.95% for the period shown. (See Note 8)
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*(b)(c) | Net Expenses(d) | Net Investment Income (Loss)(d) | Gross Expenses(d) | Net Assets, End of Period (000's) | Portfolio Turnover(b) | |||||||||||||||||||||||||
Victory Sophus Emerging Markets VIP Series | |||||||||||||||||||||||||||||||
Six Months Ended 6/30/20 (unaudited) | $ | 13.93 | (11.44 | )% | 1.35 | % | 0.50 | % | 1.48 | % | $ | 37,359 | 49 | % | |||||||||||||||||
Year Ended 12/31/19 | $ | 15.73 | 23.28 | % | 1.35 | % | 1.93 | % | 1.40 | % | $ | 44,571 | 91 | % | |||||||||||||||||
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 | % | $ | 48,634 | 102 | % | |||||||||||||||||
Year Ended 12/31/15 | $ | 11.99 | (12.74 | )% | 1.35 | % | 0.92 | % | 1.35 | % | $ | 48,426 | 123 | % |
See notes to financial statements.
17
Victory Variable Insurance Funds | Notes to Financial Statements June 30, 2020 |
(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. Victory Sophus Emerging Markets VIP Series (the "Fund"), a series of the Trust, offers a single class of shares: Class I Shares. The Fund's shares are only available for purchase by certain separate accounts of insurance companies as investments for certain variable annuity plans and variable life insurance contracts issued by those insurance companies. The accompanying financial statements are those of the Fund.
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 generally accepted accounting principles 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.
18
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
Investments in open-end investment companies are valued at net asset value ("NAV"). 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 NAV 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, 2020, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed on the Schedule of Portfolio Investments.
LEVEL 1 | LEVEL 2 | LEVEL 3 | Total | ||||||||||||||||
Common Stocks | $ | 8,060,633 | $ | 27,997,697 | $ | — | $ | 36,058,330 | |||||||||||
Preferred Stocks | 357,084 | — | — | 357,084 | |||||||||||||||
Rights | — | — | — | (a) | — | ||||||||||||||
Collateral for Securities Loaned | 505,610 | — | — | 505,610 | |||||||||||||||
Total | $ | 8,923,327 | $ | 27,997,697 | $ | — | (a) | $ | 36,921,024 |
(a) Zero market value.
For the six months ended June 30, 2020, there were no transfers in or out of the Level 3 fair value hierarchy.
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, 2020, the Fund had no open forward foreign exchange currency contracts.
19
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(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 determined on the basis of coupon interest accrued using the effective interest method which adjusts, 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 recorded on the identified cost basis. 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 on 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 on 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, 2020. 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 | ||||||||||||||||||
$ | 486,028 | $ | 486,028 | $ | — | $ | — | $ | — | $ | — |
* Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by each Fund is disclosed on 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
20
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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.
Distributions 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 (collectively, distributions to shareholders) 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 years, which includes the current fiscal tax year end). 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.
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, 2020 were as follows for the Fund:
Purchases | Sales | ||||||
$ | 18,189,475 | $ | 20,503,568 |
For the six months ended June 30, 2020, there were no purchases or sales of U.S. Government Securities.
21
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(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 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, 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 Fund reimburses VCM and Citi for reasonable out-of-pocket expenses incurred in providing these services and certain other expenses specifically allocated to the Fund under the Fund Administration, Servicing, and Accounting Agreement. Amounts paid by the Fund to reimburse VCM for expenses incurred during the six months ended June 30, 2020, are reflected on the Statement of Operations as Sub-Administration fees.
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 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 on the Statement of Operations.
Sidley Austin LLP provides legal services to the Trust.
Victory Capital Services, 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. Effective June 30, 2020, the Distributor's name was changed from Victory Capital Advisers, Inc.
The Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2021. 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. As of June 30, 2020, 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
22
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
payments or repayments would not cause the expenses 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. 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. As of June 30, 2020, the following amounts are available to be repaid to the Adviser.
Expires December 31, 2022 | Expires December 31, 2023 | Total | |||||||||
$ | 22,632 | $ | 24,140 | $ | 46,772 |
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, 2020.
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 is 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 is 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 is 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.
An outbreak of respiratory disease called COVID-19 was first detected in China in December 2019 and subsequently spread internationally. The transmission of COVID-19 and efforts to contain its spread have resulted in international, national and local border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and consumer activity, significant challenges in healthcare service preparation and delivery, quarantines and general concern
23
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
and uncertainty. These negative impacts have caused significant volatility and declines in global financial markets, which have caused losses for Fund investors during and subsequent to period end. The impact of the COVID-19 pandemic may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession. Public health crises may exacerbate other pre-existing political, social, economic, market and financial risks. The extent of the impact to the financial performance of the Fund's investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted.
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2020, the Victory Funds Complex participated in a short-term demand note "Line of Credit" agreement with Citibank. The Line of Credit agreement with Citibank was renewed on June 29, 2020 with a termination date of June 28, 2021. Under the agreement with Citibank, the Victory Funds Complex and USAA Mutual 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 (herein, the "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. For the six months ended June 30, 2020, Citibank received an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. For the six months ended June 30, 2020, Citibank earned approximately $225 thousand in commitment fees from the combined Victory Funds Complex and USAA Mutual Funds Complex. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest (one month LIBOR plus one percent) on amounts borrowed. Effective June 29, 2020, under an amended Line of Credit agreement, Citibank will also receive an annual upfront fee of 0.10% on the $300 million committed line of credit. Each fund in the Victory Funds Complex will pay a pro-rata portion of the upfront fee. Interest charged to each Fund during the period, if applicable, 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, 2020.
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 Interest expense on interfund lending. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Interfund lending income.
The Fund did not utilize the Facility during the six months ended June 30, 2020.
7. Federal 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, 2020.
At December 31, 2019, the Fund had no capital loss carryforwards for federal income tax purposes.
24
Victory Variable Insurance Funds | Notes to Financial Statements — continued June 30, 2020 |
(Unaudited)
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, 2020, the shareholder listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund. Shareholders of record may hold Fund shares for the benefit of their customers.
Shareholder | Percent | ||||||
GIAC* | 99.4 | %* |
* The Guardian Insurance & Annuity Company, Inc. ("GIAC") is a wholly owned subsidiary of The Guardian Life Insurance Company of America. The amount represents indirect interests of variable annuity contract holders or variable life policyholders.
25
Victory Variable Insurance Funds | Supplemental Information June 30, 2020 |
(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 quarter of each fiscal year on Form N-PORT. Forms N-PORT are available on the SEC's web site 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, 2020 through June 30, 2020.
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 1/1/20 | Actual Ending Account Value 6/30/20 | Hypothetical Ending Account Value 6/30/20 | Actual Expenses Paid During Period 1/1/20-6/30/20* | Hypothetical Expenses Paid During Period 1/1/20-6/30/20* | Annualized Expense Ratio During Period 1/1/20-6/30/20 | ||||||||||||||||||
$ | 1,000.00 | $ | 885.60 | $ | 1,018.15 | $ | 6.33 | $ | 6.77 | 1.35 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
26
Victory Variable Insurance Funds | Supplemental Information — continued June 30, 2020 |
(Unaudited)
Liquidity Risk Management Program:
The Victory Funds have adopted and implemented a written liquidity risk management program (the "LRMP") as required by Rule 22e-4 under the Act. The LRMP is reasonably designed to assess and manage each Fund's liquidity risk, taking into consideration each Fund's investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed market conditions; its short and long-term cash flow projections; and its cash holdings and access to other liquidity management tools such as available funding sources including the Victory Funds Complex Interfund Lending Facility and Line of Credit (discussed in the Notes to Financial Statements). The Board approved the appointment of VCM as the administrator of the LRMP. At an in-person meeting held on February 20, 2020, VCM provided an oral and written report to the Trustees on the operation and effectiveness of the LRMP during the previous year. VCM manages liquidity risks associated with the Funds' investments by monitoring, among other things, cash and cash equivalents, any use of derivatives, the concentration of investments, the appropriateness of each Fund's investment strategy, and by classifying every fund investment as either highly liquid, moderately liquid, less liquid or illiquid on at least a monthly basis. To assist with the classification of Fund investments, VCM has retained a third-party provider of liquidity evaluation services. This provider determines preliminary liquidity classifications for all portfolio holdings based upon portfolio-level data and certain assumptions provided by VCM. VCM reviews the preliminary liquidity classifications and, when appropriate, considers other information including input from the Funds' portfolio managers (including the portfolio managers employed by any investment sub-advisers) in determining final liquidity classifications.
The report from VCM concluded that the Funds did not experience any significant liquidity challenges during the covered period, and the Funds' LRMP is reasonably designed to assess and manage its liquidity risk. The report also concluded that the LRMP continues to operate adequately and effectively to enable VCM to oversee and manage liquidity risk and ensure each Fund is able to meet redemption requests without significant dilution to the remaining investors' interest in each Fund. During the review period, each Fund's portfolio consisted primarily of highly liquid investments, which are defined as cash and any investments reasonably expected to be converted to cash in current market conditions in three business days or less without significantly changing the market value of the investment. Therefore, the Fund has not adopted a Highly Liquid Investment Minimum. The Funds' investments were below the limitation on illiquid investments during the review period. Additionally, VCM indicated that no events occurred that would require the filing of Form N-LIQUID and recommended no material changes to the LRMP.
27
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 (6/20)
June 30, 2020
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 Objectives & 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 | |||||||
Proxy Voting and Portfolio Holdings Information | 17 | ||||||
Expense Examples | 17 | ||||||
Liquidity Risk Management Program | 18 | ||||||
Privacy Policy (inside back cover) |
The Fund is distributed by Victory Capital Services, 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.
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 Variable Insurance Funds June 30, 2020
(Unaudited)
Investment Objective & Portfolio Holdings:
Investment Objective: Victory Variable Insurance 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
Diversified Stock Fund June 30, 2020
(Amounts in Thousands, Except for Shares) (Unaudited)
Security Description | Shares | Value | |||||||||
Common Stocks (95.7%): | |||||||||||
Communication Services (10.5%): | |||||||||||
Alphabet, Inc., Class C (a) | 768 | $ | 1,085 | ||||||||
Charter Communications, Inc., Class A (a) (b) | 451 | 231 | |||||||||
Comcast Corp. Class A | 3,624 | 141 | |||||||||
Facebook, Inc., Class A (a) | 2,483 | 564 | |||||||||
Netflix, Inc. (a) | 343 | 156 | |||||||||
Nexstar Media Group, Inc., Class A | 1,798 | 150 | |||||||||
T-Mobile U.S., Inc. (a) | 3,465 | 361 | |||||||||
2,688 | |||||||||||
Consumer Discretionary (13.4%): | |||||||||||
Amazon.com, Inc. (a) | 528 | 1,457 | |||||||||
Boyd Gaming Corp. | 12,947 | 270 | |||||||||
D.R. Horton, Inc. | 2,579 | 143 | |||||||||
Dollar General Corp. | 2,150 | 409 | |||||||||
LGI Homes, Inc. (a) | 2,101 | 185 | |||||||||
Marriott Vacations Worldwide Corp. | 1,116 | 92 | |||||||||
Meritage Homes Corp. (a) | 2,492 | 190 | |||||||||
Skechers USA, Inc., Class A (a) | 6,161 | 193 | |||||||||
Target Corp. | 1,522 | 183 | |||||||||
TopBuild Corp. (a) | 1,354 | 154 | |||||||||
Tractor Supply Co. | 1,215 | 160 | |||||||||
3,436 | |||||||||||
Consumer Staples (6.3%): | |||||||||||
Kimberly-Clark Corp. | 2,215 | 314 | |||||||||
PepsiCo, Inc. | 2,521 | 333 | |||||||||
Philip Morris International, Inc. | 3,187 | 223 | |||||||||
The Kroger Co. | 9,337 | 316 | |||||||||
The Procter & Gamble Co. | 2,058 | 246 | |||||||||
Walmart, Inc. | 1,621 | 194 | |||||||||
1,626 | |||||||||||
Energy (1.5%): | |||||||||||
Chevron Corp. | 1,256 | 112 | |||||||||
Phillips 66 | 1,894 | 137 | |||||||||
Valero Energy Corp. | 2,164 | 127 | |||||||||
376 | |||||||||||
Financials (7.5%): | |||||||||||
Ameriprise Financial, Inc. | 2,256 | 338 | |||||||||
Citigroup, Inc. | 4,437 | 227 | |||||||||
Essent Group Ltd. | 6,136 | 223 | |||||||||
Flagstar Bancorp, Inc. | 7,217 | 212 | |||||||||
JPMorgan Chase & Co. | 2,331 | 219 | |||||||||
NMI Holdings, Inc., Class A (a) | 10,240 | 165 | |||||||||
Primerica, Inc. | 3,105 | 362 | |||||||||
Western Alliance Bancorp | 4,511 | 171 | |||||||||
1,917 |
See notes to financial statements.
3
Victory Variable Insurance Funds Schedule of Portfolio Investments — continued
Diversified Stock Fund June 30, 2020
(Amounts in Thousands, Except for Shares) (Unaudited)
Security Description | Shares | Value | |||||||||
Health Care (16.0%): | |||||||||||
AbbVie, Inc. | 5,722 | $ | 561 | ||||||||
Amgen, Inc. | 918 | 217 | |||||||||
Bristol-Myers Squibb Co. | 6,786 | 399 | |||||||||
Charles River Laboratories International, Inc. (a) | 2,143 | 373 | |||||||||
Cigna Corp. | 1,679 | 315 | |||||||||
ICON PLC (a) | 1,880 | 317 | |||||||||
Medtronic PLC | 952 | 87 | |||||||||
Merck & Co., Inc. | 5,209 | 403 | |||||||||
Pfizer, Inc. | 6,854 | 224 | |||||||||
Regeneron Pharmaceuticals, Inc. (a) | 418 | 261 | |||||||||
Stryker Corp. | 722 | 130 | |||||||||
Syneos Health, Inc. (a) | 3,683 | 215 | |||||||||
UnitedHealth Group, Inc. | 1,989 | 587 | |||||||||
4,089 | |||||||||||
Industrials (6.7%): | |||||||||||
Federal Signal Corp. | 7,863 | 234 | |||||||||
Kansas City Southern | 1,586 | 237 | |||||||||
L3Harris Technologies, Inc. | 1,514 | 257 | |||||||||
Lockheed Martin Corp. | 1,097 | 401 | |||||||||
Old Dominion Freight Line, Inc. | 852 | 144 | |||||||||
UFP Industries, Inc. | 5,420 | 268 | |||||||||
XPO Logistics, Inc. (a) | 2,239 | 173 | |||||||||
1,714 | |||||||||||
Information Technology (30.6%): | |||||||||||
Adobe, Inc. (a) | 909 | 396 | |||||||||
Advanced Micro Devices, Inc. (a) | 2,559 | 135 | |||||||||
Akamai Technologies, Inc. (a) | 1,554 | 166 | |||||||||
Apple, Inc. | 4,297 | 1,568 | |||||||||
Booz Allen Hamilton Holdings Corp. | 3,566 | 277 | |||||||||
Broadcom, Inc. | 1,575 | 497 | |||||||||
CDW Corp. | 1,251 | 145 | |||||||||
Cisco Systems, Inc. | 3,960 | 185 | |||||||||
EPAM Systems, Inc. (a) | 1,205 | 304 | |||||||||
Fiserv, Inc. (a) | 3,164 | 310 | |||||||||
Leidos Holdings, Inc. | 2,501 | 234 | |||||||||
Lumentum Holdings, Inc. (a) | 2,671 | 217 | |||||||||
Mastercard, Inc., Class A | 475 | 140 | |||||||||
Microsoft Corp. | 9,113 | 1,854 | |||||||||
NVIDIA Corp. | 1,556 | 591 | |||||||||
Oracle Corp. | 3,355 | 185 | |||||||||
Salesforce.com, Inc. (a) | 1,428 | 268 | |||||||||
ServiceNow, Inc. (a) | 418 | 169 | |||||||||
Visa, Inc., Class A | 1,006 | 194 | |||||||||
7,835 | |||||||||||
Materials (1.9%): | |||||||||||
Berry Global Group, Inc. (a) | 5,883 | 260 | |||||||||
Silgan Holdings, Inc. | 6,840 | 222 | |||||||||
482 |
See notes to financial statements.
4
Victory Variable Insurance Funds Schedule of Portfolio Investments — continued
Diversified Stock Fund June 30, 2020
(Amounts in Thousands, Except for Shares) (Unaudited)
Security Description | Shares | Value | |||||||||
Real Estate (1.3%): | |||||||||||
American Tower Corp. | 872 | $ | 225 | ||||||||
CBRE Group, Inc., Class A (a) | 2,536 | 115 | |||||||||
340 | |||||||||||
Total Common Stocks (Cost $18,634) | 24,503 | ||||||||||
Rights (0.0%): (c) | |||||||||||
Communication Services (0.0%): (c) | |||||||||||
T-Mobile U.S., Inc., Expires 7/28/20 (a) | 3,465 | 1 | |||||||||
Total Rights (Cost $—) | 1 | ||||||||||
Exchange-Traded Funds (3.0%): | |||||||||||
SPDR S&P 500 ETF Trust | 2,494 | 769 | |||||||||
Total Exchange-Traded Funds (Cost $659) | 769 | ||||||||||
Collateral for Securities Loaned^ (0.4%): | |||||||||||
BlackRock Liquidity Funds TempFund Portfolio, Institutional Class, 0.28% (d) | 1,729 | 2 | |||||||||
Fidelity Investments Money Market Government Portfolio, Class I, 0.09% (d) | 52,337 | 52 | |||||||||
Goldman Sachs Financial Square Prime Obligations Fund, Institutional Class, 0.30% (d) | 12,025 | 12 | |||||||||
JPMorgan Prime Money Market Fund, Capital Class, 0.43% (d) | 6,881 | 7 | |||||||||
Morgan Stanley Institutional Liquidity Prime Portfolio, Institutional Class, 0.41% (d) | 30,939 | 31 | |||||||||
Total Collateral for Securities Loaned (Cost $104) | 104 | ||||||||||
Total Investments (Cost $19,397) — 99.1% | 25,377 | ||||||||||
Other assets in excess of liabilities — 0.9% | 234 | ||||||||||
NET ASSETS — 100.0% | $ | 25,611 |
^ 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) Amount represents less than 0.05% of net assets.
(d) Rate disclosed is the daily yield on June 30, 2020.
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, 2020
(Amounts in Thousands, Except for Share Amounts) (Unaudited)
Victory Variable Insurance Diversified Stock Fund | |||||||
ASSETS: | |||||||
Investments, at value (Cost $19,397) | $ | 25,377 | (a) | ||||
Cash and cash equivalents | 353 | ||||||
Receivables: | |||||||
Dividends | 17 | ||||||
From Adviser | 2 | ||||||
Prepaid expenses | 1 | ||||||
Total Assets | 25,750 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Collateral received on loaned securities | 104 | ||||||
Capital shares redeemed | 3 | ||||||
Accrued expenses and other payables: | |||||||
Investment advisory fees | 6 | ||||||
Administration fees | 1 | ||||||
Contract owner fees | 10 | ||||||
Transfer agent fees | — | (b) | |||||
Compliance fees | — | (b) | |||||
12b-1 fees | 3 | ||||||
Other accrued expenses | 12 | ||||||
Total Liabilities | 139 | ||||||
NET ASSETS: | |||||||
Capital | 19,724 | ||||||
Total distributable earnings/(loss) | 5,887 | ||||||
Net Assets | $ | 25,611 | |||||
Shares (unlimited number of shares authorized with a par value of $0.001 per share) | 2,237 | ||||||
Net asset value, offering price & redemption price per share (c) | $ | 11.45 |
(a) Includes $102 of securities on loan.
(b) Rounds to less than $1 thousand.
(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, 2020
(Amounts in Thousands) (Unaudited)
Victory Variable Insurance Diversified Stock Fund | |||||||
Investment Income: | |||||||
Interest | $ | 1 | |||||
Dividends | 185 | ||||||
Securities lending (net of fees) | 1 | ||||||
Total Income | 187 | ||||||
Expenses: | |||||||
Investment advisory fees | 38 | ||||||
Administration fees | 8 | ||||||
Sub-Administration fees | 7 | ||||||
Printing fees | 8 | ||||||
Contract owner fees | 31 | ||||||
12b-1 fees | 32 | ||||||
Custodian fees | 1 | ||||||
Transfer agent fees | — | (a) | |||||
Trustees' fees | 1 | ||||||
Compliance fees | — | (a) | |||||
Legal and audit fees | 5 | ||||||
Other expenses | 4 | ||||||
Total Expenses | 135 | ||||||
Expenses waived/reimbursed by Adviser | (2 | ) | |||||
Net Expenses | 133 | ||||||
Net Investment Income (Loss) | 54 | ||||||
Realized/Unrealized Gains (Losses) from Investments: | |||||||
Net realized gains (losses) from investment securities | (1,612 | ) | |||||
Net change in unrealized appreciation/depreciation on investment securities | (413 | ) | |||||
Net realized/unrealized gains (losses) on investments | (2,025 | ) | |||||
Change in net assets resulting from operations | $ | (1,971 | ) |
(a) Rounds to less than $1 thousand.
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, 2020 (Unaudited) | Year Ended December 31, 2019 | ||||||||||
From Investment Activities: | |||||||||||
Operations: | |||||||||||
Net investment income | $ | 54 | $ | 149 | |||||||
Net realized gains (losses) from investments | (1,612 | ) | 1,600 | ||||||||
Net change in unrealized appreciation/depreciation on investments | (413 | ) | 5,670 | ||||||||
Change in net assets resulting from operations | (1,971 | ) | 7,419 | ||||||||
Change in net assets resulting from distributions to shareholders | (75 | ) | (1,827 | ) | |||||||
Change in net assets resulting from capital transactions | (1,961 | ) | (4,104 | ) | |||||||
Change in net assets | (4,007 | ) | 1,488 | ||||||||
Net Assets: | |||||||||||
Beginning of period | 29,618 | 28,130 | |||||||||
End of period | $ | 25,611 | $ | 29,618 | |||||||
Capital Transactions: | |||||||||||
Proceeds from shares issued | $ | 674 | $ | 275 | |||||||
Dividends reinvested | 75 | 1,827 | |||||||||
Cost of shares redeemed | (2,710 | ) | (6,206 | ) | |||||||
Change in net assets resulting from capital transactions | $ | (1,961 | ) | $ | (4,104 | ) | |||||
Share Transactions: | |||||||||||
Issued | 69 | 23 | |||||||||
Reinvested | 8 | 150 | |||||||||
Redeemed | (243 | ) | (523 | ) | |||||||
Change in Shares | (166 | ) | (350 | ) |
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 Shareholders 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 June 30, 2020 (unaudited) | $ | 12.32 | 0.02 | (d) | (0.86 | ) | (0.84 | ) | (0.03 | ) | — | ||||||||||||||||
Year Ended December 31, 2019 | $ | 10.22 | 0.06 | (d) | 2.82 | 2.88 | (0.06 | ) | (0.72 | ) | |||||||||||||||||
Year Ended December 31, 2018 | $ | 14.91 | 0.07 | (d) | (2.07 | ) | (2.00 | ) | (0.06 | ) | (2.63 | ) | |||||||||||||||
Year Ended December 31, 2017 | $ | 12.03 | 0.09 | (d) | 3.08 | 3.17 | (0.09 | ) | (0.20 | ) | |||||||||||||||||
Year Ended December 31, 2016 | $ | 12.75 | 0.13 | (d) | 0.37 | 0.50 | (0.13 | ) | (1.09 | ) | |||||||||||||||||
Year Ended December 31, 2015 | $ | 15.15 | 0.09 | (0.53 | ) | (0.44 | ) | (0.09 | ) | (1.87 | ) |
(a) Not annualized for periods less than one year.
(b) Total returns do not include any insurance, sales, or administrative charges of variable annuity or life insurance contracts. If these charges were included,
the returns would be lower.
(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(a) | ||||||||||||||||||||||||||||
Victory Variable Insurance Diversified Stock Fund | |||||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2020 (unaudited) | (0.03 | ) | $ | 11.45 | (6.74 | )% | 1.04 | % | 0.43 | % | 1.05 | % | $ | 25,611 | 52 | % | |||||||||||||||||||
Year Ended December 31, 2019 | (0.78 | ) | $ | 12.32 | 28.39 | % | 0.99 | % | 0.50 | % | 0.99 | % | $ | 29,618 | 113 | % | |||||||||||||||||||
Year Ended December 31, 2018 | (2.69 | ) | $ | 10.22 | (13.30 | )% | 0.96 | % | 0.50 | % | 0.96 | % | $ | 28,130 | 114 | % | |||||||||||||||||||
Year Ended December 31, 2017 | (0.29 | ) | $ | 14.91 | 26.45 | % | 0.94 | % | 0.68 | % | 0.94 | % | $ | 38,877 | 138 | % | |||||||||||||||||||
Year Ended December 31, 2016 | (1.22 | ) | $ | 12.03 | 3.90 | % | 1.08 | % | 1.06 | % | 1.08 | % | $ | 33,987 | 86 | % | |||||||||||||||||||
Year Ended December 31, 2015 | (1.96 | ) | $ | 12.75 | (3.11 | )% | 1.14 | % | 0.56 | % | 1.14 | % | $ | 38,441 | 78 | % |
See notes to financial statements.
11
Notes to Financial Statements
Victory Variable Insurance Funds June 30, 2020
(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. Victory Variable Insurance Diversified Stock Fund (the "Fund"), a series of the Trust, offers a single class of shares: Class A Shares. The Fund's shares are only available for purchase by certain separate accounts of insurance companies as investments for certain variable annuity plans and variable life insurance contracts issued by those insurance companies. The accompanying financial statements are those of the Fund.
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 generally accepted accounting principles 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, 2020, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed on the Schedule of Portfolio Investments (amounts in thousands).
LEVEL 1 | LEVEL 2 | LEVEL 3 | Total | ||||||||||||||||
Common Stocks | $ | 24,503 | $ | — | $ | — | $ | 24,503 | |||||||||||
Rights | 1 | — | — | 1 | |||||||||||||||
Exchange-Traded Funds | 769 | — | — | 769 | |||||||||||||||
Collateral for Securities Loaned | 104 | — | — | 104 | |||||||||||||||
Total | $ | 25,377 | $ | — | $ | — | $ | 25,377 |
For the six months ended June 30, 2020, there were no transfers in or out of the Level 3 fair value hierarchy.
12
Notes to Financial Statements — continued
Victory Variable Insurance Funds June 30, 2020
(Unaudited)
Investment Companies:
The Fund may invest in ETFs, 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 determined on the basis of coupon interest accrued using the effective interest method which adjusts, 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 recorded on the identified cost basis. 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 on 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 on 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, 2020. 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 | ||||||||||||||||||
$ | 102 | $ | 102 | $ | — | $ | — | $ | — | $ | — |
* 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 on the Statement of Assets and Liabilities.
Distributions 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 (collectively, distributions to shareholders) 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.
13
Notes to Financial Statements — continued
Victory Variable Insurance Funds June 30, 2020
(Unaudited)
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 years, which includes the current fiscal tax year end). 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.
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, 2020 were as follows (amounts in thousands):
Purchases | Sales | ||||||
$ | 13,224 | $ | 15,511 |
For the six months ended June 30, 2020, 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, 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 Fund reimburses VCM and Citi for reasonable out-of-pocket expenses incurred in providing these services and certain other expenses specifically allocated to the Fund under the Fund Administration, Servicing, and Accounting Agreement. Amounts paid by the Fund to reimburse VCM for expenses incurred during the six months ended June 30, 2020, are reflected on the Statement of Operations as Sub-Administration fees.
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 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 on the Statement of Operations.
Sidley Austin LLP provides legal services to the Trust.
Victory Capital Services, 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. Effective June 30, 2020, the Distributor's name was changed from Victory Capital Advisers, Inc.
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
14
Notes to Financial Statements — continued
Victory Variable Insurance Funds June 30, 2020
(Unaudited)
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.)
Effective May 1, 2020, the Adviser has entered into an expense limitation agreement with the Fund until at least April 30, 2021. 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. As of June 30, 2020, the expense limit (excluding voluntary waivers) is 1.02%. The expense limit became effective May 1, 2020. There was no expense limit prior to May 1, 2020.
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 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.
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, 2020.
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 is 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.
An outbreak of respiratory disease called COVID-19 was first detected in China in December 2019 and subsequently spread internationally. The transmission of COVID-19 and efforts to contain its spread have resulted in international, national and local border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and consumer activity, significant challenges in healthcare service preparation and delivery, quarantines and general concern and uncertainty. These negative impacts have caused significant volatility and declines in global financial markets, which have caused losses for Fund investors during and subsequent to period end. The impact of the COVID-19 pandemic may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession. Public health crises may exacerbate other pre-existing political, social, economic, market and financial risks. The extent of the impact to the financial performance of the Funds' investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted.
15
Notes to Financial Statements — continued
Victory Variable Insurance Funds June 30, 2020
(Unaudited)
6. Borrowing and Interfund Lending:
Line of Credit:
For the six months ended June 30, 2020, the Victory Funds Complex participated in a short-term demand note "Line of Credit" agreement with Citibank. The Line of Credit agreement with Citibank was renewed on June 29, 2020 with a termination date of June 28, 2021. Under the agreement with Citibank, the Victory Funds Complex and USAA Mutual 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 (herein, the "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. For the six months ended June 30, 2020, Citibank received an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. For the six months ended June 30, 2020, Citibank earned approximately $225 thousand in commitment fees from the combined Victory Funds Complex and USAA Mutual Funds Complex. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest (one month LIBOR plus one percent) on amounts borrowed. Effective June 29, 2020, under an amended Line of Credit agreement, Citibank will also receive an annual upfront fee of 0.10% on the $300 million committed line of credit. Each fund in the Victory Funds Complex will pay a pro-rata portion of the upfront fee. Interest charged to each Fund during the period, if applicable, 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, 2020.
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 Interest expense on interfund lending. As a Lender, interest earned by the Fund during the period is presented on the Statement of Operations under Interfund lending income.
The Fund did not utilize the Facility during the six months ended June 30, 2020.
7. Federal Income Tax Information:
The tax character of current year distributions paid and the tax basis of current components of accumulated earnings (deficit) will be determined at the end of the current tax year ending December 31, 2020.
During the year ended December 31, 2019, the Fund did not utilize any capital loss carryforwards, and at December 31, 2019, the Fund had no capital loss carryforwards for federal income tax purposes.
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, 2020, the shareholder listed below held more than 25% of the shares outstanding of the Fund and may be deemed to control the Fund. Shareholders of record may hold Fund shares for the benefit of their customers.
Shareholder | Percent | ||||||
NYLIAC | 89.0 | % |
16
Supplemental Information
Victory Variable Insurance Funds June 30, 2020
(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 quarter of each fiscal year on Form N-PORT. Forms N-PORT are available on the SEC's web site 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, 2020 through June 30, 2020.
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 | Actual | Hypothetical | Actual | Hypothetical | Annualized | ||||||||||||||||||
$ | 1,000.00 | $ | 932.60 | $ | 1,019.69 | $ | 5.00 | $ | 5.22 | 1.04 | % |
* Expenses are equal to the average account value multiplied by the Fund's annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year).
17
Supplemental Information — continued
Victory Variable Insurance Funds June 30, 2020
(Unaudited)
Liquidity Risk Management Program:
The Victory Funds have adopted and implemented a written liquidity risk management program (the "LRMP") as required by Rule 22e-4 under the Act. The LRMP is reasonably designed to assess and manage each Fund's liquidity risk, taking into consideration each Fund's investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed market conditions; its short and long-term cash flow projections; and its cash holdings and access to other liquidity management tools such as available funding sources including the Victory Funds Complex Interfund Lending Facility and Line of Credit (discussed in the Notes to Financial Statements). The Board approved the appointment of VCM as the administrator of the LRMP. At an in-person meeting held on February 20, 2020, VCM provided an oral and written report to the Trustees on the operation and effectiveness of the LRMP during the previous year.
VCM manages liquidity risks associated with the Funds' investments by monitoring, among other things, cash and cash equivalents, any use of derivatives, the concentration of investments, the appropriateness of each Fund's investment strategy, and by classifying every fund investment as either highly liquid, moderately liquid, less liquid or illiquid on at least a monthly basis. To assist with the classification of Fund investments, VCM has retained a third-party provider of liquidity evaluation services. This provider determines preliminary liquidity classifications for all portfolio holdings based upon portfolio-level data and certain assumptions provided by VCM. VCM reviews the preliminary liquidity classifications and, when appropriate, considers other information including input from the Funds' portfolio managers (including the portfolio managers employed by any investment sub-advisers) in determining final liquidity classifications.
The report from VCM concluded that the Funds did not experience any significant liquidity challenges during the covered period, and the Funds' LRMP is reasonably designed to assess and manage its liquidity risk. The report also concluded that the LRMP continues to operate adequately and effectively to enable VCM to oversee and manage liquidity risk and ensure each Fund is able to meet redemption requests without significant dilution to the remaining investors' interest in each Fund. During the review period, each Fund's portfolio consisted primarily of highly liquid investments, which are defined as cash and any investments reasonably expected to be converted to cash in current market conditions in three business days or less without significantly changing the market value of the investment. Therefore, the Fund has not adopted a Highly Liquid Investment Minimum. The Funds' investments were below the limitation on illiquid investments during the review period. Additionally, VCM indicated that no events occurred that would require the filing of Form N-LIQUID and recommended no material changes to the LRMP.
18
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 (6/20)
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
By (Signature and Title)* /s/ Allan Shaer
Allan Shaer, Principal Financial Officer
Date August 27, 2020
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.
By (Signature and Title)* /s/ Christopher K. Dyer
Christopher K. Dyer, Principal Executive Officer
Date August 27, 2020__________________
By (Signature and Title)* /s/ Allan Shaer
Allan Shaer, Principal Financial Officer
Date August 27, 2020________________________